Author Topic: Hard Loan Investment Risk  (Read 14220 times)

Kalliste

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Hard Loan Investment Risk
« on: September 10, 2018, 03:03:50 PM »
Hi FS community, I am invested in some hard loans through a lender since 2014. Returns have been good and predictable in the tune of 10%/year which I reinvest in their business/loans. I was wondering what are the risks for this investment as we go closer to a recession? They are funding loan to 70% value of the home and would normally get the home back if payment cannot be made. They could rent the property thus still having cash flow and make decent returns, granted <10%...Any thoughts? thanks.

Sam

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Re: Hard Loan Investment Risk
« Reply #1 on: September 10, 2018, 06:58:04 PM »
Hi FS community, I am invested in some hard loans through a lender since 2014. Returns have been good and predictable in the tune of 10%/year which I reinvest in their business/loans. I was wondering what are the risks for this investment as we go closer to a recession? They are funding loan to 70% value of the home and would normally get the home back if payment cannot be made. They could rent the property thus still having cash flow and make decent returns, granted <10%...Any thoughts? thanks.

Hard to say. You'd have too look at default rates in 2008-2010 with the banks and what the borrower's track record is in the best. Surely they shot up. I know that a 100+ P2P lending portfolio from Prosper was actually flat throughout the recession, which is good compared to the S&P 500. But P2P is now getting squeezed and returns are coming down while times are good.
Regards,

Sam

rtysmith

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Re: Hard Loan Investment Risk
« Reply #2 on: September 11, 2018, 12:15:13 PM »
My Hard Money returns continue to go down. Each new loan is a little less, and I'm now seeing more defaults then I have in the past.

Be careful to check the definition of LTV - some use as is and some use finished value. 10% is a lot, most common I'm seeing right now for A-C loans (which is all I invest in, no D-F) is 6-8%.

hashiryu

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Re: Hard Loan Investment Risk
« Reply #3 on: November 09, 2018, 08:47:14 PM »
Hi FS community, I am invested in some hard loans through a lender since 2014. Returns have been good and predictable in the tune of 10%/year which I reinvest in their business/loans. I was wondering what are the risks for this investment as we go closer to a recession? They are funding loan to 70% value of the home and would normally get the home back if payment cannot be made. They could rent the property thus still having cash flow and make decent returns, granted <10%...Any thoughts? thanks.

RM has a good article about the state of hard-money loans. This was originally posted back in 2016.
https://www.realtymogul.com/knowledge-center/article/market-pushed-us-out-residential-fix-and-flip

I'd stay away from them at this stage of the economic cycle.
« Last Edit: November 09, 2018, 09:05:10 PM by hashiryu »

Sam

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Re: Hard Loan Investment Risk
« Reply #4 on: November 10, 2018, 05:51:54 AM »
Thanks Hashiryu.

Feels like more and more signs are pointing to tough times in 2019-2020.
Regards,

Sam

Money Ronin

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Re: Hard Loan Investment Risk
« Reply #5 on: November 10, 2018, 04:05:16 PM »
You need to consider the specific loans made, asset type, neighborhood, asset manager capability.  I know a lender who had the capability to finish construction on a flip if the loan went bad.  They may not have the ability to rent and manage a portfolio of rentals—just not their core comepentency.

Also my perception is decreasing returns due to more capital chasing worse deals, ironically even as interest rates rise.

I can’t  tell you when to get out, because it reallly depends on the specific loan.  Likely, by the time you see signs of a downturn, there will be a “run on the bank”.  These type of investments are highly illiquid—even under normal circumstances it takes months to exit a position. 

Don’t wait if you need the money, otherwise prepare to ride out the downturn.