Bill Fairman on Fund Expectations
Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the "Small Builder" borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and "Ground up Construction Loans" for investors only in NC, SC, GA, VA and TN (some areas of FL, as well).
As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
Hi everyone. Bill Fairman here.
Wendy Sweet as well. I'm on the phone. She, yeah, she's,
she's very interested in what we have to say right now. So I wanted to talk
real briefly about expectations when you get into a private placement fund and
the expectations that I'm talking about specifically is how liquid they are and
how easy it is to move your money in and out of funds. Now if you're in a
mortgage type fund or a note type fund, those tend to be a little bit more
liquid, right? Typically if you're in a mortgage fund, you want to look at how
long the notes are for. Now your typical consumer mortgage is, you know, going
to be a 20 or 30 year term. But the average person now, and it's longer now
than it used to be, stays in that home or stays in that loan for no more than
about 13 years.
she's very interested in what we have to say right now. So I wanted to talk
real briefly about expectations when you get into a private placement fund and
the expectations that I'm talking about specifically is how liquid they are and
how easy it is to move your money in and out of funds. Now if you're in a
mortgage type fund or a note type fund, those tend to be a little bit more
liquid, right? Typically if you're in a mortgage fund, you want to look at how
long the notes are for. Now your typical consumer mortgage is, you know, going
to be a 20 or 30 year term. But the average person now, and it's longer now
than it used to be, stays in that home or stays in that loan for no more than
about 13 years.
Okay? So basically that your money is locked up in a
contract for at least 13 years before it's going to pay off. Now, that doesn't
mean you can't get money out or if you own that note, you can certainly sell a
portion of that note or sell that note too to get liquidity back. But again,
you're taking effort to have to sell it. It's like selling a stock you have, but
it's not tradable like a stock, so it's not really quick. If you're in a fund
that owns property, a lot of times you have to wait until there's a liquidity
event in that property. So say for example, it's a syndication in an apartment
building, you either have to wait for that apartment building to sell or you
have to wait for it to refinance and then get cashed out that way. And that can
take, you know, five to seven years.
contract for at least 13 years before it's going to pay off. Now, that doesn't
mean you can't get money out or if you own that note, you can certainly sell a
portion of that note or sell that note too to get liquidity back. But again,
you're taking effort to have to sell it. It's like selling a stock you have, but
it's not tradable like a stock, so it's not really quick. If you're in a fund
that owns property, a lot of times you have to wait until there's a liquidity
event in that property. So say for example, it's a syndication in an apartment
building, you either have to wait for that apartment building to sell or you
have to wait for it to refinance and then get cashed out that way. And that can
take, you know, five to seven years.
And a fund like ours, for example, our loans typically are
written for 12 to 18 months. So the chances that a loan is going to turn over
is, is pretty good. Yeah, because there's, you know, anywhere between 60 and 80
at a time in there. But at the same time, if there's an event where, you know,
in our example we changed the way we did things and we voted a change and we lowered
expectations. So we granted people in the fund at the time they signed up for a
higher expectations. In our example, the expectations were 10% to 13% and we
lowered expectations because we were going after a different class of borrower
to protect the fund in the long run. And our expectations went down to 7% to 9%
so we gave those people in opportunity that wanted to get the higher yield, a
chance to get out.
written for 12 to 18 months. So the chances that a loan is going to turn over
is, is pretty good. Yeah, because there's, you know, anywhere between 60 and 80
at a time in there. But at the same time, if there's an event where, you know,
in our example we changed the way we did things and we voted a change and we lowered
expectations. So we granted people in the fund at the time they signed up for a
higher expectations. In our example, the expectations were 10% to 13% and we
lowered expectations because we were going after a different class of borrower
to protect the fund in the long run. And our expectations went down to 7% to 9%
so we gave those people in opportunity that wanted to get the higher yield, a
chance to get out.
Well in that particular scenario, if you want your money
out, it's not going to happen right away because you can't take 25% or 30% your
investors and liquidate them all at once. Cause now it's going to hurt all the
rest of the investors. Right. Stay in. So it's a steady pace and, and almost
almost every single situation, the fund manager makes the decision when they
can give you money back based on their fiduciary responsibility to the other
members of the fund to make sure that they're making a return that was promised
or the expectations of that amount. My moral of my story, some funds are going
to be a little bit more liquid than others, but when you're getting into a
fund, do not expect that you can get your money in and out. Those are going to
be, there are funds that do that, but there are very few and far between. It
needs to be 2, 5, 7 year commitment going forward. Okay, well thanks. Don't
forget bill at CarolinaHardMoney.com is my email address. I don't know why I'm
giving you that because I want to give you my web address.
out, it's not going to happen right away because you can't take 25% or 30% your
investors and liquidate them all at once. Cause now it's going to hurt all the
rest of the investors. Right. Stay in. So it's a steady pace and, and almost
almost every single situation, the fund manager makes the decision when they
can give you money back based on their fiduciary responsibility to the other
members of the fund to make sure that they're making a return that was promised
or the expectations of that amount. My moral of my story, some funds are going
to be a little bit more liquid than others, but when you're getting into a
fund, do not expect that you can get your money in and out. Those are going to
be, there are funds that do that, but there are very few and far between. It
needs to be 2, 5, 7 year commitment going forward. Okay, well thanks. Don't
forget bill at CarolinaHardMoney.com is my email address. I don't know why I'm
giving you that because I want to give you my web address.
[inaudible]
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Thank you so much for joining us again. Really had an awesome time. I know
Wendy did as well, so if you like what you heard and you want to see more, what
do we do?
Thank you so much for joining us again. Really had an awesome time. I know
Wendy did as well, so if you like what you heard and you want to see more, what
do we do?
You can hit one of these. I feel like the hippy dippy
weather girl, because we've got a green screen going on so we could have a cold
front moving in from Virginia or right. Come on. That's funny. I don't care who
you are so you can pick any of these other shows. We have some here. We have
some here. We have some here. Just pick one. Test it out. Right.
weather girl, because we've got a green screen going on so we could have a cold
front moving in from Virginia or right. Come on. That's funny. I don't care who
you are so you can pick any of these other shows. We have some here. We have
some here. We have some here. Just pick one. Test it out. Right.
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