40k left over after my first rental closes, and debt funds keep coming up

The reserve number is the part I'd fix first. Six months of mortgage plus 8k sounds fine on a spreadsheet and it is not what actually happens on a first rental. My first year on a small house included a sewer line I didn't know was clay, a tenant who paid late for four months, and an insurance renewal that came in 40 percent higher. None of those were the roof.

More to the point, the minimum being $25,000 against your $24,000 of free cash is the fund telling you it isn't sized for you right now. That's not a judgment on the fund. Stretching to a minimum by shaving reserves is how people end up borrowing at 22 percent on a card to fix a furnace while their money sits in a one-year lock. The rate you pay to get liquidity back in a hurry usually exceeds the rate you were reaching for.

On the 9 percent question, the borrowers in those funds pay 10 to 12 because they need money in ten days and a bank takes forty five. Speed and certainty of closing is what they're buying. Some of them are good operators paying for convenience and some of them couldn't get a bank loan at all, and you can't tell which from the outside without the loan tape.

A one-year lock on the same twelve months you're learning to be a landlord is the wrong pairing. Keep the cash boring until the house has behaved for a full year.

On why 9 percent exists, I've been working through the same thing. A bank lending on a house wants an appraisal, a stabilized property, a borrower with tax returns and a 30-year timeline. These funds lend on a house mid-rehab, which is a property no conventional lender wants to hold, for 12 to 18 months, and they charge origination points on top of the rate. So the gross yield on the loan book might be 11 or 12, the manager takes fees, and 9 lands with you.

The questions I've started asking sponsors, and the ones that got vague answers told me the most. What's the average loan as a percentage of the house's value today, before any rehab is done. How many loans in the fund, because ten loans and four hundred loans are entirely different risks. How many loans went past their maturity date last year and what happened to each. Who holds title if a borrower stops paying, and how long a foreclosure takes in the states where the fund lends, since that timeline is set by state law and differs a lot.

On accredited investor status, there are specific income and net worth tests and the sponsor will make you certify. Whether you meet them is a question for a securities attorney or the sponsor's own paperwork, not for me.

I'm earlier in this than you are, so I only have the dumb question that helped me. When they say the loan is secured by the house, ask what position they're in. First lien means they get paid first out of a sale. If the fund is making second-position loans, another lender gets the whole first slug of money and the fund is only paid from whatever's left. Both get called secured in a pitch deck and they behave nothing alike when a deal goes sideways. The materials should say plainly which one this fund does.

The comparison you should be running isn't 9 percent against savings interest. It's 9 percent against every use of that $24,000 over the next year, and one of those uses is your own house. If the rental has any deferred item, a service panel at the end of its life, gutters, a water heater at year twelve, spending $4,000 on it now is a known return and no lock-up. Another use is simply keeping the money available so you can say yes to a second property when one shows up cheap in eighteen months, which is roughly the reason I hold cash and land instead of chasing yield.

I'd also want to know what the fund actually pays you in a bad quarter. Ask for the distribution history month by month since inception, not the target. A stated 9 with three years of exactly 9 every quarter means the manager is smoothing something, and you want to know what.

Nine percent locked for a year, three weeks before your first tenant exists. I'd hold the cash and look again next spring.