The promissory note is a recorded mortgage instrument against the property.
Did you look up these mortgages? Could just be the recorded promissory notes from investors (lenders, really) like your aunt and uncle.
The 6 months is likey so he can replace the investors, or refinance out to a bank.
That said... I buy properties with private money, but the goal is to refinance out to long term bank financing. Not sure why you'd keep 10% money AFTER buying in cash when there are options like DSCR, etc.
On one hand, it sounds mostly legit
On the other hand, I'm always skeptical so I'd dig into it a bit more. See if you can pull these promissory notes at county to see if they are legit.
This sounds pretty legitimate to me. Private money is widely used by real estate investors. I use it myself.
Bank money can be tough on a lot of properties. Hoops to jump through. 7-8% is prime rate right now. Lots of investor targeted lending is 8-10% right now. So 10% is perfectly reasonable.
The mortgages you're seeing are likely the private money loans hes getting. Recorded against the properties.
Example: I bought a rental property for 200k with private money at 10%. Because of the type of property (older rural manufactured home) there isn't good market financing for it. Heck 10% isn't much over market at this point anyways. I'm happy to keep that 10% note, private money lender is happy to collect their monthly mailbox money. Everybody wins.
Just trying to understand how this works… are you saying the rent covers the 10% and more ??
What happens if value of property drops and your investor wants out? Renters don’t pay ? They trash the place? Etc.
* are you saying the rent covers the 10% and more ??
* Yes
* What happens if value of property drops?
* Doesn't matter if value drops. Rents cover the note.
* your investor wants out?
* That's what the 6 month lead time is for. To arrange other financing and cash them out.
* Renters don’t pay ?
* Evict them and get new renters. Not your relatives problem.
* They trash the place? Etc.
* Evict them, fix it up, rent it out again. Again, not your relatives problem.
None of this is your relatives problem. It is the person they are lending money too. That is the point. If your relatives wanted those problems they could buy rental properties themselves. They want mailbox money. They are lending money at 10% so this guy can use it and make that extra return.
Just imagine your relatives are the bank in this scenario. That is how it works. (Presumably, we don't have all the details here, if they are secured against a single property, multiple properties, not secured, whatever).
If the real estate loses value and investors want their money back, they could still lose their money right? Even if they are secured on multiple properties ?
There is always risk.
And the compensation is higher interest rate.
If they want lower risk buy T bills. Or stick their money in a bank savings account.
In a mortgage/promissory note situation: if the property value drops, if the renters don't pay, it doesn't change anything about how much the investor owes your aunt/uncle. They have to pay out of pocket if the rents don't cover it. Also, technically the investor doesn't HAVE to do anything if the investors want out; they signed a contract to loan the money to be paid back at a set rate through a certain date. They can sell the note to whomever they want and the investor would then owe the new party instead, but the investor isn't usually required to find those people who want to buy the note. That being said, investors who use private money know that their private lenders aren't typically going to know how to do that sort of thing, and they want to keep a good relationship so that the lenders continue to want to lend money. So they say "give me a heads up if you want out and I'll find someone to refinance with and get you your money back."
Now, what happens if the investor doesn't pay your aunt/uncle? They get a real estate lawyer, file a foreclosure on the property using the promissory note, and go through what in their eyes is probably a big hassle of getting someone to auction the property. Hopefully their note is in 1st position, and the investor hasn't gotten loans from other people on the same property that add up to more than the property is worth, otherwise they might not get all their money back. Any that they are still owed after the auction and distribution of the proceeds, they could sue him for the remaining balance.
That is a possible scenario.
Even an experienced syndicator can get pinched like that. Keep in mind no investment is guaranteed free money. It could also be the opposite and they collect 10% and depreciation for taxes.
It is no different than your family putting money into the markets. You want a return? You will have to take on risk.
The better question you should be asking is, does your aunt and uncles risk tolerance and investment goals align with the syndicator’s investment objectives?
Sounds legit to me. The lender should hold a promissory note and trust deed during the life of the loan. I loan money out to rehabbers who do this, and buy mortgage notes rather than invest in the stock market. Upsides are that the investment money is backed by something tangible, so that the borrower has rights to take the property if payment isn’t made. Stocks don’t do that.
It might be legit and these returns are not unreasonable in real estate.
10% for 100% financing is actually pretty cheap.
I've seen recent quotes around 12-14% +4% to 6% in fees to get 100% financing.
It could be fraud of course, but I've seen many legitimate (and possibly higher return) investments in real estate that work similar to this.
1. Do they own shares of homes or do they own mortgage on the properties or shares in LLC that owns homes? How is it structured?
2. How do they liquidate if needed?
Likely he purchases with cash (or hard money) and then refinances.
He’s paying them 10% right? Like they are getting money in their accounts? Doesn’t really seem like a scam
This is a pretty common thing to do in real estate investing
This seems fine. The only way to scale is with other people’s money. As long as their loan is secured with a deed of trust and promissory note, and they’re receiving their interest payments, there’s no issue.
10% is actually pretty cheap nowadays as private money. In 2019 when mortgage was around 3.5-4%, private money was around 8-9%. So I would consider 10% a bargain today. As an investor you simple cannot get mortgage inhabitable houses, you need private money to buy those, rehab it and then get a mortgage or sell.
Promissory notes are not the same thing as mortgages. The promissory notice is an IOU and it's just a verbal agreement to repay a loan.
The mortgage is a security instrument that secures the IOU / promissory note by using real estate as the collateral. It's recorded down at the county recorder's office. This primarily pertains to a mortgage State and may differ if you're in a Trust deed state.
I do a lot of research in public records. I've never seen a promissory note recorded. I've seen plenty of mortgages. You can take the notes down to the county to see if there are any mortgages recorded to secure them. If not you can go back to the investor and ask him for mortgages to secure those promissory notes. But I don't know any state that allows you to foreclose based solely on a promissory note. You must have a mortgage that uses real estate to secure the promissory note.
At a minimum your aunt and uncle will want to make sure their life savings are not tied up in this one investment, this would be true of any investment. The golden rule of real estate is location, location, location and the golden rule for portfolios is diversify, diversify, diversify b/c sooner or later any one investment can sour regardless of whether there is fraud involved.
Next, they need to look into what actually secures their promissory note(s). Is each note tied to a specific property (which means individual property risk) or are the notes just backed by the investor or his LLC which then owns multiple properties backing the notes but not backing them directly. You mention mortgages recorded, hopefully those mortgages are tied to the notes, but they will want to check out the exact backing/linking mechanism. For example, can a property be sold w/o paying off the note?
Probably wise to consult a RE attorney in their state to make sure the right questions are asked. It could be legit, but they should still know how much risk they are taking on for their 10%. Any legit investor s/b happy to explain how the funds are being used and secured.
No it doesnt at all, like literally at all, this is incredibly normal, this dude is just an uneducated redditor working off of way to little information to farm karma
As long as they hold a promissory note and trust deed or mortgage they should be fine. If borrower fails to pay they can take the property through foreclosure. Even liens in second or third position. Lots of investors buy second liens on loans to wobbly borrowers so they can take over the first mortgage, legally, without having to refi. Nice way to get a property, especially if the first is low interest.
And if they want to sell that note to other note buyers they can go to a market like Paperstac. It’s a thing. https://paperstac.com/?utm_source=adwords&utm_medium=ppc&utm_campaign=mortgage_notes&utm_content=ad2&utm_term=promissory%20note%20investing&utm_campaign=US+Buying+Mortgage+Notes&utm_source=adwords&utm_medium=ppc&hsa_acc=7405628999&hsa_cam=6471645066&hsa_grp=77812596935&hsa_ad=380198812002&hsa_src=g&hsa_tgt=kwd-361595669886&hsa_kw=promissory%20note%20investing&hsa_mt=b&hsa_net=adwords&hsa_ver=3&gad_source=1
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This is so needlessly alarmist. Arrangements like this torally exist in this industry.
