maybe yuo shuold check into a joint venture agreement and put yourself in line for some of the profit on the deal. this will also eliminate any license requiremnts or any stateline issues. you can put any amount of money into YOUR house regardless of license or location. if youd prefer not to get involved with the real estate end of the game and want to focus on lending, id suggest you get yuor lenders license. this is generally a safer investment since your cash is secured by a property as long as you keep a good LTV ratio.
I may have an opportunity to make a rehab loan to a friend, and I’d appreciate advice on some of
the practical details of this type of transaction. I have a pretty good idea of the general outlines of
a HM loan from looking at the applications of places like Brookview Financial, but I have a few
nitty-gritty type questions:
1> Do I need a business license?
2> I am in CT, whereas the borrowers and property are in NY. Any problem with lending across state lines?
3> The property is about 2 hours from me, so I could go over for a lookaround if needed. Is this still too far?
4> Is there a rule of thumb for the size of the loan as a % of one’s available funds?
5> What’s the rationale for charging points in addition to the interest? I’m thinking of charging 14% interest
plus costs for appraisals, etc., but should I tack on a few points just too make sure I make something from
the deal? I mean, if they pay off in a few months the actual return to me from the interest may not be enough
to make it worth the trouble of doing the loan.
If this question has been answered in the past I’d appreciate a link. I did some searching, but all I could
find were questions on finding HM lenders, not on being one.
Do you need a business license, No.
You shouldn’t have a problem lending across state lines, if this is a one time transaction. If you start lending on a regular basis you will need a license and will have to deal with state & federal regulations, such as providing GFE, & TIL’s. Check with you state for specifics.
Definately go look at the property, its your money you have to be confortable with the property, is it in a good area, will your friend have a problem reselling?
Although most HM loans are based on LTV, you should make sure your friend will be able to afford the payments (unless you’re giving them a baloon mtg with the payments included)
14% is about the norm, as far as points, they just increase your yield. Its up to you what you’re looking for as far as your rate of return. If you main concern is early payoff, maybe offer him a choice of paying points or a prepayment penalty. Good luck.