Holding companies that pay 5% interest to you per month

[divot]

I am looking to buy a home here to move into so we can get our kids into better schools. I have found what appears to be a discounted deal and I am in negotiations to get it under contract. I ran into an old friend who just did his first real estate investment deal where he bought a house on the cheap, took out the equity using a gift program, and then turned the $$ over to a "holding company" that is backed by real estate and hard money loans. They pay him back 5% on the $150,000 he put into their fund and he uses that $7500 per month to cover his house mtg and escrow with $1500/month in positive cash flow on his owner occupied property. He has just bought a rental property that wil brng in over $4000/month positive cash flow in an area that usually sees negative to break even cash flows. He is highly recommending I do this.

Anyone ever heard of this type of company? Is this something that is out there already that is hosing investors? My suspicion is that he will get paid back say $100,000 then they will inform him that the investment went bad. Any one had experience with this?

If there are legitimate companies like this I want to check them out.

divot

[waynelong]

I know of companies that will pay you 20% per year to use your money and back it with investment properties they own for collateral on the loan. They take the money they are borrowing to make other property investments. The 20% is cheaper than hard money loans for them so it makes sense. You are talking about 60% interest which seems over the top to me. I would be very suspicious. I can't see how anyone paying 60% interest could stay in business for very long. The house of cards must fall! At least that is my humble opinion. Wayne

[divot]

Thanks for your input. I am new to the forum and appreciate your advice. Can you give me direction to find the companies you are referring to that pay 205 interest?

I'd appreciate it.