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|Subject: Re: How to make your own annuity on the cheap||Date: 1/25/2012 1:22 AM|
|Author: ptheland||Number: 70028 of 75379|
Individuals *CAN* make low-LTV (high equity-secured) commercial hardmoney loans, often at yields/rates of 11.99% to 12.99%.
Of course. But how many of these high-risk loans can a typical person make at once? One? Two? You're usually talking a six figure loan at a minimum. So that's going to limit how many loans you can make.
Which brings up the issue of diversity. The insurance company is making hundreds of these loans, spreading the risk of default out over their entire portfolio. If one (or two or two dozen) go bad, well that's just priced in to things. Their portfolio yield loses a few basis points.
When the individual makes one or two loans (or even a dozen), if one goes bad its a disaster for the whole portfolio. With the costs of foreclosure and such, the "portfolio" yield can quickly drop to zero - or less!!
You also hinted at another issue. You mentioned hard-money loans. The insurance company is not really making hard money loans. They're making loans to reasonably well qualified borrowers who have solid security. The hard money loans you're talking about are to risky borrowers or where the security might not be all it seems to be. Those are two very different markets, as I'm sure you know - and probably have horror stories to boot.
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