Posted by Dr. Craig Whisler on November 22, 2003 at 24:07:08:
The question originally implied wasn’t what is the usury limit? It was about whether 15% interest for 3 months was equal to an annual rate of 15% or 60%.
Regards, doc
Is 60% yield without doing any work good 'nuff? - Posted by JeredWA
Posted by JeredWA on November 18, 2003 at 16:25:50:
I just got off the phone with a broker/dealer who is looking for investor money to put together his own Lonnie type deal(s). Here is what he has offered:
- I loan $5000 for a maximum period of 3 months at 15% interest.
- I get the 15% ($750) as soon as the MH sells.
- If the MH doesn’t sell in 3 months, I am still guaranteed the $750.
He is going to use the $5000 to move/setup a MH and sell at $15K with financing: $5k down, $250 per month. He has offered that I can either:
- Take my $750 profit and have first rights to buy the $10K note.
or
- Keep the $10K note.
Either way you slice it, I get 60% yield on my money without doing any work. Since I have a pile of cash sitting right now and no time to do the Lonnie Deal myself this seems like a pretty good deal.
Can somebody talk me out of this deal?
Thanks,
Jered
Where’s the beef, oh er, the collateral. - Posted by Dave Swett-CA
Posted by Dave Swett-CA on November 21, 2003 at 21:07:11:
You are blending together two totally different scenarios: (1) loaning of money secured by an IOU that is subject to state ursury limits unless you are an exempt lender (bank, RE broker, Corp Finance license).
(2) entertaining a business opportunity investing in MH that may or may not fail depending on the man’s experience and business skills.
There are two types of IOU–one is secured by collateral (where I take your Rolex watch and put it in my safe box) and an unsecured IOU, where the guy promises to pay and says that the check is in the mail. Right.
Guess which one I like.
Doc has hit on all the bases of dealing with the biz op. If this is the guy’s first deal and doesn’t have any assets, this is not a yellow flag, but a screaming red flag.
Re: 60% yield - Posted by firefox
Posted by firefox on November 21, 2003 at 14:56:28:
In WA, the general usury limit is 12%, or four points above the average T-Bill rate for the past 26 weeks, whichever is greater (the maximum rate is announced by the State Treasurer). Of course, that’s only a problem if the dealer reports you 
If you buy the note non-recourse, you have no usury issue. I would worry about the business plan, though. I doubt a buyer for a $15k mobile has $5k to cash you out.
Re: I - Posted by Ed Copp (OH)
Posted by Ed Copp (OH) on November 19, 2003 at 18:44:44:
In my state 60% is usury, a couple of times over. Your post talks about a loan that generates 60%. This would be a no, no in my state. Might not be so, if I were a partner. So check the legals on that one for your state.
The most important questions are missing. - Posted by Dr. Craig Whisler CA
Posted by Dr. Craig Whisler CA on November 18, 2003 at 20:01:31:
What will be your security in this transaction?
Is he realistic about the resale VALUE? What if the whole project is worth $5,000 or $10,000 less than he thinks it will be. What is his track record doing LONNIE DEALS (not other real estate transactions)? You must know the value yourself, indedpenently of what he claims it is. What do YOU think the mobile is worth? Is it going into a family or senior park? How nice is the park? What is the year, size, condition, and number of bedroms?
I think it may be possible to move and set it up for $2,000 or so. Is the broker planning to pocket $3k of your money upfront? If not, I suspect that he isn’t very good at controlling costs. If he is, then be very careful. I feel that his profit should come out of the back end of this deal, not the front end.
Has he read DOW?
Ask him how many of these type deals he has already done. When he gives you a number, ask for references so you can check them out before risking your money.
Have you examined a sample of any contracts he plans to use to buy, resell and for your deal with him?
If he says he has done other deals ask to see the contracts. If he doesn’t have any, be wary.
Will he do this job under his broker’s license so you may have a broker’s bond as recourse if the deal goes sour? If so ask to see his license, get a photocopy, and check it’s status with your state office that regulates his profession. Ask the licensing authority if there have ever been any problems with him.
If he is just planning to give you an unsecured promissory note, he could resell the mobile and not pay you. You could lose all of your money if the deal is unsecured.
Have you checked his credit to try to get a bead on his personal integrity, and payback record? I would check the local court indexes to see if he has ever been sued. If so I would study the court case files (they are available for public inspection). If he has been sued get the plaintiff’s name and address and phone number and call him to find out more about this guy’s reputation when handling other people’s money.
I’m not trying to talk you out of this deal. It could be good for you. Its better if you check this broker out a bit more before you give him any of your money.
A high rate of return is the worlds best bait to sucker an unwary investor into unprofitable schemes.
Regards, doc
not exactly - Posted by Steve-WA
Posted by Steve-WA on November 21, 2003 at 15:15:44:
(WA) 12% usury limit for consumer loans - owner-carry financing has NO usury limit
The loan doesn’t generate 60% interest. - Posted by JeredWA
Posted by JeredWA on November 19, 2003 at 19:42:28:
Please re-read my post.
I am being offered a loan that generates a guaranteed 15% simple interest in 3 months. If you do this 4 times a year, this is 60% annual yield.
I don’t know of any laws that prevent you from reinvesting your money enough times in a year to generating a solid yield like 60%. In this situation, usary laws shouldn’t have any precedence.
Jered
Nice try but it won’t fly - Posted by Dr. Craig Whisler
Posted by Dr. Craig Whisler on November 19, 2003 at 23:29:58:
Sorry Jared, but Ed is correct. The rate is figured on an annualized basis (not quarterly) and is 60% per year. It will most likely violate your state’s usury laws.
There may be a way around this problem but first: Why in heaven’s name would you buy a note figured in simple interest rather than compound interest? The diffference could cut many YEARS off your working career. When you buy ALWAYS write simple interest in your contract if you can but when selling something always insist on compound interest. When dealing with seller financing this is rarely, if ever, caught by sellers IF you print up your own forms for your notes and contracts, for when you are dealing with private parties. It will never work with institutional lenders because they use their own forms and they know the difference between simple and coumpound is the difference between driving a Yugo and a Ferrari.
To get around the usury problem just do what Lonnie dealers do. Arrange things so YOU buy and resell the mobile home in your own name and carry back the financing. The broker can still get paid the same amount as before and he can still find the deal and the subsequent buyer too.
Regards, doc
Re: Nice try but it won’t fly - Posted by Rod - Mo
Posted by Rod - Mo on November 20, 2003 at 18:03:40:
Doc,
Aren’t business to business dealings generally exempt from usury laws?
Regards
Rod
Re: Nice try but it won’t fly - Posted by firefox
Posted by firefox on November 21, 2003 at 14:46:19:
Depends on the state. In some states the usury limit is higher, or non-existent, for commercial transactions. In others, it’s not. You could do business in:
NV: no limit
MS: no limit on commercial loans > $5,000
IN: no limit (legislation pending to create one)
CO: general limit 45% (12% for consumers)
NJ: general limit 30% individuals, 50% corporations
OK: limit is 45% on non-consumer loans
VA: no limit for corporate or business loans
WI: no limit for corporations
Not likely (nt) - Posted by Dr. Craig Whisler
Posted by Dr. Craig Whisler on November 20, 2003 at 18:32:32:
.