FREQUENTLY
ASKED QUESTIONS:
What
kind of returns do private mortgages and trust deeds
produce?
Our private mortgages and trust
deeds are based on loans given to our borrowers. The
rates paid by borrowers range from 10-25%. We also charge
the borrowers origination fees at the time of closing
often called "points". Because of the rates
and the points we charge, we can safely assume that
each deal will bring at least a 10-20%
"Return-on-Investment" (ROI), but sometimes
even more. Since we make short-term bridge loans we
can very easily turn your money over several times each
fiscal year. If we can do 3-4 deals per year with your
money, we will very easily surpass our annual goal of
helping you earn 18% or more. Remember, the
goal is 12-18% annually
but if you desire more "stable" long-term
returns we can easily get you 8-12%. To earn 18% or
more assumes a moderate risk of mortgage default from
the borrower however with the strong backstop of equity
in real estate your risk of lost is virtually ZERO!
The liquidity of the funds invested cannot be guaranteed
but the expectation of huge returns is a very realistic
one. It's simple and it's safe!
Do
private mortgages and trust deed investments belong
in my portfolio?
Have you ever heard of Donald Trump, Steve Forbes, Paul
Allen, and Warren Buffet? If you have, then you already
know of four guys with private
mortgage investments in their portfolio.
Very few investments of any kind can dependably generate
such strong returns, and few other investments have
an asset like real estate as a “backstop”
providing a very well protected downside.
The
key, as in any investment strategy, is to find a good
Fund Manager. Consistent success over an extended period
of time is, of course, no guarantee of future performance,
but it certainly would give some indication of what
you can expect. Whether private mortgage investments
are right for you will depend upon your time frame,
your risk/reward expectations and your anticipated need
for liquidity.
Furthermore,
private mortgages and trust deeds have stable returns
and fit well within a portfolio of stocks, bonds and
real estate. Adding these to a portfolio will make the
returns of the total portfolio more consistent. When
evaluating any potential investment, the advice of a
professional investment advisor is helpful in assessing
the role of private mortgages in an otherwise liquid
investment portfolio.
What
exactly are private mortgages and trust deed?
A private mortgage or trust deed is a secured debt which
produces a regular, predictable income stream to the
investor with all the security, protections and recourse
that a mortgage lien can provide. Rather than going
to the bank, a borrower comes to us and we use your
money to make the loan secured by substantial equity
in real estate.
Private
mortgages vs. Trust deeds: What's the difference?
Ultimately they accomplish the same task; that is securing
your principal investment. Every loan is secured by
some document (instrument) filed with the local courthouse.
This document allows you to take the property if the
borrower doesn't pay back the loan. Some states use
"trust deeds" which are deeds placed into
a trust/escrow account with a local title company. Other
states use the traditional mortgage instrument. Trust
deeds are far more popular on the west coast than east
coast. For further details on the differences, please
feel free to call our offices or contact your attorney.
Can
I invest with my IRA or 401(k)?
YES!!!!!!!! This is the best way to invest because it's
passive as well as tax-free.
There are many IRA custodians across the USA that handle
self-directed retirement accounts and are familiar with
this type of investment. You will need to "roll-over"
your 401(k) or IRA to a "self-directed" retirement
account which allows you to have far more freedom with
your investing. We can certainly help you through this
process to make it as painless as possible.
You
also can utilize other accounts including 403(b), SEP-IRA,
SIMPLE-IRA, HSA, CESA, Keogh’s, Profit Sharing
Plans, etc. Tax-deferred investors (IRA’s, Pension
Plans, Keogh’s and the like) should speak with
their accountant or financial advisor about any possible
impact of UBTI (Unrelated Business Taxable Income).
Please feel free to contact us
too.
Why
would I choose to invest in private mortgages or trust
deeds?
Private mortgages ad trust deeds can easily exceed current
money market rates by 10% or more. Unlike stocks or
funds, the security is tangible bricks and mortar, where
legal protections such as title insurance, hazard insurance,
and many other unique rights and remedies ensure the
enforceability of a mortgage lien. Many private mortgage
loans are also secured by personal guarantees from the
Borrowers, adding another layer of recourse beneficial
to the investor. There really are VERY few better investments
than private
mortgage investments.
So
how exactly does this work?
Simple... we get loan requests. We filter them and perform
the neccesary due diligence for the file. We then present
you with a completed file. You review it. Then you either
approve it or dont approve it. Lastly, you wire the
funds directly to the title company. You will be in
direct contact with the title company and they will
then handle the transaction, perform the closing, and
record the documents. They will then send you a copy
of all completed and recorded documents.
What
documents insure that my principal amount invested is
safe and secure?
We have our borrowers execute several items at the exact
time of closing:
-
Mortgage
Instrument or Trust Deed: This is obviously
the most important document executed at closing.
Some states use mortgages and some state use Trust
Deeds. This is a document secured against the property's
title deed with a lien filed with local courthouse.
