Quote:
Originally Posted by BarryRX
The business model is legitimate. They lend money to people that flip houses (people that buy homes in foreclosure and spend money to fix them up and then sell them at a profit). Often, these people need money to finance their endeavors for a short time, and this is called a bridge loan. Of course, there is risk in such a loan. If property values drop again, the home may become worth less and they may not be able to repay the loan. One of the keys to such an investment is a rigorous service platform. Someone has to be calling the people up monthly and making sure they pay their loan. So I would ask them how they service these loans and if they do it themselves or they subcontract it out. I would also ask them what their default rate is and the,source of their own funding. Is it just from investors or have they borrowed a lot of money to then loan out to builders. But, one rule that is etched in stone is that the higher the yield, the more risk is involved.
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My educated guess is, as with other similar loans, like construction Ioans interest rate reserve is built into the loan and no payments will be required until the home is sold, hopefully at a profit. This is not really a bankable deal otherwise they would go to a bank and have to show a solid balance sheet with strong capital and other ways to pay the loans other than the sale of the asset which is also the collateral (hopefully it is collateralized but they could take shortcuts here as well such as not recording the mortgages because of the municipal fees that may be involved. This is something fir a really seasoned, knowledgable investors, probably not for a retiree who is schooled as a banker, for that is what you are, a banker.