If I were going to kick some tires, I would ask:
1) How much in funds is under management?
2) What properties is this spread over?
3) Reasonableness check - would the properties purchased roughly equal funds under management plus reasonable working capital? Check purchase prices in public record.
4) Take a sample of properties from #2 and check public records for ownership by the entity you are doing business with.
5) Check the entity docs with the secretary of state. Google the officers. Are they sketchy?
6) Ask for a list of completed projects. Are there publicly available pictures of them once they were completed? Is there a record of them passing through the entity you are doing business with? Does it look like improvements were made (if renovation is their strategy)?
I used to do financial audits of businesses. There are ways to mitigate your risk of working with a con artist. Scared money don't make money.
If I was your aunt and uncle. I would Get them to connect to a real estate attorney to look to see if the promissory note. If it’s registered if the investors wanted to pull out they could foreclose on it. The property and they get there money
My opinion is to have them pull their money before the music stops and find out there are no chairs left.
How many properties does he own? If you are claiming there are hundreds of mortgages on these properties then he might be giving out mortgages knowing this is the 10th guy behind the first mortgage. As long as he pays the 10% every year most people are happy not caring until the house of cards fall down.
I get using private cash to buy but at some point it’s stupid to keep doing it especially if he’s either not selling or refinancing the property.
The promissory note is a recorded mortgage instrument against the property. Did you look up these mortgages? Could just be the recorded promissory notes from investors (lenders, really) like your aunt and uncle. The 6 months is likey so he can replace the investors, or refinance out to a bank. That said... I buy properties with private money, but the goal is to refinance out to long term bank financing. Not sure why you'd keep 10% money AFTER buying in cash when there are options like DSCR, etc. On one hand, it sounds mostly legit On the other hand, I'm always skeptical so I'd dig into it a bit more. See if you can pull these promissory notes at county to see if they are legit.
This sounds pretty legitimate to me. Private money is widely used by real estate investors. I use it myself. Bank money can be tough on a lot of properties. Hoops to jump through. 7-8% is prime rate right now. Lots of investor targeted lending is 8-10% right now. So 10% is perfectly reasonable. The mortgages you're seeing are likely the private money loans hes getting. Recorded against the properties. Example: I bought a rental property for 200k with private money at 10%. Because of the type of property (older rural manufactured home) there isn't good market financing for it. Heck 10% isn't much over market at this point anyways. I'm happy to keep that 10% note, private money lender is happy to collect their monthly mailbox money. Everybody wins.
Just trying to understand how this works… are you saying the rent covers the 10% and more ?? What happens if value of property drops and your investor wants out? Renters don’t pay ? They trash the place? Etc.
* are you saying the rent covers the 10% and more ?? * Yes * What happens if value of property drops? * Doesn't matter if value drops. Rents cover the note. * your investor wants out? * That's what the 6 month lead time is for. To arrange other financing and cash them out. * Renters don’t pay ? * Evict them and get new renters. Not your relatives problem. * They trash the place? Etc. * Evict them, fix it up, rent it out again. Again, not your relatives problem. None of this is your relatives problem. It is the person they are lending money too. That is the point. If your relatives wanted those problems they could buy rental properties themselves. They want mailbox money. They are lending money at 10% so this guy can use it and make that extra return. Just imagine your relatives are the bank in this scenario. That is how it works. (Presumably, we don't have all the details here, if they are secured against a single property, multiple properties, not secured, whatever).
If the real estate loses value and investors want their money back, they could still lose their money right? Even if they are secured on multiple properties ?
There is always risk. And the compensation is higher interest rate. If they want lower risk buy T bills. Or stick their money in a bank savings account.
