S. Clay Sparkman
I’ve been doing this for 25 years, and I must say, we’ve seen good times and some bad. I’ve been involved in several thousand private money loans. Certainly, I’ve experienced a full cross section of the private money lender perspective. One might wonder, how can a long-term private money lender expect to do over the long haul, through good times and bad? In order to speak of this more effectively, I would like to introduce you to one of my all-time favorite private money lenders. His nom de querre is King Arthur, and he has been lending with me for the better part of 24 years now, straight through and into real-time.
When I told him that I was going to write this piece, he reminded me of how we got started. He was looking for some money to help his son-in-law get going in business, and he called me. When I quoted our rates, he said: “I don’t think I can afford a loan from you, but do you work with lenders?” I said, “sure!” So, he decided to lend the money directly to his son-in-law, who is now a multi-millionaire, and he met with me to talk about the full-range of issues involved with investing in secured private money loans. Thus, began my adventures as a friend and associate to King Arthur.
Let me start by saying that King Arthur loves private money lending. He loves not only the returns and the security involved (risk/reward ratio), but he actually loves the process as well. For him, it is a bit like chess: he loves to play, and he is good at it. And yes, there is a Guinevere. She is a lovely person. She doesn’t get directly involved in the day to day process of making these loans, but she knows plenty about what is going down, and she is involved in any critical decisions that must be made. I am proud to say that both the King and the Queen are among my closest friends.
Let’s talk for a moment about King Arthur’s own specific investment strategy. First of all, he has spent many years in the business of buying, renovating, and renting out real estate properties, so he is comfortable with assessing a particular property, a borrower, and the potential borrower’s proposal. He also recognizes that he is playing a game of probabilities. He looks for loans that have a high chance of being trouble free, and which are also likely to offer him high odds of full recovery if the borrower drops the ball. With this in mind, he diversifies to the full extent reasonably possible. He makes small (average, $30k) fractional share investments in each of a number of loans, and he attempts to ensure that these loans are well diversified regionally, and in terms of property types, loan types, and borrowers. Thus, for example, he avoids getting into many loans with any single investor, no matter how reliable they have proven to be.
King Arthur tells me that he has been involved in over 200 loans since he started with us. At any given time, he might be holding 20-30 loans of $30k each. He and I went down memory lane together, as I was writing this. He reminded me that until 2007, he had never lost a dime of principal. (He even remembers specifically the sordid details of the first loan where we didn’t manage to recover all of his principal.)
Beyond 2007, he had some bigger losses, but he also had some greater-than-expected gains, and he is proud to say that an analysis of his first 24 years of private money lending in the aggregate shows that he has ultimately not lost any principal, and in fact he has ended up earning approximately 8-9% on these investments, and all that through the entire period of the second greatest recession in American history.
Clay: “So how have you done overall?
King Arthur: “Between the beginning and now, we are ahead by over a million.” He says. And he continues, “Part of our success is our persistence. There will always be some loans going bad. When that happens, we beat on them until the cows come home.”
Clay: “I can attest to that. You have been amazingly active investor. I will never be able to thank you enough for all the personal initiative that you took with the recovery process on these loans. As you know, the recession period was tough, and most investors need and expect more assistance. We are a tiny company, and you not only saved yourself and your fellow investors, but you greatly contributed to our salvation. Thank you!”
King Arthur: That’s what we do mate. They don’t call me King Arthur for nothing.
Clay: I bow to the king. Viva King Arthur!
King Arthur: “Yeah, yeah … hey Remember the loan in Kaiser, Oregon? This just came back to us, so I figure it is a good example of why investors must persist. If you recall, the borrower really wanted to own a rental house. We tagged the rental home and his own residence (as a second). After a year he quit paying us and quit paying water and garbage on the rental. That pissed off the tenants and they moved out. We cleaned it up and sold our share to one of the partners. We took a loss on it, but it wasn’t terrible. I kept thinking of ways to get something going on the 2nd we still had on the borrower’s home. I had my title company run a title report on the property (at the cost of 90 bucks). I almost choked when I saw it. Lo and behold we were now in first place on his home. Damn the bad luck, eh? He had done a refi and somehow his refi came up in second place. We went after him and settled for 50k, but they were really angry with us. All I can say is, ‘Boohoo!’”
Clay: “Advantage Arthur! I’m so glad to hear it. You know, we could go on all day.”
King Arthur: “Now we must go. We have to find Excalibur before my uncle does!”
Clay: “I don’t know if we’ll have enough time!”
Arthur: “We have to! We cannot fail.”
— Clay (clay@privatemoneysource.com, 503.476.2909)
Tags: hard money investing, hard money lending, investing, Nevada, Oregon, private money investing, private money lending, real estate investing, real estate rental, trust deed investing, trust deed lending, trust deed loans, Washington
