Preserving, Diversifying and Growing Assets Trust Deed & Mortgage Fund Investing In Self-Directed IRAs
The Current Investment Landscape: Disquiet  <ul><li>Fear, seems like nothing but bad news </li></ul><ul><li>Savings & inve...
Where We Are <ul><li>New administration, experienced advisors </li></ul><ul><ul><li>Democrats running the show </li></ul><...
EVERYTHING isn’t broken <ul><li>The scene at the shopping centers </li></ul><ul><ul><li>Talk to the shopkeepers </li></ul>...
The Investment Landscape www.secondangel.net    © 2008 Second Angel Bancorp. All Rights Reserved
Investor Motivation: The IRA Fit “Never invest in a business you don’t understand.” Warren Buffett <ul><li>For investors s...
Historical Investment Results <ul><li>9 percent to 12 percent returns (2x to 3x returns of CDs)  </li></ul><ul><ul><li>[10...
This is Private Money <ul><li>Loans based on and secured by the protective equity of real property </li></ul><ul><ul><li>T...
Why Buy Notes? <ul><li>Obtain the security of real estate without the hassles of managing and maintaining it </li></ul><ul...
Investing in Notes <ul><li>The traditional approach </li></ul><ul><ul><li>Still prevalent on East Coast </li></ul></ul><ul...
Traditional Trust Deed Investments <ul><li>The simplest - and most labor intensive - approach </li></ul><ul><li>Analogous ...
Brokered Trust Deed Investment <ul><li>Less Direct Contact: </li></ul><ul><li>Investor still makes all the decisions and h...
Fractional Trust Deed Investment <ul><li>Larger Loans, More Players </li></ul><ul><li>A Brokered Trust Deed Investment, bu...
Fractional Considerations <ul><li>Investor makes final decision…but at a price: </li></ul><ul><li>Size and complexity issu...
The Lending Process <ul><li>There’s more to it than you’d think… </li></ul><ul><li>Multiple levels to consider during unde...
The Alternative to Fractionals: Mortgage Funds <ul><li>Resemble equity mutual funds </li></ul><ul><li>More prevalent on We...
Mortgage Fund <ul><li>Qualified investors deposit funds in a mortgage fund managed by a Bancorp or other entity </li></ul>...
Mortgage Funds  in the Big Picture <ul><li>Consistent Returns </li></ul><ul><li>Low Volatility </li></ul><ul><li>Security ...
Source: Morningstar
Sample Returns Annualized, by month Note consistency, low volatility
Again: Consistency www.secondangel.net    © 2008 Second Angel Bancorp. All Rights Reserved
Mortgage Fund Loan Parameters <ul><li>Ground Rules : Investors know what Fund is investing in. Offering Circular sets out ...
Diversified Portfolio:  type, rates, terms
Mortgage Fund Advantages:  Investor <ul><li>Instant diversified portfolio </li></ul><ul><li>Simplicity: little/no involvem...
Mortgage Fund Advantages:  Borrower <ul><li>More and better loan opportunities because of: </li></ul><ul><li>SPEED: From a...
 
 
 
Private Lending  Niche Lending Specialties [examples] <ul><li>Residential  </li></ul><ul><ul><li>First and Seconds </li></...
The Commercial Property Advantage <ul><li>Commercial Property Outlook  </li></ul><ul><li>STABLE </li></ul><ul><li>Reasons:...
Finding & Selecting a Fractional  or  Mortgage Fund Investment <ul><li>Decide: </li></ul><ul><li>Fractional or Fund (or bo...
The IRA Fit www.secondangel.net    © 2008 Second Angel Bancorp. All Rights Reserved
Thanks <ul><li>Questions: </li></ul><ul><li>Richard Zahm </li></ul><ul><li>(415) 730-1042 </li></ul><ul><li>[email_address...
