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11-22-2015, 01:52 PM #1
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Dan also this moght be a noob question but paying 5 points and getting more deal flow wether it's to fund more or be more picky who you take . Won't that bring down your risk score ?
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11-22-2015, 04:26 PM #2
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Hi Michael - I guess there is not a perfect answer to this question, but I will try. I guess first off, I have lots of deal flow (at least at the present, but you never know what the future will bring). But the deeper answer is that we know what our ROI needs to be to service our investors (we have our own personal money in the fund but some wealthy investors provide us with a lot of funds). Working backwards is what brings us to the discount rate we must charge. There are many variables included in that calculation, a few which are mentioned in the discourse above. If we add more points to the front end, the net result would be to raise the cost of funds to the client.
I do allow the referring party to put a couple points on it if they need to in order to make it worthwhile for them. But I need to know what those amounts are. Our experience has been that there is an inverse relationship between the amount of points charged and the default rate, which makes sense if you think about it. Hope that helps.
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