There are many ways to invest into real estate development projects. We typically arrange three types of loans or syndicated transactions. Depending on the type of the transaction, your interest in the loan is secured differently, and your return and investor requirements will vary:

Trust Deed Investing

Trust Deed investing is a loan transaction just like your mortgage on your house. Trust deeds are recorded against the subject property at the county of the location of the property together with the note. We typically do 2^nd and 3^rd trust deeds that go behind an institutional 1^st loan. Investors receive a copy of the promissory note specifying the terms of the loan, and a copy of the trust deed once it’s recorded with the county, which some times can take weeks. When the loan is paid off, the investors sign and notarize Reconveyance of their trust deed or of their partial interest in the trust deed, which is then recorded off the property. If the borrower stops paying on the note, trust deed holders have the right to foreclose on the property and sell it at an auction to repay their loan. Investors typically receive either monthly interest payments or project-end bonuses, or combination of the two. This works best for shorter-term projects with most of the value of the property confirmed with the “as is” appraisal and for some construction projects, where first lenders allow a junior trust deed.

Mezzanine Financing 

Mez loan is a form of gap financing largely used by developers, builders, and other “project-driven” borrowers who are looking to add value to the property, since the value of the property will not be materialized until the project is finished, Mez loan is typically secured by a promissory note against the shares or other interest in the company that owns the project/property. If the borrower stops paying on the obligation, the lender takes over the company that owns the property, which is much faster than the foreclosure process. Investors typically receive either monthly interest payments or project-end bonuses, or combination of the two. This is an increasingly more popular structure of the loan due to the ease of foreclosure process and the ease of the loan documentation.

Syndication

Syndication is typically used for larger and longer projects, where monthly payments can become burdensome on the borrowers during the term of a long project. With this type of group financing, the investors become shareholders/part owners of the entity that owns the project or the property, typically a single-purpose LLC or LP, and become true investors in every sense of the word, because their return on the investment will now depend on the success of the project overall, i.e. they share all the risks and rewards together with the borrowers, who are now called “sponsors” of the project. There are no monthly payments due to the investors, just distribution of principle and profits at the end of the project. Due to higher risk of such investments, returns are also higher, however, not everybody is qualified to participate in such investments, certain restriction apply. To participate in such projects, the project sponsor prepares a Private Placement Memorandum (PPM), which outlines the offering, its risks and rewards, and number or percentage of shares available to the investors. Investors purchase the shares in the company, and receive their stock or membership certificate as a security for their investment.

Contact us to discuss your investment goals and see which investment type meets your criteria. Remember, you can start even with a $5,000 investment, the main thing is to start and learn by doing.

Contact Mercury Capital Group Inc. at (760) 597-9700 or email to info@RECapitalLink.com