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Help a homeowner, get a double-digit return

Posted by: Peter Coy on November 13, 2007

Lewis Braham wrote a fascinating article in the latest issue of BW (Nov. 19 cover date) called “Help a homeowner, get a double-digit return.” It’s a Personal Business story about how to make private real-estate loans to family, friends, and acquaintances.

Upside? You help out somebody who may be having trouble getting a loan through normal channels and you make a sweet bit of change to boot. Downside? The borrower can’t or won’t repay, you go to court, you lose a lot of money and you become estranged from your college buddy/brother-in-law/neighbor.

The article has lots of good advice. It’s safer to make a “hard money” loan in California, Nevada, and Virginia. Watch out for Pennsylvania and Ohio, which make it very hard to foreclose on anyone.

If you’re not comfortable lending directly to a homeowner, Braham writes, consider putting money into a mortgage-loan pool. The danger there is that you know less about the people who are taking your money.

Great quote from one lender: “We both realized we were putting our friendship at risk. But given the alternative, we thought the risk was worth taking.”



BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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