The document summarizes investment opportunities for self-directed IRAs in preserving and growing assets through private real estate lending. It discusses the current economic landscape and outlines different approaches for investors, including investing in fractional trust deeds, mortgage funds, and private lending more broadly. Mortgage funds are positioned as providing consistent returns, low volatility, instant diversification, and other advantages for both investors and borrowers.

1. Preserving, Diversifying and Growing Assets Trust Deed & Mortgage Fund Investing In Self-Directed IRAs

2. The Current Investment Landscape: Disquiet Fear, seems like nothing but bad news Savings & investments down Real estate values and stock markets down Government policies seem to change by the day “ Another 6, 12, 18 months ‘til it’s over…” How does someone retired, on a fixed income adjust? Whom to trust? Where’s the good information?

3. Where We Are New administration, experienced advisors Democrats running the show Problems have been identified, actions taken: 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 Credit Crisis: solutions appear to be working; bank lending increasing 9% Economic drags are easing: lower gas prices, lower inflation, dollar gaining value Further fiscal stimulus: fed rate hike likely, below 1% by year-end; gov’t guarantees

4. EVERYTHING isn’t broken The scene at the shopping centers Talk to the shopkeepers The hiring scene “ We’re just on hold.” Anticipating leadership, direction, movement And in the meantime, some investments are continuing to perform as designed…

5. The Investment Landscape www.secondangel.net © 2008 Second Angel Bancorp. All Rights Reserved

6. Investor Motivation: The IRA Fit “Never invest in a business you don’t understand.” Warren Buffett For investors seeking: Understandable investment No leap of faith required; no gauging the market In something familiar: Real Estate Its value as COLLATERAL, NOT appreciation Passive and w/o ownership and management issues Stable, consistent, dependable, reliable, secured An alternative to CDs and bonds No correlation with stock market, no volatility

7. Historical Investment Results 9 percent to 12 percent returns (2x to 3x returns of CDs) [10% avg across various economic cycles] Compounding interest [doubles every 6 1/2 years] “ The most powerful force in the universe is compound interest.” Albert Einstein Monthly dividends [ paid approx. $2,000/month per $200,000 account] High reinvestment rate by investors Reasons: Feel secure, like the returns

8. This is Private Money Loans based on and secured by the protective equity of real property The focus is on the PROPERTY: equity and the borrower , not extraneous factors: Equity lending vs cash flow lending Loan To Value (“LTV”) ratios/ “protective equity” Exit Strategy: Property’s marketability & liquidation value Two investment approaches Fractional Trust Deeds/ Buying Notes Mortgage Funds See www.Wikipedia.com , “ Private Money Investing .” [We wrote the entry…]

9. Why Buy Notes? Obtain the security of real estate without the hassles of managing and maintaining it Enjoys the benefits of a secured revenue stream No “taxes, tenants and toilets” Investor in notes is placed above landlord in the financing stack

10. Investing in Notes The traditional approach Still prevalent on East Coast When property is sold without full payment, Buyer signs mortgage or deed of trust (“trust deed”) Can be multiples ex: “1st trust deeds,” “2nd trust deeds” Property is pledged to the lender of the money as security for payment Note (“promissory note”) is the promise to pay Ties the Borrower to the loan and its terms Notes can be bought and sold

11. Traditional Trust Deed Investments The simplest - and most labor intensive - approach Analogous to analyzing and buying a single stock Investor finds a prospective borrower, assesses the risk, prepares documentation, and collects monthly payments Investor makes all the decisions Focuses all risk on a single loan on a single property May diversify by making several loans on several properties

12. Brokered Trust Deed Investment Less Direct Contact: Investor still makes all the decisions and has a single-source risk, but Broker finds the loan and prepares documentation Investor makes decision based on Broker’s research and expertise Investor collects monthly payments Borrower pays Broker fees