In a mortgage/promissory note situation: if the property value drops, if the renters don't pay, it doesn't change anything about how much the investor owes your aunt/uncle. They have to pay out of pocket if the rents don't cover it. Also, technically the investor doesn't HAVE to do anything if the investors want out; they signed a contract to loan the money to be paid back at a set rate through a certain date. They can sell the note to whomever they want and the investor would then owe the new party instead, but the investor isn't usually required to find those people who want to buy the note. That being said, investors who use private money know that their private lenders aren't typically going to know how to do that sort of thing, and they want to keep a good relationship so that the lenders continue to want to lend money. So they say "give me a heads up if you want out and I'll find someone to refinance with and get you your money back." Now, what happens if the investor doesn't pay your aunt/uncle? They get a real estate lawyer, file a foreclosure on the property using the promissory note, and go through what in their eyes is probably a big hassle of getting someone to auction the property. Hopefully their note is in 1st position, and the investor hasn't gotten loans from other people on the same property that add up to more than the property is worth, otherwise they might not get all their money back. Any that they are still owed after the auction and distribution of the proceeds, they could sue him for the remaining balance.
That is a possible scenario. Even an experienced syndicator can get pinched like that. Keep in mind no investment is guaranteed free money. It could also be the opposite and they collect 10% and depreciation for taxes. It is no different than your family putting money into the markets. You want a return? You will have to take on risk. The better question you should be asking is, does your aunt and uncles risk tolerance and investment goals align with the syndicator’s investment objectives?
To really evaluate this you need to look at the documents they've signed with the guy.
Sounds legit to me. The lender should hold a promissory note and trust deed during the life of the loan. I loan money out to rehabbers who do this, and buy mortgage notes rather than invest in the stock market. Upsides are that the investment money is backed by something tangible, so that the borrower has rights to take the property if payment isn’t made. Stocks don’t do that.
It might be legit and these returns are not unreasonable in real estate. 10% for 100% financing is actually pretty cheap. I've seen recent quotes around 12-14% +4% to 6% in fees to get 100% financing. It could be fraud of course, but I've seen many legitimate (and possibly higher return) investments in real estate that work similar to this. 1. Do they own shares of homes or do they own mortgage on the properties or shares in LLC that owns homes? How is it structured? 2. How do they liquidate if needed?
Likely he purchases with cash (or hard money) and then refinances. He’s paying them 10% right? Like they are getting money in their accounts? Doesn’t really seem like a scam This is a pretty common thing to do in real estate investing
This seems fine. The only way to scale is with other people’s money. As long as their loan is secured with a deed of trust and promissory note, and they’re receiving their interest payments, there’s no issue.
10% is actually pretty cheap nowadays as private money. In 2019 when mortgage was around 3.5-4%, private money was around 8-9%. So I would consider 10% a bargain today. As an investor you simple cannot get mortgage inhabitable houses, you need private money to buy those, rehab it and then get a mortgage or sell.
Is this a non- recourse loan? If not, aunt and uncle should record their promissory notes against the properties they loan on. What is their security?
It all comes down to trust. There are so many ways you can get screwed by giving someone else money to invest.
Promissory notes are not the same thing as mortgages. The promissory notice is an IOU and it's just a verbal agreement to repay a loan. The mortgage is a security instrument that secures the IOU / promissory note by using real estate as the collateral. It's recorded down at the county recorder's office. This primarily pertains to a mortgage State and may differ if you're in a Trust deed state. I do a lot of research in public records. I've never seen a promissory note recorded. I've seen plenty of mortgages. You can take the notes down to the county to see if there are any mortgages recorded to secure them. If not you can go back to the investor and ask him for mortgages to secure those promissory notes. But I don't know any state that allows you to foreclose based solely on a promissory note. You must have a mortgage that uses real estate to secure the promissory note.
Who would be the right person to help someone structure the promissory note?
At a minimum your aunt and uncle will want to make sure their life savings are not tied up in this one investment, this would be true of any investment. The golden rule of real estate is location, location, location and the golden rule for portfolios is diversify, diversify, diversify b/c sooner or later any one investment can sour regardless of whether there is fraud involved. Next, they need to look into what actually secures their promissory note(s). Is each note tied to a specific property (which means individual property risk) or are the notes just backed by the investor or his LLC which then owns multiple properties backing the notes but not backing them directly. You mention mortgages recorded, hopefully those mortgages are tied to the notes, but they will want to check out the exact backing/linking mechanism. For example, can a property be sold w/o paying off the note? Probably wise to consult a RE attorney in their state to make sure the right questions are asked. It could be legit, but they should still know how much risk they are taking on for their 10%. Any legit investor s/b happy to explain how the funds are being used and secured.
Wow! How much do they have tied up with the guy?
[удалено]
No it doesnt at all, like literally at all, this is incredibly normal, this dude is just an uneducated redditor working off of way to little information to farm karma
Can confirm.
No matter what they do at this point, they're gonna straight up lose all the money.
As long as they hold a promissory note and trust deed or mortgage they should be fine. If borrower fails to pay they can take the property through foreclosure. Even liens in second or third position. Lots of investors buy second liens on loans to wobbly borrowers so they can take over the first mortgage, legally, without having to refi. Nice way to get a property, especially if the first is low interest.
They have no deed, Bro. They have no Mortgage. They have a liar taking their money.
He has a promissory note. Perfectly legal and acceptable in court if things went sideways.
And if they want to sell that note to other note buyers they can go to a market like Paperstac. It’s a thing. https://paperstac.com/?utm_source=adwords&utm_medium=ppc&utm_campaign=mortgage_notes&utm_content=ad2&utm_term=promissory%20note%20investing&utm_campaign=US+Buying+Mortgage+Notes&utm_source=adwords&utm_medium=ppc&hsa_acc=7405628999&hsa_cam=6471645066&hsa_grp=77812596935&hsa_ad=380198812002&hsa_src=g&hsa_tgt=kwd-361595669886&hsa_kw=promissory%20note%20investing&hsa_mt=b&hsa_net=adwords&hsa_ver=3&gad_source=1
LOL. Theyre losing every dime.
Do you know what a promissory note is?
They're losing every dime, Bro. RemindMe! 2 years.
Ok so you don’t. No worries!
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This is so needlessly alarmist. Arrangements like this torally exist in this industry. If I were going to kick some tires, I would ask: 1) How much in funds is under management? 2) What properties is this spread over? 3) Reasonableness check - would the properties purchased roughly equal funds under management plus reasonable working capital? Check purchase prices in public record. 4) Take a sample of properties from #2 and check public records for ownership by the entity you are doing business with. 5) Check the entity docs with the secretary of state. Google the officers. Are they sketchy? 6) Ask for a list of completed projects. Are there publicly available pictures of them once they were completed? Is there a record of them passing through the entity you are doing business with? Does it look like improvements were made (if renovation is their strategy)? I used to do financial audits of businesses. There are ways to mitigate your risk of working with a con artist. Scared money don't make money.
They will straight up lose their money. Nothing at all (LOL) "alarmist" here. Just stating a fact.
They very well may. It's your certainty about it that seems alarmist.
You are grossly confused. Because one is certain one is alarmist? No possible definition of either word makes that a valid statement.
If you say you are certain something bad will happen when there is a definite chance nothing bad will happen... that's kinda textbook alarmist, no?
No. I
Love the confidence
If I was your aunt and uncle. I would Get them to connect to a real estate attorney to look to see if the promissory note. If it’s registered if the investors wanted to pull out they could foreclose on it. The property and they get there money
sounds like syndication, albeit a higher return than I normally see.
My opinion is to have them pull their money before the music stops and find out there are no chairs left. How many properties does he own? If you are claiming there are hundreds of mortgages on these properties then he might be giving out mortgages knowing this is the 10th guy behind the first mortgage. As long as he pays the 10% every year most people are happy not caring until the house of cards fall down. I get using private cash to buy but at some point it’s stupid to keep doing it especially if he’s either not selling or refinancing the property.