Wednesday, March 24, 2021

129 How Long Does It Take To Get Your Investments Back?


In today’s episode of Passive Wealth Show, Jonathan Davis, Wendy Sweet and Bill Fairman of Carolina Hard Money will answer the “ Ugly Question” of the day 0:01 - Intro Teaser 0:49 - Breaking News 4:16 - Ugly Question - How Long Does It Take To Get Your Investments Back? 15:30 - Will the money start earning returns when it goes into the fund? 19:44 - Carolina Capital Management: www.carolinahardmoney.com We discussed the different funds that you can invest into and how to do great deals that would make decent returns. The goal is to get to that change of mindset that you are no longer working hard, your money is. If you have spent a long time working for your money, now your money gets to work for you! Learn more by watching the full 30 minute video. 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.

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Bill Fairman:

Hi folks. Have you ever wondered if you've put your money into a fund cannon, will you get your money back if you need it? We'll let you know right after this. Hello!

Wendy Sweet:

Hello.

Bill Fairman:

I hope my chance to see our previous go with Tony Javier. It was really good stuff. Welcome to the Passive Wealth Ask an Ugly Question show. And this is one that most funds do not want to actually talk about. They dance around it and we're not going to. By the way, I do have some breaking news. Alright, nevermind. I really didn't. I really didn't, I just wanted to see the graphics. The breaking news is that I'm in Scottsdale Arizona where it's 30 degrees cooler than it is in my house in Charlotte.

Wendy Sweet:

Yay. Yeah, it's beautiful today.

Bill Fairman:

That's not very fair. I will have to say it was 87 [Inaudible].

Wendy Sweet:

Well, you did say, and your internet socks. You keep getting in and out.

Bill Fairman:

What, am I freezing?

Jonathan Davis:

Yeah. You keep freezing.

Bill Fairman:

Well that's mostly my personality. I think.

Jonathan Davis:

That's his long pauses between the words.

Wendy Sweet:

He's practicing.

Bill Fairman:

Don't you call that awkward silence.

Wendy Sweet:

That's exactly right.

Bill Fairman:

You know how much I hate the awkward silence. That's why I'm always gotten, Oh, look! Hawaii is cold today too. Thank you, Scott. [Inaudible]

Wendy Sweet:

It must be 70 degrees.

Bill Fairman:

Our evil man behind the curtain is unfortunately stuck in Hawaii. Darn.

Wendy Sweet:

Poor guy.

Bill Fairman:

So I really didn't, haven't gotten a chance to see any of the employment numbers this week because of an out. I haven't seen the mortgage numbers either. I'm assuming they're about the same as they were last week, so we can just move on with that.

Wendy Sweet:

A lot of stuff has not changed. And you know, we sent out a survey monkey to a lot of people on asking about more Ugly Questions that we can ask out there and we got a really great response and I'm so grateful to all of you for putting your 2 cents in and sharing with us, you know, what it is that you're interested in hearing about and I think we've got 38 new questions, which I think will be great.

Bill Fairman:

And we'll actually answer some of them. But before we get into that, I have failed to mention that we are Carolina Capital Management. We are a lender for a real estate investors in the Southeast. And if you're a borrower interested in borrowing money, go to our website, CarolinaHardMoney.com click on the apply now button. If you're a passive investor looking for passive returns, click on the accredited investor tab. Don't forget to share like subscribe hit the bell. We do have a comment section on the right side of the screen. And if you're on YouTube, I believe. And if you're in Facebook, it might be at the bottom. I'm not sure, but feel free to ask any questions you want while we're on the air. Did I leave anything out?

Wendy Sweet:

No, that was good.

Jonathan Davis:

No. I think you got it.

Bill Fairman:

Excellent.

Jonathan Davis:

Let's get to our Ugly Question.

Bill Fairman:

Our question, and I'm going to summarize the question,

Wendy Sweet:

Wait a minute, we need that noise. We need the,

Bill Fairman:

Ugly Question!

Wendy Sweet:

Now you can tell.

Bill Fairman:

I like your professional way of doing it. We need the noise. There's also visual. Noise and visual

Wendy Sweet:

I just say what comes to my brain.

Bill Fairman:

I'm going to summarize the question and it's basically when you invest in a fund, how soon can you expect to get your money back if you need it yet? So I'm going to give that first attorney answer. How do you like that over your face there, Jonathan?

Jonathan Davis:

I know, it just, it's like my own mask. Like my own little mask.

Bill Fairman:

My attorney answer is it depends and it depends on a lot of factors. What kind of fund have you invested in?

Jonathan Davis:

Exactly. Is it a closed end fund? Is it an open-end fund?

Bill Fairman:

You'll find that most funds that are syndications, where the fund is really invested into one particular project that it's going to be closed in and you're going to get, you're not going to get your money back until the project has been completed, right?

Wendy Sweet:

That's right.

Jonathan Davis :

Yeah. I mean, most of your syndications are closed in funds where, you know, sometimes there's a pref that's paid along the way. So you're getting some interest along the way,

Wendy Sweet:

A preferred rate.

Jonathan Davis:

Yeah. A preferred rate of return, whatever that may be. And then you get up, you know, whatever kicker or equity split at the end that you're supposed to get pleasure, principle back, assuming everything goes well.

Bill Fairman:

And then you can have some other funds that are, let's say they're dealing in notes and mortgages. Those typically are either going to be open-ended fund. You can still have closed ended funds where that fund is going to end that a particular period of time, but you can still move money in and out and virtually anytime. And then at the end, they're just winding it down. Or there's a maturity date of your funds. You know, the fund itself, may have an open-ended date, but your exposure to the fund may have a end date to it and then you have to recycle into something else, maybe. But I'll give you an example of our fund. You have to stay in our fund for at least 24 months. It doesn't mean. And by the way, we're not, this is not a commercial for a sale of security. Your mileage may vary, all that kind of stuff. This is indicated in purpose only. In our fund, it's 24 months. You have to be in it and you could still get your money out within the 24 months, but it's kinda like taking a CD out early cashing in your early payment penalty, if you want your money out within the 24 months and there's a, you know, a percentage of the balance you take out that you're going to be charged. There are cases where and for us, it's like 60 day written notice. And I want to be very clear it's as soon as the manager can get you the funds. Now, one of the things that fund managers have to do is while they're managing the fund, they have to make sure that there's enough liquidity in the fund to operate the fund, to make sure that you're taking care of all the investors. And you never want to put your fund in a position to where you're giving somebody money back, and you need that money to work deals That's gonna make the rest of the investors a decent return. So you never want to be cash poor in a fund. You always want to have reserves and whatnot. So you have to balance that, fortunately, with our fund it's short term loans. So you have to wait for a new investment to come in and loans to pay off and that type of thing. And because it is a short term investment every time, well being in a fund is a long-term investment. The loans we do are short-term loans. So the chances are that a loan is going to be paying off fairly quickly and the chances that somebody is going to invest new money into the fund are pretty high. So it's fairly easy to get that money back. Now, there may be times where a fund manager will freeze their redemptions for a certain period of time. I know during, you know, COVID that there was a lot of funds that not only did they freeze redemptions, but they put a freeze on people putting new money into the fund too, because they didn't want to have extra money in their fund that they couldn't invest and then that drags the yield down for the rest of the members and at the same time, they were holding all the capital. So they didn't want, there would be a like a run on the bank, so to speak. And so it takes a little longer. Now I know back in 2019, we changed the way that we lent money to others. We got out of the luxury market and we moved into the affordable housing market, which meant our expected returns were going to be a little bit lower than we first advertised when we went into business. And as you go through real estate changes that you always have to tweak it. So when our expectations were a little bit lower, we allowed anybody that was in the fund to, you know, get their money out when they could, but you had to do it in a timely manner, over a longer period of time. So the rest of the investors wouldn't suffer. So in those cases, it may take longer to get your money.

Wendy Sweet:

We'll talk a little bit about that, because I really think that's what this question was based on. And we'll get to Wendell's question here before we leave. I promise Wendell. But I think that that was really what pushed the question is, people were saying well, it takes longer than six months to get my money back, you know? What's that point?

Bill Fairman:

Yes. Okay. And in that case, it was taken a little over a year to get your money back, because we had a few people that thought that they could do better, and that's fine. I get that. And that's not what we advertise at the beginning. And we expected that. That said, we're a lot quicker now, but you could, when you have a big rush, everybody has to get in line and you have to send it out when you can.

Wendy Sweet:

Yeah. You can't have a run on the bank because if you gave everybody back their money at the same time, you would have no money to make loans with, which would make the people who were still in the fund, not be able to make any money or their returns would go down.

Bill Fairman:

Yeah, we have a fiduciary responsibility to the fund, and if you're changing and not being a part of the fund anymore, as much as we want to be your fiduciary, we have to make sure that we're first and foremost, operating the fund at a profitable level and

Wendy Sweet:

Plus, if you're doing what you should be doing. Your money is all loaned out. And it's six months is our shortest term. So it's going to take a while to get that money back in to be able to distribute.

Bill Fairman:

And we're almost caught up with that. I would say after the probably two quarters from now, it should be no more than 60 to 90 days, how's that?

Wendy Sweet:

Which is really short.

Bill Fairman:

Yes.

Jonathan Davis:

Do you take a closed end fund? I mean, let's say it's a, five-year closed in fund on a syndication. I mean, there's only two ways you can get your money out, wait until the end of the syndication, or have another investor come in and take your place.

Wendy Sweet:

And that's another good option. That's another good option, Johnathan

Bill Fairman:

And the thing is, that you can sell your shares to somebody else. It's not, you can't publicly trade these shares, and you can only sell these shares to somebody that the manager has approved and essentially what that means is they also have to be an accredited investor if you're going to sell those shares.

Jonathan Davis:

Assuming you're in an accredited fund.