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Second Angel Ira Investment Webinar

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Transcript of "Second Angel Ira Investment Webinar"

  1. 1. Preserving, Diversifying and Growing Assets Trust Deed & Mortgage Fund Investing In Self-Directed IRAs
  2. 2. The Current Investment Landscape: Disquiet <ul><li>Fear, seems like nothing but bad news </li></ul><ul><li>Savings & investments down </li></ul><ul><li>Real estate values and stock markets down </li></ul><ul><li>Government policies seem to change by the day </li></ul><ul><li>“ Another 6, 12, 18 months ‘til it’s over…” </li></ul><ul><li>How does someone retired, on a fixed income adjust? </li></ul><ul><li>Whom to trust? Where’s the good information? </li></ul>
  3. 3. Where We Are <ul><li>New administration, experienced advisors </li></ul><ul><ul><li>Democrats running the show </li></ul></ul><ul><li>Problems have been identified, actions taken: </li></ul><ul><ul><li>Housing: the no. of unsold new homes is falling; bad loans are working their way out of the system; already at low % level of GDP </li></ul></ul><ul><ul><li>Credit Crisis: solutions appear to be working; bank lending increasing 9% </li></ul></ul><ul><ul><li>Economic drags are easing: lower gas prices, lower inflation, dollar gaining value </li></ul></ul><ul><ul><li>Further fiscal stimulus: fed rate hike likely, below 1% by year-end; gov’t guarantees </li></ul></ul>
  4. 4. EVERYTHING isn’t broken <ul><li>The scene at the shopping centers </li></ul><ul><ul><li>Talk to the shopkeepers </li></ul></ul><ul><li>The hiring scene </li></ul><ul><ul><li>“ We’re just on hold.” </li></ul></ul><ul><li>Anticipating leadership, direction, movement </li></ul><ul><li>And in the meantime, some investments are continuing to perform as designed… </li></ul>
  5. 5. The Investment Landscape www.secondangel.net © 2008 Second Angel Bancorp. All Rights Reserved
  6. 6. Investor Motivation: The IRA Fit “Never invest in a business you don’t understand.” Warren Buffett <ul><li>For investors seeking: </li></ul><ul><li>Understandable investment </li></ul><ul><ul><li>No leap of faith required; no gauging the market </li></ul></ul><ul><li>In something familiar: Real Estate </li></ul><ul><ul><li>Its value as COLLATERAL, NOT appreciation </li></ul></ul><ul><li>Passive and w/o ownership and management issues </li></ul><ul><li>Stable, consistent, dependable, reliable, secured </li></ul><ul><li>An alternative to CDs and bonds </li></ul><ul><li>No correlation with stock market, no volatility </li></ul>
  7. 7. Historical Investment Results <ul><li>9 percent to 12 percent returns (2x to 3x returns of CDs) </li></ul><ul><ul><li>[10% avg across various economic cycles] </li></ul></ul><ul><li>Compounding interest </li></ul><ul><ul><li>[doubles every 6 1/2 years] </li></ul></ul><ul><ul><li>“ The most powerful force in the universe is compound interest.” </li></ul></ul><ul><ul><ul><ul><ul><li>Albert Einstein </li></ul></ul></ul></ul></ul><ul><li>Monthly dividends </li></ul><ul><ul><li>[ paid approx. $2,000/month per $200,000 account] </li></ul></ul><ul><li>High reinvestment rate by investors </li></ul><ul><ul><li>Reasons: Feel secure, like the returns </li></ul></ul>
  8. 8. This is Private Money <ul><li>Loans based on and secured by the protective equity of real property </li></ul><ul><ul><li>The focus is on the PROPERTY: equity and the borrower , not extraneous factors: Equity lending vs cash flow lending </li></ul></ul><ul><li>Loan To Value (“LTV”) ratios/ “protective equity” </li></ul><ul><li>Exit Strategy: Property’s marketability & liquidation value </li></ul><ul><li>Two investment approaches </li></ul><ul><ul><li>Fractional Trust Deeds/ Buying Notes </li></ul></ul><ul><ul><li>Mortgage Funds </li></ul></ul><ul><li>See www.Wikipedia.com , “ Private Money Investing .” </li></ul><ul><ul><li>[We wrote the entry…] </li></ul></ul>
  9. 9. Why Buy Notes? <ul><li>Obtain the security of real estate without the hassles of managing and maintaining it </li></ul><ul><li>Enjoys the benefits of a secured revenue stream </li></ul><ul><li>No “taxes, tenants and toilets” </li></ul><ul><li>Investor in notes is placed above landlord in the financing stack </li></ul>
  10. 10. Investing in Notes <ul><li>The traditional approach </li></ul><ul><ul><li>Still prevalent on East Coast </li></ul></ul><ul><li>When property is sold without full payment, Buyer signs mortgage or deed of trust (“trust deed”) </li></ul><ul><ul><li>Can be multiples ex: “1st trust deeds,” “2nd trust deeds” </li></ul></ul><ul><li>Property is pledged to the lender of the money as security for payment </li></ul><ul><li>Note (“promissory note”) is the promise to pay </li></ul><ul><li>Ties the Borrower to the loan and its terms </li></ul><ul><li>Notes can be bought and sold </li></ul>
  11. 11. Traditional Trust Deed Investments <ul><li>The simplest - and most labor intensive - approach </li></ul><ul><li>Analogous to analyzing and buying a single stock </li></ul><ul><li>Investor finds a prospective borrower, assesses the risk, prepares documentation, and collects monthly payments </li></ul><ul><li>Investor makes all the decisions </li></ul><ul><li>Focuses all risk on a single loan on a single property </li></ul><ul><li>May diversify by making several loans on several properties </li></ul>
  12. 12. Brokered Trust Deed Investment <ul><li>Less Direct Contact: </li></ul><ul><li>Investor still makes all the decisions and has a single-source risk, but Broker finds the loan and prepares documentation </li></ul><ul><li>Investor makes decision based on Broker’s research and expertise </li></ul><ul><li>Investor collects monthly payments </li></ul><ul><li>Borrower pays Broker fees </li></ul>
  13. 13. Fractional Trust Deed Investment <ul><li>Larger Loans, More Players </li></ul><ul><li>A Brokered Trust Deed Investment, but with more than one Investor </li></ul><ul><li>Allows larger loan amounts, with each Investor receiving a pro rata share of monthly payments made on a single loan </li></ul><ul><li>Servicing Company collects and distributes the payments </li></ul><ul><li>Risk remains with the single-source property </li></ul><ul><li>Borrower pays Broker fees </li></ul>
  14. 14. Fractional Considerations <ul><li>Investor makes final decision…but at a price: </li></ul><ul><li>Size and complexity issues </li></ul><ul><ul><li>Smaller loans, weaker borrowers </li></ul></ul><ul><ul><li>2”-3” of loan documentation to review per loan </li></ul></ul><ul><li>Investment $ not deployed 365 days/year </li></ul><ul><ul><li>(minimum 1% return penalty) </li></ul></ul><ul><li>No anonymity </li></ul><ul><li>No autonomy </li></ul><ul><li>Subject to capital calls </li></ul><ul><li>No compound interest </li></ul><ul><li>Liability issues </li></ul><ul><li>Licensing issues (CA) </li></ul>Biggest Issue: Diversification
  15. 15. The Lending Process <ul><li>There’s more to it than you’d think… </li></ul><ul><li>Multiple levels to consider during underwriting </li></ul><ul><li>Experience counts </li></ul><ul><li>Increasing complexity ex: documentation requirements </li></ul><ul><li>Servicing and collection issues never end </li></ul><ul><li>REGULATIONS </li></ul>
  16. 16. The Alternative to Fractionals: Mortgage Funds <ul><li>Resemble equity mutual funds </li></ul><ul><li>More prevalent on West Coast </li></ul><ul><li>Managed by licensed Private Lenders </li></ul><ul><ul><li>“ Non-bank banks” </li></ul></ul><ul><li>Investment secured by first (or second) deeds of trust </li></ul><ul><li>Deeds name the fund , not individual investors, as the actual holder </li></ul><ul><li>As interest is earned from monthly mortgage payments, the fund generates income </li></ul><ul><li>Income is compounded or paid out to investors monthly or quarterly </li></ul>
  17. 17. Mortgage Fund <ul><li>Qualified investors deposit funds in a mortgage fund managed by a Bancorp or other entity </li></ul><ul><li>Bancorp finds borrowers, assesses risk, prepares documentation, collects monthly payments and distributes payments to Investors. </li></ul><ul><li>Mortgage Fund provides investment dollars </li></ul>
