I am a borrower and have my own philosophy on 2nd lien positions. I tend to think they are okay as long the overall LTV is still really solid and it is with someone who knows what they are doing and has excess funds/collateral. What would you say as a lender are the cons from your perspective?
The reason I ask this is I am curious if for some of my larger projects if I should get hard money in 1st lien and raise money privately in 2nd lien so that I am not just sending out opportunities for 100k+ projects and able to fund a majority of my rehab so I can continue to scale.
Like you mentioned, I think they are fine if the Loan to Value is still good AND you have full confidence that the person (and their team) will get the project renovated and quickly up to that After Repair Value AND you still ask for a mortgage/DOT, prom note, and to be listed on the insurance. I used HML and PML a lot when I started to scale UNTIL I had built relationships with PML’s that could fund the entire deal.
Hey Noah, thanks for your input on this. That’s great you were able to build relationships over time to have the deal fully funded by you PMLs.
👆🏻Scaling with HML + PML is where I am at right now. Looking to get to the same place with PML.
Im not a fan of anything but 1st position. However, I have lent in 2nd position with and only with a personal guarntee from a borrower with adequate assets that I verified.
Im not a fan of anything but 1st position. However, I have lent in 2nd position with and only with a personal guarntee from a borrower with adequate assets that I verified.