Don’t apologize, I don’t have any skin in this game.
To be fair, I don`t think he disputed my point that the bank won’t approve his mortgage under this plan.
Hey Ender(“when do I get paid?”)24, you don’t seem to be aware that it is possible to sell real estate in addition to renting it out. That’s when F-P gets paid.
Bob, F-P hasn’t disputed a single legitimate point by my count.
That’s not (imho) what Ender is getting at - of course he (Ender) is aware that F-P gets paid if/when the property is sold. He’s merely pointing out that, under the terms and conditions that we’ve been told, F-P doesn’t see a single dime until 5-10 years out (after the investors have gotten back their down payment), or when they sell at a profit, whichever comes first.
For me to assume this responsibility and legal liability, I would have to be paid quite sooner. For the investors, this is a great deal. All the reward and none of the liability (other than their original investment).
It seems like you’d get a better ROI putting that money into a 10-year CD or low-risk mutual fund, and neither of those risks your credit rating like this “deal.”
You say you’re not interested in further real estate investment at this time.
But you’re interested in this… why? Because it’s complex? Because you’re honored to have been chosen? Because you’re tired of having all this loose money gathering dust in your savings account? Because you want to look cool to your brother?
Fotheringay-Phipps isn’t putting any cash into this deal up front. Whether or not it’s a good deal (I don’t think it is) he isn`t the one with 25% down to put in an alternative investment whether it’s a CD or his savings account. After settlement he should be out exactly $0. It’s what happens after that that people are warning him about.
I don’t know very much about RE but the whole “Why You” question is what really bothers me about this whole thing. If these guys are such savvy and experienced RE guys, I would think they’d already have a network of people and lenders to hook up with for these kinds of deals. Even if they can’t get the credit on their own, their normal bankers/lenders/etc would have all kinds of suggestions of people for them to hook up with. So why you?
Is there any way you could come up with half of the down payment (I know you don’t want to invest in more RE) so that as the profits come out, you can split them 50/50 until both of your investments are returned - at which point you could switch to an 80/20 split (or something more equitable and reflecting the higher risk you’re taking on here.)
I don’t personally know these people and again it’s possible that there are in fact other people who will take up the deal. But I would also note that while it’s true that such people tend to have big networks of people that they know and deal with, a lot of those people are themselves RE or other investors, who themselves have problems getting credit. I happen to be a steady salaried employee with ties to the RE investment scene and a willingness to do these types of investments, which is not tremendously rare but not very common either.
You’ve said that you’re not familiar with the RE scene (which is also quite obviously true of a lot of other posters to this thread who are not letting that interfere with their confidence) but the tightening of credit standards has hit the RE investment people very hard. To the point that 30% of all existing home sales are cash only these days. It’s a huge deal for a lot of people in the field, which is why the going rate for hard money loans in my area is 12%. What these guys are proposing is a profit-sharing arrangement versus a loan. It may or may not be a good deal (& it seems that there are also significant practical obstacles) but it’s not like it’s completely out of left field.
Again, I don’t want to invest too much in RE, especially on this type of long term investment. I happen to think now is a great time to invest in RE on a long term basis, but there’s only so much money I want to put into illiquid investments that might not pay off for years. Plus you need to diversify. I think now is a great time for RE, but you never know, and you need to spread the bets.
[I have most of my investment portfolio in energy MLPs these days. I could sell those and put the money into RE, but I could also do less RE and more energy. I’m trying to find a balance here, and I think I’ve maxed out on RE as far as asset allocation goes (at least as far as long term assets - I could conceivably do another HML).]
In addition, your suggestion would increase the risk element that so many posters in this thread keep harping about. As it stands, I don’t lose a penny until the decrease in the value of the house (plus any cash losses not absorbed by the investors) equals 25% of the purchase price. If I put up some of the money upfront, I have that much less margin.
“I don’t personally know these people and again it’s possible that there are in fact other people who will take up the deal.”
I thought one of them was your brother?
“You’ve said that you’re not familiar with the RE scene (which is also quite obviously true of a lot of other posters to this thread who are not letting that interfere with their confidence)”
Oh, that’s rich. LOL!
What was your motivation for starting this thread? It surely wasn’t to seek advice.
I think I understood that the two RE guys were strangers, but that they know his brother and his brother has possibly vouched for them in some way?
I noticed your error in post #55, but didn’t think it was worth correcting.
My brother is not one of the investors. He knows the investors, and is vouching for them as decent people and savvy RE investors, and he asked me if I’d be interested in this type of arrangement. See post #8 et al.
So, F-P, did you do the deal?
Odd that you should ask, considering your earlier assertion that you were sure I had already done it.
But as it happens I did not. I’m not sure why. Here’s what happened.
As indicated earlier in the thread, one of my concerns at the outset was that there was some sort of connection between the investors and the current short sellers, which might make me, by virtue of my partnership with these investors, a party to mortgage fraud (since I would be connected to the sellers by via my partnership with the investors). So, on a hunch, I looked up the current owners of the property on my county’s online land records, and lo and behold, the current owner has the same last name as one of the investors. (The first name was not too dissimilar either, come to think of it.)
So I sent an email to my brother alerting him to this fact, and saying that if in fact the investors were the same as or connected to the current owners I would be committing mortgage fraud and there’s no way I would agree to that. My brother never responded to that email, and we’ve never discussed this deal again.
So I assume that my suspicions were correct, and once that was out in the open the deal was off. But it’s also possible that it fell apart for unrelated reasons - e.g. the bank failed to approve the short sale terms, or maybe they got another investor in the interim (now that you bring it up, I went and looked up the county records, and the property has not been sold as of today, but they could conceivably have a contract with someone).
I don’t know if anything would have come of it anyway - I had other concerns as well, and in addition, people in this thread raised concerns about whether I’d be able to get a mortgage on it. But in any event, the above is how it actually went down.