  18. 18. Mortgage Funds in the Big Picture <ul><li>Consistent Returns </li></ul><ul><li>Low Volatility </li></ul><ul><li>Security of Underlying Assets </li></ul><ul><li>“ Never go to excess, but let moderation be your guide.” </li></ul><ul><li>Cicero (106 BC-43 BC) </li></ul>
  19. 19. Source: Morningstar
  20. 20. Sample Returns Annualized, by month Note consistency, low volatility
  21. 21. Again: Consistency www.secondangel.net © 2008 Second Angel Bancorp. All Rights Reserved
  22. 22. Mortgage Fund Loan Parameters <ul><li>Ground Rules : Investors know what Fund is investing in. Offering Circular sets out lending criteria </li></ul><ul><ul><li>Property types loaned on </li></ul></ul><ul><ul><li>LTV ratios for each type </li></ul></ul><ul><ul><li>Loan type </li></ul></ul><ul><ul><li>Location </li></ul></ul><ul><ul><li>Loan size </li></ul></ul><ul><li>Generally fall within narrow range </li></ul><ul><li>BUT…varies by each fund’s loan risk parameters: first, second, mezzanine, etc. </li></ul>
  23. 23. Diversified Portfolio: type, rates, terms
  24. 24. Mortgage Fund Advantages: Investor <ul><li>Instant diversified portfolio </li></ul><ul><li>Simplicity: little/no involvement with individual loans or borrowers </li></ul><ul><li>Higher Yield </li></ul><ul><li>Funds at work 365 days/year </li></ul><ul><li>Liquidity </li></ul><ul><li>Payment Options </li></ul><ul><ul><li>Compound interest </li></ul></ul><ul><ul><li>Monthly Dividend payments </li></ul></ul><ul><li>No capital calls </li></ul><ul><li>Anonymity/Liability </li></ul>
  25. 25. Mortgage Fund Advantages: Borrower <ul><li>More and better loan opportunities because of: </li></ul><ul><li>SPEED: From analysis through funding. Enables opportunities NOW </li></ul><ul><ul><li>1-2 weeks (sometimes days) vs 60 days for institutional lenders </li></ul></ul><ul><li>Cheaper than a partner </li></ul><ul><li>More flexible, no bureaucracy </li></ul><ul><li>Minimal delegation of lending authority: deal directly with decision makers </li></ul><ul><li>Loans are “custom made” to work with the unique needs of each situation </li></ul><ul><li>Cost differential from institutional lenders not that substantial </li></ul>
  26. 29. Private Lending Niche Lending Specialties [examples] <ul><li>Residential </li></ul><ul><ul><li>First and Seconds </li></ul></ul><ul><ul><li>Rehabs </li></ul></ul><ul><ul><li>REOs </li></ul></ul><ul><li>Commercial </li></ul><ul><ul><li>Retail, Office, Warehouses, Churches, Gas Stations </li></ul></ul><ul><li>Commercial Construction-Completion </li></ul><ul><li>Land Acquisition & Entitlement (not too popular…) </li></ul>
  27. 30. The Commercial Property Advantage <ul><li>Commercial Property Outlook </li></ul><ul><li>STABLE </li></ul><ul><li>Reasons: </li></ul><ul><ul><li>Steady absorption cycle </li></ul></ul><ul><ul><li>Known supply (vs housing) </li></ul></ul><ul><ul><li>Limited supply going forward (land, entitlements) </li></ul></ul><ul><li>Evidence: </li></ul><ul><ul><li>Rising rental rates across different property categories </li></ul></ul><ul><ul><li>Slowly rising cap rates </li></ul></ul><ul><ul><li>Low default rate: .04% vs 28.00% for subprime residential </li></ul></ul>
  28. 31. Finding & Selecting a Fractional or Mortgage Fund Investment <ul><li>Decide: </li></ul><ul><li>Fractional or Fund (or both) </li></ul><ul><li>Geographical area </li></ul><ul><li>Investment size </li></ul><ul><li>Property type: residential/commercial </li></ul><ul><li>Risk appetite: [note that yields fall within narrow range…] </li></ul><ul><li>Investor Eligibility/Amount to invest </li></ul><ul><li>***MANAGER TRACK RECORD*** </li></ul><ul><ul><li>Philosophy </li></ul></ul><ul><ul><li>Response to queries </li></ul></ul><ul><li>Starting point: www.Scotsmanguide.com </li></ul><ul><ul><li>The industry’s bible </li></ul></ul>
  29. 32. The IRA Fit www.secondangel.net © 2008 Second Angel Bancorp. All Rights Reserved
  30. 33. Thanks <ul><li>Questions: </li></ul><ul><li>Richard Zahm </li></ul><ul><li>(415) 730-1042 </li></ul><ul><li>[email_address] </li></ul><ul><li>www.SecondAngel.net </li></ul>

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