13. Fractional Trust Deed Investment Larger Loans, More Players A Brokered Trust Deed Investment, but with more than one Investor Allows larger loan amounts, with each Investor receiving a pro rata share of monthly payments made on a single loan Servicing Company collects and distributes the payments Risk remains with the single-source property Borrower pays Broker fees

14. Fractional Considerations Investor makes final decision…but at a price: Size and complexity issues Smaller loans, weaker borrowers 2”-3” of loan documentation to review per loan Investment $ not deployed 365 days/year (minimum 1% return penalty) No anonymity No autonomy Subject to capital calls No compound interest Liability issues Licensing issues (CA) Biggest Issue: Diversification

15. The Lending Process There’s more to it than you’d think… Multiple levels to consider during underwriting Experience counts Increasing complexity ex: documentation requirements Servicing and collection issues never end REGULATIONS

16. The Alternative to Fractionals: Mortgage Funds Resemble equity mutual funds More prevalent on West Coast Managed by licensed Private Lenders “ Non-bank banks” Investment secured by first (or second) deeds of trust Deeds name the fund , not individual investors, as the actual holder As interest is earned from monthly mortgage payments, the fund generates income Income is compounded or paid out to investors monthly or quarterly

17. Mortgage Fund Qualified investors deposit funds in a mortgage fund managed by a Bancorp or other entity Bancorp finds borrowers, assesses risk, prepares documentation, collects monthly payments and distributes payments to Investors. Mortgage Fund provides investment dollars

18. Mortgage Funds in the Big Picture Consistent Returns Low Volatility Security of Underlying Assets “ Never go to excess, but let moderation be your guide.” Cicero (106 BC-43 BC)

19. Source: Morningstar

20. Sample Returns Annualized, by month Note consistency, low volatility

21. Again: Consistency www.secondangel.net © 2008 Second Angel Bancorp. All Rights Reserved

22. Mortgage Fund Loan Parameters Ground Rules : Investors know what Fund is investing in. Offering Circular sets out lending criteria Property types loaned on LTV ratios for each type Loan type Location Loan size Generally fall within narrow range BUT…varies by each fund’s loan risk parameters: first, second, mezzanine, etc.

23. Diversified Portfolio: type, rates, terms

24. Mortgage Fund Advantages: Investor Instant diversified portfolio Simplicity: little/no involvement with individual loans or borrowers Higher Yield Funds at work 365 days/year Liquidity Payment Options Compound interest Monthly Dividend payments No capital calls Anonymity/Liability

25. Mortgage Fund Advantages: Borrower More and better loan opportunities because of: SPEED: From analysis through funding. Enables opportunities NOW 1-2 weeks (sometimes days) vs 60 days for institutional lenders Cheaper than a partner More flexible, no bureaucracy Minimal delegation of lending authority: deal directly with decision makers Loans are “custom made” to work with the unique needs of each situation Cost differential from institutional lenders not that substantial

29. Private Lending Niche Lending Specialties [examples] Residential First and Seconds Rehabs REOs Commercial Retail, Office, Warehouses, Churches, Gas Stations Commercial Construction-Completion Land Acquisition & Entitlement (not too popular…)

30. The Commercial Property Advantage Commercial Property Outlook STABLE Reasons: Steady absorption cycle Known supply (vs housing) Limited supply going forward (land, entitlements) Evidence: Rising rental rates across different property categories Slowly rising cap rates Low default rate: .04% vs 28.00% for subprime residential

31. Finding & Selecting a Fractional or Mortgage Fund Investment Decide: Fractional or Fund (or both) Geographical area Investment size Property type: residential/commercial Risk appetite: [note that yields fall within narrow range…] Investor Eligibility/Amount to invest ***MANAGER TRACK RECORD*** Philosophy Response to queries Starting point: www.Scotsmanguide.com The industry’s bible

32. The IRA Fit www.secondangel.net © 2008 Second Angel Bancorp. All Rights Reserved

33. Thanks Questions: Richard Zahm (415) 730-1042 [email_address] www.SecondAngel.net