So i posted about investing in this last week without any info, i now have more:
Its a real estate bridge loan company. They lend out to real estate developers on 1-2 year terms with an average 65% LTV and take the property as collateral
The company is 5 years old. Its done 200 loans, has 40 active, has a 1% default rate. In the case of a default, they take ownership of (technically I and the other lenders do, but they do the work) and sell/rent the property. It is seemingly a net positive as there can be profits from this
Average yield is 10%. They charge borrowers 12% and take the difference. They also take a profit share of the outcome of selling or renting a defaulted property
Its a fund so lenders only make money while money is being borrowed, but they have been lending 100% of capital for the past 2 years straight.
The lockup period is 3 months. Interest is paid monthly
I have full insight into their book of properties and avg rates for each
The properties are solid. All in HCOL areas. Borrowers use this company because in the time it would take them to get a conventional mortgage, the property would be snatched up by another buyer. My understanding is that all borrowers intend to either flip or refinance with a real mortgage after 1-2 years, and the hope from the PE firm is that there are some defaults, but not too many.
So at this point i’m trying to see the downside in investing with them. From my understanding, the only potential downsides are:
1. Borrowers stop borrowing, in which case the money sits without gathering interest and can be withdrawn
2. Borrowers mass default (ie: RE crash), in which case, my money is tied up in a bunch of properties that nobody can afford to buy, but in this scenario everyones investments are tied up in losers anyway
So, whats the catch i’m missing