This lien is the instrument which basically gives
you the legal right to foreclose (take the property)
if the borrower does not pay you back. Each state
has a unique foreclosure process by which we must
follow to take the property back, but at the end
of the process the result is the same, you will
own the property and have legal right to evict any
occupants.
-
Deed-in-Lieu
Agreement: This document is an agreement
between a lender and borrower allowing for the lender
to "skip" the normal foreclosure process.
Typically the process of "taking back"
the property can take 6-9 months in most states,
or longer in the event where a borrower claims bankruptcy.
This agreement is basically an "agreement-for-deed"
that is signed at closing allowing you, the lender,
to file a brand new full-warranty deed or quit-claim
deed immediately upon a default. This agreement
is made up of a contract stating this process, the
forgoing of the normal foreclosure process, a waiver
of rights from the borrower, and an indemnification
agreement. It also has an actual deed signed by
the borrower over to the lender.
-
Section-32
Waiver: This agreement is signed by the
borrower waiving all rights to protection usually
afforded borrowers under Section-32. These regulations
are federal statutes which regulate predatory lending.
With this waiver, the lender is not subject to Section-32
laws and the borrower is not protected by them either.
-
Limited
Power of Attorney: This documents
gives the lender power-of-attorney and all vested
powers of an "attorney-in-fact" when it
comes to the property itself. This document allows
you to manage, sell, and transfer ownership of the
property at any time. It also allows you to sign
on behalf of the borrower for any transaction or
document involving the subject property.
-
Confession
of Judgment: This document, signed by the
borrower at closing, is an expression and admission
of fault on the part of the borrower if he/she should
default and it is a waiver of certain judicial rights.
This document makes it far easier to get a judgment
against the borrower when the time comes to foreclose.
In
addition to these documents, all of which are executed
at the exact time of closing prior to funding, each
transaction also has two types of insurance:
- Title
Insurance: Each mortgage lien has title
insurance issued by a preferred insurance company
to insure that the lien is properly recorded and
is properly in first position. If, at any time,
your lien is not properly secured the title company
shall be fully liable for the entire principal amount
of the loan as well as up to 125% of any and all
damages. Since title companies are not in the business
of paying out money you can be sure that the title
company will properly secure your lien.
-
Home
Owner's Insurance: Each
borrower, prior to funding, must provide proof
of home owner's insurance to protect the home
and mainly protect the lender's loan.
Why
would a Borrower seek a comparatively expensive private
"hard money" mortgage rather than a conventional
bank mortgage?
There
are many reasons but the two most likely are:
1)
Time Crunch: The Borrower has applied for
a conventional bank mortgage, but the time-of-the-essence
closing date is rapidly approaching, the bank is still
completing it’s due diligence, yet the Buyer/Borrower
simply has to close in a timely fashion in order to
avoid losing a hefty contract deposit or missing out
on some outstanding equity in a particular project.
After closing the bridge loan with a Private Lender,
the Borrower can then take as long as necessary to
arrange permanent financing.
2)
Transitional Property: Another typical case
would involve a Borrower purchasing a vacant property
that he plans to convert to another use. A bank would
rather finance the deal AFTER the Borrower has executed
his business plan, rented the property and created
cash flow. The Private Lender is willing to get more
deeply involved than most banks, evaluating the Borrower’s
past track record, the viability of the Borrower’s
current business plan to convert/improve the property,
as well as the value of the Borrower’s personal
guarantee or other collateral. The savvy Borrower
is also fully aware that he is only going to have
the Private Loan outstanding for perhaps 12 months,
and that paying 12% - 18% for such a brief period
of time is far LESS expensive than bringing in much
more expensive equity partners. If an owner raises
additional equity by bringing in partners, it is certain
that he will have to give up a substantial “piece
of the pie.”
How
can I participate in private mortgage and trust deed
investments?
We will submit viable loan opportunities for
your consideration and you can select which loans to
invest in. We will provide the due diligence that you
desire so that you feel comfortable and we
will help you make good decisions. WN
Funding is already staffed and equipped to do all the
needed processing for each file. Just give us a try
and we'll be glad to prove ourselves to you.
Is
it possible to achieve diversification with this type
of investment?
Diversification is one of the primary advantages of
investing within WN Funding. Our goal is to have a widely
diversified portfolio of private mortgage and
trust deed investments in order to reduce risk
as well as to achieve continuity of cash flow (in other
words, even if one mortgage is repaid, there are still
many other mortgages paying the desired rate of return,
resulting in continuous cash flow).
What
happens if the borrower defaults on the loan?
People in our country default on credit obligations.
This is a fact and we must protect ourselves from it.
We protect ourselves by structuring the loans in such
a way that you will actually make
MORE money if a borrower defaults. We
do this by securing equity. We will not make a loan
unless we are sure the value of the property is what
the borrower says it is (we use certified appraisals).
The bottom line is simply this: if a borrower doesn't
pay us back we must take the property back and resell
it to regain your investment.. but in many cases you
might actually make MORE money.
Example:
If we have a borrower with a property with the value
of $250,000. We loan him/her $125,000 (or 50% LTV)
at 15% per annum. If he/she makes monthly payments
each month for 12 months and then refinances the property
your profit margin would be nearly $18,500 in 12 months.
