Straight Talk from Al Jacobs

 

ADVICE TO YOU LENDERS

 

With not much profit to be gained from bank savings accounts or stock dividends, many persons are looking for other places to put their spare investment cash. One possibility is the lending of money. Irrespective of Polonius’ advice to his son, “Neither a borrower nor a lender be,” from Act 1 of Shakespeare’s Hamlet, sensible lending can be a viable road to prosperity…though sensible is the operative word.

 

I received a call from a close friend this morning asking whether I’d care to join him in a proposed housing project here in Southern California. It involves financing the purchase of acreage on which homes will be built. Security for the loan would be a first deed of trust (similar to a mortgage) on the land. As houses are completed and sold, portions of the land loan will be systematically paid off. The attractive aspect of the offer is the loan’s interest rate: 12 percent per annum.

 

Although I’m actively involved in trust deed lending – and presently at only 7½ percent – I reluctantly turned this offer down. Let me explain why. My investment will be as a minority-interest outsider with no say in any aspect of the project. If I fail to receive scheduled installment payments, I’ll have no recourse other than file a lawsuit. If the land drops in value or the houses are not built and sold as planned, I’m not sure what I’d do. If the loan goes into default and I eventually end up as part owner of vacant land with a group of strangers, what then?

 

My current lending operation is quite different. I loan on non-owner-occupied residences and small apartments. All loans are held by my corporation. I evaluate every one before approving it, service each loan personally and take appropriate actions as required. If a borrower defaults, I know exactly what to do. Should a trust deed sale (similar to a foreclosure, but non-judicial) be required, I handle it as the Trustee of record. In deference to Murphy’s Law, there are as few uncertainties as possible.

 

A final comment: There are many firms which make real estate loans available to the investing public. Some are good – some not so good. With a bit of inquiry and analysis, you can figure out which are inherently sound and which to stay away from. When you locate one or more you like, you may choose this as an investment route. Though it may not qualify as nirvana, it beats Chase Bank’s 0.01percent savings rate.

 

 

Al Jacobs, a professional investor for nearly a half-

century, issues weekly financial articles in which he

shares his financial knowledge and experience.

You may view them on http://www.roadwaytoprosperity.com