Investing in commercial loans can be lucrative, but you are better off doing so with a reputable investment firm rather than a friend.
We’ve all been there—or at least known someone that’s been there or seen the movie. A friend, out of the blue, tells you he has his own company. He approves hard money loans for people that either can’t wait to get a loan from the bank or can’t get approved for commercial loans from the bank. He tells you how much he believes in the America Dream. He waxes poetic about how much he loves this country and just wants to help people achieve their dreams.
But to do so, he needs a little more financial backing than he currently has. So—do you want to support the American Dream, the entrepreneurial spirit, and make a good chunk of money in the process? Then let him invest you hard earned money. This way, you help others achieve the dream while making a pretty penny in the process.
Who is going to say no to that?
Friend Today, A Few Commercial Loans Go Bad, Foe Tomorrow
He’s your buddy so you feel confident that you can trust him. He tells you to sign this paperwork anyway just to “protect yourself.” You do it, but since he’s a friend you don’t worry about the fine print that gives him complete control over your money.
Yeah, he may take suggestions about projects from you, but he does so as more of a courtesy. You know—to keep you happy.
But then the inevitable happens. Someone defaults on a loan—and it was a big one. Your friend tells you he doesn’t know what happened. He’ll tell you how he thought that guy was on the straight and narrow, but clearly, he was wrong. Oh—and he is so, so sorry.
He convinces you to keep the faith and stick with it. The rest of the commercial loans he’s approved are legit. You say you want to pull back and take some money out. He tells you no and asks if you read the fine print—especially the clause that said you agree to give him one year before making withdrawals.
He sees your shock and reminds you that the deals are contingent on having cash flow, and if he can’t rely on the money, he can’t make magic happen. He can’t be afraid that you might pull money out when he’s working on a deal. But after a year, the two of you would have made so much money on successful commercial loans that it wouldn’t matter if you pulled a couple hundred thousand out.
A week later he tells you the company is bankrupt. A few more loans went bad and the bank wanted him to pay up, so he had to declare bankruptcy. Sorry—but I lost all your money!
Do Business With Businessmen—Not Friends
It sounds so easy to get involved in something when your friend is telling you about it, but the surest way to kill the friendship—if it ever actually existed in the first place—is to go into business together. But you are such great friends! Surely some business trouble wouldn’t ever be able to come between you!
You’ll be amazed how quickly a friendship ends once there is significant money on the line.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.