a SAFE 12% ROI Strategy | Episode 169

The stock market is crazy… bond mutual funds are shutting down… and there are tremors of concern about the real estate market.  So how would you like a way to make a safe, reliable 12% on your money?  I’m Bryan Ellis.  I’ll tell you how right now in Episode 169.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you.

Those of you who are long-time listeners to this show know that I believe in ONE STANDARD for investment evaluation for self-directed investors.  It’s called the S3 standard, and the 3 S’s stand for Simple, Safe and Strong.

Today, I’d like to share with you a strategy that absolutely fits that mold.               

It’s called Quick Flip Lending… and it’s incredibly simple… and very, very profitable.

Here’s how it works:

There are people out there – lots of them – who buy real estate with the specific purpose of renovating it and reselling as quickly as possible.  They’re called “Flippers” or “Quick Flippers” and there are a lot of people doing this.

In fact, according to RealtyTrac, over 43,000 flips were completed in the 3rd quarter of this year.  And the AVERAGE gross margin on those deals was over 33%... so huge margins, indeed.

So there are a LOT of people actively involved in flipping real estate.  And all of them are common in one way:  They need money.  A lot of it.

That’s where you come in… and a huge opportunity for a simple, safe, strong profit.

Imagine this:  Imagine I’m a property flipper and I come to you and say:  Mr. or Ms. Investor, there’s a property in a very hot market that I can buy for $76,000.  It needs only $10,000 of renovations.  Thing is, it’s worth $125,000.  So if I pay you interest at 12%, would you lend the money to me to do this project for the next 12 months?

You, being an astute investor, know that 12% is a really solid return.  So you do a little snooping around… and sure enough, you find out that everything the flipper told you was true.  The property is in a strong market.  It is worth $125,000.  And it really does only need $10,000 of renovation work.

What to do?  The flipper wants to borrow $86,000 to cover the cost of purchase and renovation.  Should you do that?

Well, folks, essentially we’ve already established that this approach is consistent with the SIMPLE tenet of the S3 Criteria.  It’s just a loan.  You can’t get simpler than that.

You know it’s strong, too… 12% is a strong return.  Seriously… I don’t know a lot of people who wouldn’t be happy to get a consistent, long-term 12% return on their capital.

So we’ve got Simple.  We’ve got Strong.  But is it SAFE?

Answer:  It CAN be very safe… or it can be a bit foolish.

The safety will depend on a couple of fundamental issues:  How much money you actually choose to lend and how your money is SECURED.

So here’s what I suggest for each of those issues in order to make this deal safe.

How much should you lend?  Most lenders agree that the maximum that should be lent against a property – in order for your capital to be REALLY safe – is 65% of the property value, which in this case is $81,250.

To make it simple, you might choose to lend only the purchase price of the property - $76,000 – and require the flipper to fund the renovation out of his own pocket.  Because let’s be clear, my friends:  It makes a lot of sense to demand that the borrower have some of his own skin in the game.  In fact, that’s very wise.  As someone who has done this kind of lending, I like the model in which the borrower is required to fund renovations out of his own pocket.

So the question of how much to lend is answered.  But how will your money be kept SAFE?

That, too, is rather simple:  You get a first lien against the property for the amount of your loan.  So you’ve got a $76,000 mortgage against a property that’s worth $125,000.  So bottom line – even if the borrower totally flakes out, you can quite easily sell that house and get all of your money, interest and fees back because there’s such a huge equity spread.

With a well-structured, well considered quick flip loan, it’s hard for the lender to lose money.  Not impossible.  Nothing is a guarantee.  But with a modicum of rationality, these deals really make a lot of sense… they’re absolutely SIMPLE… SAFE and STRONG.

It’s just a loan… well secured… for which you collect 12%.

And you know what else?  These loans tend to be short – almost always under 12 months, usually under 6.  So you get your capital back quickly and can do it again.

I happen to know there are some really, really attractive deals like this available right now.  In fact, the example I just gave you is a real deal.  Most of them require somewhere in the $100,000 to $200,000 range… but the ratios are all the same.  Still never lend more than 65% of the real property value, still require to the borrower to have a lot of skin in the game, still simple, still safe, still strong.

If you’d like a referral to some of these opportunities, just stop go over to SDIRadio.com/lending for the info.  Again, that’s SDIRadio.com/lending.

Folks, you know I LOVE real estate.  I think real estate is the best wealth opportunity ever.  But being a LENDER against real estate… using smart, safe terms… frankly, that may well be the best of all worlds.  I really do think that’s an extraordinarily strong way to go for far more people than currently are involved in it.  If you’ve never done any of this type of lending, I respectfully recommend you consider doing so… it’s hard to argue the wisdom of it.

So check out SDIRadio.com/lending for more info.

In tomorrow’s episode, I’m going to share with you an EXTRAORDINARY way to get a HUGE tax break for those of you who need some tax relief.  But to get a tax break for this year, you’ve got to do this by December 31, so be sure to tune in to tomorrow’s episode.

In the mean time… invest wisely… and live well forever!

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