But let's say the same borrower decides not to pay
you back after just making two payments. You then
take the property back and place it on the MLS to
be resold. Even in s slow real estate market, if a
property is sold below value, it'll move quickly.
So let's say you list it at only 75% of what it really
ought to list for (because you want to move it quickly)
and you sold it at $189,000. After closing costs and
proceeding fees you would net apx. $175,000. Under
this scenario you would actually make a profit of
nearly $53,000 in the same 12 months. That's $35-40k
of wiggle room. Can you name ANY stock with that type
of security?
To
take back a property we would have to go through the
foreclosure process just like a bank would. The good
thing is many of the laws that apply to protecting borrowers
(slowing down the foreclosure process) only apply to
"owner-occupied" properties. This is why we
do not lend to any owner-occupants. Our loans are lent
only against non-owner occupied properties. The foreclosure
process in most states will take 3-6 months and will
cost apx. $2,000-$5,000 to hire a good attorney to handle
the proceedings for us. This is not something to be
afraid of because we will handle all the details for
you.
Am
I protected against property/tax liens?
YES! Each loan you fund will have title insurance purchased
at the exact time of closing, by the borrower to protect
you against any previous liens. Also, borrowers with
any lien that could supercede your loan are require
to pay them off prior to closing or at closing. We use
state licensed title companies or licensed real estate
attorneys to handle closings for us to be sure we can
do whatever we need to do to keep your investment safe.
We also make sure property taxes are paid on time as
required by local municipalities. Any other future liens
acquired by the borrower will be junior to your lien
so you are protected.
What
if the property burns down, is flooded, or is vandalized?
This is why we require each borrower to have property
hazard insurance and/or landlord insurance as needed,
and federal flood insurance if they are in a flood zone.
How
do you determine the value of a property?
We require each borrower to pay for a full appraisal
inspection and report. The appraisals are selected by
our office and the appraisers:
- Must
be a state-licensed appraiser
- Must
be 203(k) HUD certified
- Must
have a M.A.I. national certification
- Must
be approved by "Appraisers USA"
By using appraisers with these credentials we ensure
the best quality of work and can protect you against
any time of fraud. If we are unsure of the value of
the property, even after an appraisal, we can order
a Broker's Pricing Opinion (BPO) from a knowledgeable
real estate broker in that community or we can simply
deny the loan.
How
liquid is my investment and what time commitment do
I have to make?
Since most of our bridge loans have terms from
6 months to 24 months there is a great flexibility.
If you can only fund loans for 3-6 months, then we will
only present you with loans that will be paid off in
that time period.
However once you have committed to fund a mortgage you
should be prepared to hold that mortgage for the entire
term. If you need liquidity sooner than originally expected,
you will be able to sell the mortgage note to another
private investor (which we can arrange) but expect to
sell the mortgage note at a discount.
How
safe are private mortgage and trust deed investments?
What are some of the risks of these investments?
There are inherent protections unique to mortgage
lending which can significantly limit any downside risk
when carefully implemented in the deal’s structure
and in the mortgage documents. The biggest possible
risk, of course, is that for one reason or another the
Borrower stops paying the mortgage and at the same time
the value of the collateral diminishes. This is theoretically
a risk but in all reality we have not ever seen this
occur in our six years experience in the real estate
investing industry.
To
offset this risk factor, in most cases there will also
be one or more personal guarantees. In situations, for
example, where a property is being rehabilitated, an
interest reserve may be established to fund the interest
payments during the time that the property is being
renovated and not producing any cash flow. The key is
choosing the loans and the Borrowers very carefully
and then anticipating (and incorporating into the loan
documents) ways to offset the risk of a non-performing
loan.
Keep
in mind that the mortgage documents assess late fees
and default rates of interest that serve as powerful
disincentives for Borrowers to make any late payments
or to default on their loan obligations. If, however,
the deal has been structured properly, there will be
plenty of equity in the property to protect the Lender.
This is our expertise!
As
in any investment opportunity, the quality of the management
is of key importance. You want seasoned professionals
in charge who have many years of experience successfully
originating and managing a portfolio of private mortgages.
Next, you need to be sure that the Managers are also
investing their own personal funds, side by side with
the other investors. The Managers of WN Funding have
made a substantial investment of their personal funds
on the same terms as the other investors.
What
is the minimum investment that I can make?
A $10,000 minimum is required however most of our private
mortgages range anywhere from $30,000 - $5million. Any
amount in this range can be invested.
How
do I get started?
Click here to contact us
or call our offices at 1-877-752-5601.
If
you have a question that is not answered, please call
our office immediately at 1-877-752-5601.
DISCLAIMER:
This is a private partnership therefore
investments are not guaranteed by the FDIC. WN Funding
is not a registered security with the Securities &
Exchange Commission.
All investments are by invitation-only. Be sure to
consult your attorney, accountant, and/or other licensed
professional needed before considering any investment
or partnership with WN Funding.
|
