Posted by David Butler America’s Note Network on April 18, 2000 at 24:17:03:
Actually the concept isn’t too bad at all, and paper like that should be graded at subprime levels. The real hole in your program is the risk level. You are working on a too thin margin, on properties priced too low. A 10% margin on a $100,000 home gives you a lot more room for error than 10% on a $25,000 home.
If you have a cookie cutter program set up, and you are loaded, it might make a nice little cash flow engine, but it’s tight. Subprime lenders are working with huge reserves, thin spreads, and large fees. And they sell off a lot of the risk to bondholders.
As an individual, you need a higher spread, I think. Or less risk exposure. Investing with a reputable hard money lender is one way. Working with a private note broker is another. Both can earn you much better yields with much lower risks.
Of course that are many other techniques to work with, depending on the amount of active personal involvement you want to have in your investing activities. Sounds like you are a “hands-on” guy, so explore a lot more of the archives on this site, and you should be able to come up with some excellent devices for your objectives, with much improved Risk-Reward ratios.
Hope this helps, and best of luck to you!
David P. Butler Vice President, Broker Relations