The loan was a 15 year fixed mortgage at 6% to one individual. It was secured by a commercial property which he was converting from a medical facility into a church. The loan-to-value was around 100% - or at least the loan-to-cost had been 100% as it was a seller-financed mortgage originally between my grandfather and this man.
He paid off the loan suddenly a couple of months ago, and my sisters and I were faced with over $250K in cash to figure out how to invest. Well we found another lending opportunity.
This time we have shortened the term of the loan (from 15 years to 3), increased the interest rate (from 6% to 8%), and improved our collateral position (from 100% LTC to 75% LTC). Plus we added a pre-payment penalty to lock in the majority of our expected return. Not bad for our first year in business!
We'll close on the deal this week; I had an attorney review the documents (note, deed), and everything is in order. I'll be wiring out $250K this week, which is a little bit surreal. But so is having it in the first place. Then we'll begin receiving monthly interest only payments at 8%. We expect the loan to be paid off in 18-24 months, and in the meantime we'll be researching other opportunities - although if things go well we may well have future investment opportunities with the same borrower.
At a minimum though our $250K investment should grow by $20,000 a year until this loan is paid off - that's a $5,000 increase in net worth for myself and each of my sisters/shareholders! And we don't have to do anything but collect and deposit the checks. This lending business isn't so bad from the bank's point of view.
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