Carrying a loan as an investment?

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Number of messages in the thread: 1

1. Date: 2008-11-01 23:29:22
Subject: Carrying a loan as an investment?
From: c...@h...com Search message by this author

Can anyone give me a ballpark figure for the interest rate
for a loan secured by an office building?

I can imagine that this varies widely according to
geography and other particulars. But at this point, any
data point is better than none.

For example, bankrate.com shows an overnight average
of about 6.5% for a 30-yr fixed-rate home mortgage
(non-jumbo). I am looking for a similar number (i.e. a
"typical" or average rate) for commecial property. I have
not found a suitable online commercial loan calculators.

What do you think about carrying a loan as an investment
in a living trust for an 83-year-old person in good health?

(Translation: life expectancy of 5-10 years.)

My deceased father's estate (Decedent's Trust) carries
a loan at 12%. That's a very good ROI. The loan is
about 17% of the value of my father's estate, and about
5% of that combined with the estate of my mother, the
living beneficiary of the DT. Currently, my mother does
not rely on the DT for income. It is very likely that she
will not need to call in the loan to satisfy income
requirements, barring unforeseen major medical expenses.

But I am wondering about the risks.

The borrower has made all payments on time for the past
7 years. But if commercial rates are anything like home
mortgage rates, I am wondering why the borrower tolerates
such a high interest rate instead of refinancing. Other
factors: (a) the borrower has been unsuccessful at
selling the property, for unknown reasons; and (b) the
economic landscape has changed.

I wonder if it suggests that he might be a credit risk in
some way.

As a lender of a secured loan, I suspect that we are entitled
to request a credit report. (I will ask our estate attorney.)
But I doubt that we will know how to interpret it in order
to assess risk. And there are other reasons why we might
not want to request a credit report.

Since we are in the process of updating the original loan
agreement, which has been extended for many years
based only on oral agreements, I am wondering if we
should consider calling in the loan now.

Then again, I keep looking at the 12% ROI :-).