I am looking to put an additional 20 used cars on my lot, average cost between $3500-$5500. I have a buy here pay here set up going and also do some sub prime loans. I want to get into used car leasing aswell as rent to own. Both of these need a source of capital. I am looking for a partner that would be interested in working with me in this area!
Jack
I would agree with that.
It is facinating how the risk-return paradigm has changed over the last decade. It used to be that the consumer would put 20% down on a home and use leverage (borrowing) to cover the remaining 80%. Leverage always magnifies gains and losses. If the home appreciates by 20% the consumer realizes a return of 100%. (their equity in the home has doubled). If the home depreciates by 20% then the consumer’s equity is wiped out. This is risk-and-return as it should be! With the lending standards over the last decade the consumer’s risk-return paradigm changed to that of an option. With an option there is no downside risk and only upside potential. Using the above scenario with no money down if the home appreciates by 20% the consumer’s return is infinite. If the home depreciates by 20% then the consumer walks away. No risk, only return.
The risk-return paradigm changed for banks as well. If I make a loan to Joe Blow and hold the loan on my balance sheet then I have to live with Joe for the next 7 years or so, depending on the loan duration. Risk and return as it should be! But if I know that I can slice and dice the loan into pieces (CDO, MBS, etc) and sell them to investors (lets face it, they were stupid!) then I really don’t care if Joe pays me back or not. No risk, only return.
Somehow the risk-return paradigm has to reinstituted where the consumer is at risk (he doesn’t merely have an option) and the bank is at risk (the bank doesn’t transfer its risk to others). Bailing out banks and bailing out insolvent borrowers proves one thing – Risk and return is no longer relevant.