Real Estate Investing - Benefits of Mortgage Security Pools

(EMAILWIRE.COM, March 26, 2010 ) Texas, USA - Pride of Austin High Yield Fund I (POAF) is owned 100% by the investors in the fund. POAF is more dissimilar than similar to a Real Estate Investment Trust (REIT) and a Limited Liability Partnership (LLP) but it is a hybrid of both and has so many more benefits and features than either of the other two investment vehicles. A REIT purchases real estate and manages the real estate. The investors in the REIT participate in the profits of the buying and selling of real estate with the managing entity. REIT managers generally make between 20% and 50% of the profits made on the movement of real estate. REIT managers often times do not have any of their own capital in their REIT. This diminishes the return to the investors because the management fees are so high. A REIT manager can purchase property for long term holding and can buy property at whatever value they feel is appropriate. Sometimes a REIT manager purchases property for 100% of the value because they feel that by holding it over many years it will appreciate in value. Sometimes that does not happen. Point in case, of late, many of the REITÂ’s are loosing money because their portfolio of properties has lost value.

Like a REIT, investors in POAF spread their ownership over several properties. Unlike a REIT the management company is limited to earning a fee equal to ONE PERCENT annually of the total investment in the fund. This assures that the investors in the fund are making the highest return on their investment.

The management company cannot buy a property or lend on a property for more than 65% of the value of the property. That is one of the limitations of the filing with the SEC. This benefits the investors in the fund by minimizing risk due to the higher than normal equity buffer in the property. Unlike a REIT, POAF usually moves the asset out of the fund within a year. POAF is not designed to accumulate property and hold it in hopes that the property appreciates. Unlike a REIT, POAF usually lends money and holds a first lien on the property as opposed to managing the property itself. Management comes into play only if POAF has to foreclose on the lien and take possession of the property to resell it. In this case the investors will make the profits on the sale of the property.

There are five new loans that POACP is considering making for POAF between now and April 30. $80,000 loan against a 2.33 acre tract of land zoned SF6 and valued at $250,000 located in North Austin. The terms are for 1 year, 14% plus 3 points (a 17% return to POAF). A $60,000 loan against a home located in Lakeway valued at $300,000. The terms are 1 year, 14% plus 3 points. A $30,000 loan against a home located in the DFW area with a renovated value of $75,000. This is a rehab loan and the borrower is going to sell the property. The term is 6 months, 15% plus 3 points. An $110,000 loan against a home located in Austin with a renovated value of $250,000. The borrower is a rehab investor. The terms are 6 months, 14% plus 3 points. A $15,000 purchase of a tax certificate on a property valued at $600,000 in Austin. A tax certificate is primary over a first lien and pays a return of 25% by State statue in one year or less. A holder of a tax certificate can foreclose on a property without the permission of a first lien holder. The gross yield to POAF on these 5 loans alone is $41,550. Based upon a $295,000 investment that is a 14.1% return to the fund. HOWEVER, 2 of the loans totaling $140,000 are for 6 months. POACP will easily be able to loan this money again for another 6 months adding $23,800 to the yield for a total annual yield of $65,350 or a 22.2% return to the fund. That is a huge ROI with a limited risk factor. These types of loan scenarios are why the fund is generating high returns to the investors of the funds. With commercial banks virtually shut down the demand for these types of loans will only increase.

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Pride of Austin Capital Partners
David Owen
David Owen
dfo@prideofaustin.com