Private real estate investment is getting a lot of press. The idea has merit, with low yields on CDs, and the uneasiness of the ebb and flow of the stock market. With crowdfunding, in its infancy, with limited rules, it’s confusing, it could even be a scary world to have faith in. There are alternatives. Job’s law of 2012 allowed public ad spend to be privately available. These are currently “limited” to “sophisticated” investors, with equity requirements by the SEC under section “D” of the 506 (C) regulations. The investments are recognized, but not backed by the SEC with a private placement memorandum (PPM), however a clearer offer is presented. This is not a business plan, but rather a lucid approach with risks, including a total loss of investment. Investors are used to this, with very little guarantees of investing as a whole.

What are the reasons you consider this financing program a “new deal” for the average investor? The investor gains a solid understanding of the investment, rather than the pertinent trivia of the multinational corporation or its commissioned sellers. Instead of getting the diluted yield spread after commissions and overhead, the investor matches up with the client (s), borrowers, and the service provider that originates, formulates, and administers the loan. An optimized and profitable process. Returns can exceed CD rates and hedge funds. The service provider may be the key, after all, not all private investments are created equal. As a private investor, you must take responsibility for underwriting your service provider and their offerings, and hold them accountable.

Elements to consider. How much of your investment capital goes directly to the project? There is a lot of leeway in organizational costs and development expenses. If you expect a good return, starting with a significant amount of your capital mined early to fund expenses and commissions is not a good start! With all of your funds arriving intact, directly into the project, you have a much higher probability of a return on your capital and a return on your capital.

What is your guarantee? In a debt security, the value of the borrower’s shares, considered “the skin in the game”, is a vital question. The idea, for example, that debt investment, not necessarily project property, is more secure, coupled with a value-sensitive loan and a sufficient debt ratio, ensures the safety-to-return ratio. With banks currently shy and pulling out of high street lending, there is a great opportunity for very high quality loans, through a debt investment, with the hub of a comprehensive first mortgage and security agreement, with caveats and loan protections.

In the old-fashioned mindset, that “if it squawks like a duck, it must be a duck! So if it doesn’t make sense, don’t do it! The most important thing is always, how do you get reimbursed? Sheet with cash flow and an index enough monthly debt, it’s a solid start. I personally don’t want to “assume” or predict the future, or participate in “if it comes” scenarios. I want to be sure that what has happened is likely to repeat itself , with the current management and the economic climate we cannot make a crusade, reinvent the wheel, turn a sow’s ear into a silk bag.

Finally, what is the exit strategy? Once involved, you need to find out how and what procedures are available for an exit strategy. Assuming the loan will expire with a short window, and if that window matches your equity investment, it may be a “held to maturity” investment. Other possibilities are longer term with interest rate adjustment periods, so your investment is up to date and inflation proof. In 506 (C) investments, there is a requirement to hold the investment for one year. This is not the space for daily traders. After one year, the investment is a “safe harbor” investment that can be sold publicly, but not on registered stock exchanges. There is no guarantee that there will be a buyer with a suitable offer! Internal transactions with the service provider and other stakeholders who can increase their holdings might be the best market.

Proceed with caution. I would suggest a philosophy of personal underwriting, of valuing the qualities of the investment. With the investor and the borrower on an equal footing. We can refer to this as synergy. In my opinion, the borrower cannot be successful without the investor’s funds, the investor’s value and earnings require the borrower’s vision and management to succeed. You would be well aware that 100% of the value of your investment capital is put to work, in its entirety, in investing debt, backed by a first real estate mortgage, in a remote bankruptcy structure, restricted external loans and Internal cash flow demonstrated with Fixed Rate Monthly Returns. Remember, no investment is suitable for all investors. However, knowledge is always an investor’s best friend.