FREQUENTLY ASKED QUESTIONS:
- What is Hard Money?
- These loans seem expensive; why would anybody use them?
- What property types do you lend on?
- What areas do you lend in?
- What are your typical loan terms?
- Are there prepayment penalties?
- Can closing costs be paid from loan proceeds?
- How quickly can a loan be funded?
- Can you do blanket loans?
- As a conventional mortgage broker why should I be familiar with private money loans?
- Definition of a Mortgage
- What is the difference between a Trust Deed and a Mortgage?
- What are senior and junior loans?
- What is a Mortgage Pool?
- What are the benefits of a Mortgage Pool vs Individual Trust Deeds?
- How do Mortgage Pools compare to other investment options?
- Can I invest in Mortgage Pools with my IRA?
- Can I reinvest my dividends?
- Am I eligible to invest?
ABOUT PRIVATE MONEY MORTGAGES
INVESTING IN TRUST DEEDS & MORTGAGE POOL
- What is Hard Money?
- Hard money loans seem expensive; why would anybody use them?
Although more expensive than a traditional bank private money is much cheaper and more flexible than equity. There are many reasons why people choose to work with Shepherd Capital Partners. Some of these include:- Rapid response and funding for time sensitive loans. In some cases we can fund in as little as one to two weeks.
- Shepherd’s ability to be much more flexible with our terms than traditional banks.
- We provide short-term bridge loans with no prepayment penalties.
- Bank and other institutional lending processing can be long, cumbersome and extremely intrusive. Some borrowers choose to avoid these hassles.
- There may be an opportunity to invest in a new property using some of the equity in real estate you already own. Shepherd Capital Partners can provide a blanket loan across multiple, cross-collateralized properties.
- The property may be special use, such as an assisted living facility, self-storage, church or other.
- Borrower may purchase a property with a portion of the down payment coming from a seller subordinated second loan.
- Loss of a bank loan. This can happen for many reasons, including denial of credit, broken loan covenants or excessive loan conditions.
- The borrower may have circumstances making it very difficult to obtain a traditional mortgage, such as:
- Complex ownership structures such as corporations, partnerships, LLCs, and trusts.
- Credit problems.
- Tax or mechanics liens.
- Medical problems, divorce, unemployment.
- Non-US citizens.
- The property itself may have issues that traditional bank lenders cannot work with, such as:
- Property needs renovations or improvements.
- The property is an owner occupied building.
- Capital required to increase occupancy or reposition property.
- Property has partially or almost completed construction.
- What property types do you lend on?
We lend on all types of commercial properties, including:- Multi-family
- Office buildings
- Retail properties
- Flex-space
- Self-storage
- Medical/Dental/Veterinary
- Senior housing/Assisted living
- Churches
- Student Housing
- Hotel/motel properties
- Gas stations
- More
- 1-4 unit residential properties are considered on a case by case basis
- What areas do you lend in?
- What are your typical loan terms?
- Are there prepayment penalties?
- Can closing costs be paid from loan proceeds?
- How quickly can a loan be funded?
- Can you do blanket loans?
- As a conventional mortgage broker why should I be familiar with private money loans?
- Definition of a Mortgage
- What is the difference between a Trust Deed and a Mortgage?
- What are senior and junior loans?
- What is a Mortgage Pool?
- What are the benefits of a Mortgage Pool vs Individual Trust Deeds?
- Diversification.
- High annual returns on your investment dollars.
- Professional, dedicated management.
- Regular distributions paid by the fund.
- The ability to compound your returns by reinvesting your distributions.
- The ability to invest through your IRA or other retirement accounts, earning high yields tax-deferred or tax-free.
- Virtually no paperwork or management hassles.
- Your invested capital is secured by significant protective equity in real property.
- The ability to remain invested, and earning, at all times.
- Oversight by a variety of state and federal regulatory agencies.
- How do Mortgage Pools compare to other investment options?
- Can I invest in Mortgage Pools with my IRA?
- Can I reinvest my dividends?
- Am I eligible to invest?
There is a lot of speculation as to where the term “hard money” comes from. Some say it’s because the loans are often on “hard to finance” situations. Wherever the name came from, hard money lending is generally done with private, rather than institutional money. This means the hard money lender has significant flexibility in structuring a loan to fit your unique needs, and can fund deals that conventional mortgage lenders can’t or won’t touch.
We lend almost exclusively in California, though we may occasionally consider a deal in a neighboring state.
Above all we provide flexibility in structuring a loan to meet the client’s unique situation and requirements. That being said, most loans are relatively short term, 6 months to 5 years, interest only with a balloon payment at the end. Other terms may include options to extend or interest reserves.
In keeping with our mantra of flexible terms for the client, in almost all cases the loan can be repaid at anytime during the term with absolutely no penalties.
Yes, as long as there is enough equity in the project. This is the case most of the time.
In extreme cases loans can be funded in as little as a few days, but we prefer to work with at least two to three weeks.
Yes, blanket loans, also known as cross collateralization, are a commonly used technique to fund hard money loans.
The mortgage industry is changing rapidly and traditional mortgage brokers are getting squeezed from every direction. Many lenders are reducing or eliminating their wholesale loan programs and investing heavily to provide direct, online lending to borrowers. Often, traditional check-the-box loans can be processed in an assembly line manner, translating to loan processors and web based systems.
Flexible, customized, value-added lending cannot be automated and requires a broker to work closely with both the client and the lender to understand the requirements and craft a unique financing solution. Establishing a niche is the key to surviving and thriving in the mortgage industry today and well into the future. Private money lending caters precisely to this valuable niche where no two solutions are alike.
A real estate loan generally consists of two parts: a promise by the borrower to repay the loan, known as a Promissory Note, or just Note; and a recorded document known as a Deed of Trust (also called a Trust Deed or Mortgage depending on the state) that serves as public evidence of the debt and places a “lien” on the real estate. So the Promissory Note is a promise to pay and the Trust Deed secures that promise with the value of the property being borrowed against.
The terms Trust Deed and Mortgage are often used interchangeably and, while there is a difference, in most cases it’s not a problem. Generally the most relevant difference is the foreclosure process. A mortgage uses a judicial foreclosure process, entailing legal filings, long court delays and redemption waiting periods, and the general uncertainty of the outcome of a court process. A trust deed uses a non-judicial foreclosure processes based on the document’s power of sale clause. Although the borrowers (trustors) still own the property they have passed their claim to title for the term of the loan to the lender, or more typically a 3rd party trustee such as a title company or attorney. If there is a default on the loan the trustee has the power to sell the property to repay the loan. Almost all real estate loans in California use Trust Deeds.
There is a clear pecking order as to who gets paid first on a piece of real estate. Debt holders (lenders) always get paid back before equity holders (owners/landlords.) If there are multiple lenders there will be an established payback order for them too. The senior lender (or 1st lien holder) is the first loan to be recorded against that property. Any loans recorded subsequent to the 1st lien are called junior loans. In the event of a default the senior lender will get paid back in full before anything is paid to the junior lenders, so junior loans are riskier than senior loans. When considering investing in any mortgage loan it’s critical to consider the protective equity in the property, regardless of the lien position.
A mortgage pool is a professionally managed fund which earns a high return by making many loans against real estate. When you put money in the mortgage pool you own a piece of that fund and the money it makes on all the loans in the portfolio.
In general Notes and Trust Deeds are a highly attractive investment option, but doing them one by one is a tremendous amount of work and significantly increases your risk of making a bad loan. Mortgage pools provide a wide variety of benefits to the investor, just some of which include:
There are a lot of investment options today ranging from simple to highly complex, but for most investors there are always two primary elements to consider with any investment option: risk and return.
Mortgage pools, particularly commercial mortgage pools, provide among the best risk-adjusted return in the market today. There are other investments that may return more, but their volatility is very high –and the security low. Good commercial private mortgage pools have historically returned 10% and above consistently, regardless of market conditions, with very little volatility. You certainly can’t say that about the stock market, mutual funds, or CDs!
Yes! Very few investors realize that they can invest in mortgage pools with their IRA and grow their wealth with all the tax advantages provided by these accounts. (Sadly, many financial advisors, accountants and attorneys are also uninformed about this exceptional investment opportunity.) Investing in a commercial mortgage pool with your IRA, compounding the interest, plus all the tax advantages, makes this one of the most powerful long-term wealth creators available to investors today.
For more information on using your retirement account to invest in notes, trust deeds and other real estate see our Self-directed IRA: Frequently Asked Questions.
Absolutely! One of the most powerful benefits of Shepherd’s commercial mortgage pool is the option to automatically reinvest your distributions to take advantage of compound growth. Combining a high yield investment like a commercial mortgage pool with the power of compound interest is something every investor should consider.
To be eligible for Shepherd’s commercial mortgage fund you must a resident of the state of California or a non-US citizen residing abroad. In addition you must have either 1) a net worth of $250,000 (excluding your primary residence) and an annual income of $65,000, or 2) a net worth of $500,000 (excluding your primary residence.)
