UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: Re: How to make your own annuity on the cheap Date: 1/25/2012 1:22 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
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.

--Peter
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Macro Economics

Intel's Broadwell Potential
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement