Hi, long time reader, first time poster. I'm wrestling something in my head and nobody in my real life circle could relate to this issue so I'm hoping for some guidance.
The question: Should I pull money out of the market now to invest in a hard money loan with a trusted friend and how much is too much?
Facts:
My friend invests in a lot of real estate and he's able to find deals through his network of wholesalers, etc. But, he can't always pull the trigger when he wants because going through the bank is a painful process and other hard money lenders can have hefty points or prepayment penalties built into their loans.
We were talking and i have money in the market and i'm uneasy about the next twelve months and wouldn't mind diversifying. I have about $500k in aftertax money in stocks and another $300k in pretax. This doesn't include emergency savings, yada yada. I'm 7 years away from FI, and make a good income so i can ride out a downturn if need be. But, he offered to pay 10% interest only if i wanted to finance any deals and I would take 10% guaranteed any day of the week over market uncertainty.
The deal would include no prepayments penalties or points. The loans would be secured by the properties and I do trust him 100% (or as close as you can trust anybody). I'm a CPA and do his taxes and know he has a net worth of close to $2 million but it's all tied up in properties (he has around 20 and was buying at the right time). He'll provide the property addresses and contracts so i know what's securing the loans. I live in Tampa and our market is still very strong and he finds incredible deals. While deals may mean risk, he's not a flipper. He rents them all out and will refi it once its rehabbed and rented and then pay me back my principal within 6 months to 12 months. At that point, i'd either fund another deal or put it back in the market.
I'm open to doing a deal and was ready to pull the trigger on a $100k loan. Now he has two deals that would total around $200k. There's no pressure from him. I can do both, one, or none. Won't impact our relationship at all. It saves him money from having to deal with the other guys, and i get an almost guaranteed 10% return while I'm very uneasy about the market. However, that would be 40% of my aftertax investments tied up in something i have no experience with. That's not diversification.
So, back to the question. Am I an idiot for considering this at all? Am I an idiot for not jumping on both deals? Should i just do one? What am i missing or not thinking about? my gut says just do one and see how it goes, and i'm a believer in going with your gut. But, I'd appreciate the feedback. Nobody in my circle of friends would be even considered close to a mustachian and can't relate to anything financial with me.