Bill Fairman:

Right. The manager leaves that open because they don't mind people trading shares, they don't want someone who's not going to be a good fit for this fund either because not everybody is built to be in a fund. If you're an active investor and you like playing the game, and now you want to buy somebody shares, and you're going to be a real pain in my rear end, specifically, if you're not the passive type of investor,

Wendy Sweet:

You wanna be happy.

Bill Fairman:

No. You're not going to be happy and you're going to make me miserable. Life's too short.

Jonathan Davis:

Like if someone's passive and they're looking for long-term gains, the best kind of fun that they can get into is an evergreen fund or an open-ended fund, because you can compound that for as long as the fund is going to stay open for, you know, theoretically, forever.

Bill Fairman:

You know, it's funny, I had this conversation last night at dinner with one of our Collective Genius friends. And she was saying, she just invested in a fund with one of the, you know, one of the members. She's feeling weird about just collecting checks that she doesn't have to work for. And I'm like,

Wendy Sweet:

I'm okay with that.

Bill Fairman:

Yeah, I know. When you're an entrepreneur, you're used to being in the trenches to speak, um, it's a weird feeling that you're not working for this. And I said, well, you're just gonna have to get used to that. You need your money to give away. It's giving you time to do something else.

Jonathan Davis:

You know what I tell those people that I have those conversations with, like, you've spent a long time working really hard for your money. Now, your money gets to work for you.

Wendy Sweet:

That's right.

Jonathan Davis:

It's a change of a mindset, it's you, you know, you're no longer working hard. Your money is.

Wendy Sweet:

Absolutely.

Jonathan Davis:

It takes hard work usually for most of us to accumulate enough money that can work for us.

Bill Fairman:

Right. Yeah. That's the goal. Let's get to Wendell's question. Wendell, when the money goes into a fund, basically when does it start earning? I know it doesn't always earn right away and let me explain why. In most funds and not all, but most, if they're smart, they set it up this way. They usually pay on the month or on the quarter. And if you get new money in, on the quarter, or sometime in the middle of a quarter, it's not really fair to the other investors for that money to start earning right away. Why? Because you're adding money that hasn't been contributing into the numbers because the numbers are whatever the profit is, minus the expenses based on the amount of money under management, that's the return that everybody gets.

Wendy Sweet:

During that period.

Bill Fairman:

Yeah and if you add new money to that period that hasn't been earning, you're diluting the returns for everybody else. So what most funds set up is this subscription account that's separate from the actual fund account, and that money will go in there. Now it could be used. And in our case, if it's used, we pay 8% interest on it.

Wendy Sweet:

It usually is used.

Bill Fairman (16:50):

So it goes into a subscription account. But if we use it in a loan, we're going to pay 8% interest on it until the end of that quarter. And then it goes in with the 8% balance to the fund itself and starts earning whatever the fund makes. But you always have to have that little buffer there because it protects the investors that are in there from having their returns diluted. I hope that answered your question.

Wendy Sweet:

That was a good, solid answer. And I think one of the things

Bill Fairman:

Like most of my answers,

Wendy Sweet:

This one's different,

Jonathan Davis:

For all educational purposes, these numbers are hypothetical and, you know, your mileage may vary, right?

Bill Fairman:

Right.

Wendy Sweet:

Disclaimer. Disclaimer I think what's important to know too, is that funds are for the collective good that, you know, you can't put one person over another or one, you know, one investor over another, because they might have a million dollars in the fund where somebody else only has 300,000. You have to take everybody's benefit into account and do what's best for the entire group. Not just one or two people or the management company, you know, you can't make decisions based on that either. It has to be for the collective group.

Jonathan Davis:

How many decisions have we have we made for the, you know, not for the benefit of the management company? So we can protect the investors.

Wendy Sweet:

That's right. It that happens daily and it'll sure work your character out well, won't it?

Bill Fairman:

Wendy sound like somebody that should be running Valenzuela. It's for the collective!

Wendy Sweet:

That did sound a little socialist

Bill Fairman:

It is the whole reason that you get into a fund is for the diversity and the safety and at the same time, your money is always working once it's in there and working, it's always working,

Wendy Sweet:

Right.

Bill Fairman:

We love the note business, but when a note pays off, it's not making any money until you get it and do a new note.

Wendy Sweet:

That's right.

Bill Fairman

That's one of the benefits. And at the same time, you know, you have a chunk of change that's invested in the single assets versus many being spread out over all the assets in the fund. So that said, we're going to have to wrap this one up. I hope I answered the questions solidly on both. I know the last one was excellent. So thank you so much for joining us on the Passive Wealth Show. The Ask an Question segment. We Carolina Capital Management. We make loans in the Southeast real estate investors. Our website is CarolinaHardMoney.com. And if you're a borrower click on the apply now tab, if you're an investor, click on the, what is it?

Wendy Sweet:

Investor tab.

Bill Fairman:

No. A credited investor tab. Don't forget to like share subscribe, hit the bell, have a wonderful week. Talk to you next time.

Jonathan Davis:

Thanks everyone.

Wendy Sweet:

Have a safe trip home, Bill.

Bill Fairman:

Thank you.


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