SRCapitalManagement.com. Generating Wealth Through Private Lending

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1 SRCapitalManagement.com Generating Wealth

2 Welcome to Private Lending Disclaimer This presentation and its associated training materials are proprietary to SR Capital Management. Copies may not be made without the express written permission of SR Capital Management. The information contained in this document is subject to change and supplementation without prior notice.

3 Welcome to Private Lending During this presentation you will learn how to PRIVATE LENDING OBJECTIVES Earn high yields, secured by safe real estate. Stay in control of your money. Receive predictable monthly payments. Let s look at the agenda to get started

4 1 What is Private Lending? AGENDA 2 3 Benefits of Private Lending. Why would a Borrower use a Private Lender? 4 How Private Lending Works. 5 Risks and the Time for Private Lending.

5 1 What is Private Lending? AGENDA

6 What is Private Lending? Before we get into what Private Lending IS, let s highlight what Private Lending is NOT... STOCKS BONDS WALLSTREET CERTIFICATE OF DEPOSIT

7 What is Private Lending? Let s begin by defining Private Lending... PRIVATE LENDING Refers to an individual making a loan to another individual with real estate as collateral. You are the bank. Your name is on the promissory note. Your name is on the recorded deed of trust.

8 What is Private Lending? Private Lending works just like a bank using the 3-M s THE 3-M s MAKING the rules. MOVING risk to the Borrower. MAKING money.

9 What is Private Lending? Private Lending is also known as

10 What is Private Lending? Why haven t I heard of Private Lending? BECAUSE Wall Street and Financial Institutions Don t make money from it.

11 2 Benefits of Private Lending. AGENDA

12 Benefits of Private Lending Let s start by going over the benefits of Private Lending BENEFITS Investment is continually secured by tangible property which has a greater value than monies invested. This ensures that your money is well protected by a very conservative loan to value (LTV). Relative safety as it provides a lower risk investment when compared to other investment opportunities. Delivers greater returns than other investment opportunities while still providing excellent downside protection. Provides predictable monthly payments where you, as the bank, receive payments first. If the Borrower doesn t pay you get the property. Deals are short term which keeps you in control of your money. Now we ll look at examples of each benefit

13 Benefits of Private Lending BENEFIT 1 Investment is continually secured by tangible property which has a greater value than monies invested. This ensures that your money is well protected by a very conservative loan to value (LTV). Let s take a look at an example

14 Private Lending Example VALUE: $500k PROTECTIVE EQUITY: $175K (35%) LOAN: $325K (65%) There is a $500k house in the Southern California area. Protective Equity The cushion which protects the Investor s loan during potential downward cycles. NO MORE than 65% of the loan to value (LTV) would be lent against this asset.

15 Benefits of Private Lending BENEFIT 2 Relative safety as it provides a lower risk investment when compared to other investment opportunities. Let s take a look at how Private Lending compares to Stocks and Conventional Banks

16 Generating Wealth Private Lending Comparisons PRIVATE LENDING STOCKS BANKS Immediate passive cash flow generator. Not good for cash flow. No cash flow. No costs involved. Costs involved. No costs involved. Working with experienced Private Lending professionals. Working with experienced, commission based professionals. Short term 6-18 months. Short or long term depending on volatility and speculation. Relatively secure as it is backed by safe real estate (collateral) that has a value greater then monies invested. Higher and more stable returns than stock market. No security, collateral, or protective equity. Much lower returns unless timing is good. Volatile, involves speculation and emotional aspect of other investors. Results in less predictable and inconsistent returns. Using published bank interest rates and term for yield or cash on cash return. Minimum 12 months. FDIC insured. Stable but consistently low returns.

17 Benefits of Private Lending BENEFIT 3 Delivers predictable returns compared to other investment opportunities while still providing excellent downside protection. Let s look at the potential for Private Lending, as well as a snapshot in history of the Stock Market and Bank CD/IRA s

18 Private Lending Potential Typical rates an investment could earn 8% 7% 9% 6% Private Lending Interest Rates 10% And sometimes as high as 12-15%

19 Private Lending Comparisons STANDARD CD/IRA: Less than 1% S&P 500: Volatile/Unpredictable Data as of August 2012

20 Benefits of Private Lending BENEFIT 4 Provides predictable monthly payouts where you, as the bank, receive payments first. If they don t pay you get the property. Let s look at the potential monthly payouts based on various investment amounts and return percentages

21 Potential Monthly Payouts Private Lending Monthly Payout Chart $50,000 Investment $100,000 Investment $250,000 Investment $500,000 Investment 6% Return 8% Return 10% Return 12% Return $250 $333 $417 $500 $500 $667 $833 $1,000 $1,250 $1,667 $2,083 $2,500 $2,500 $3,333 $4,167 $5,000

22 Benefits of Private Lending BENEFIT 5 Deals are short term which keeps you in control of your money. Let s look at what that means

23 Benefits of Private Lending Short term deals (6-18 months) are desirable because SHORT TERM INVESTMENTS Structured to protect the investment against potential downward cycles using protective equity and term. Reduces overall risk of the principal investment. When the term concludes or the home is sold CONTROLLING YOUR MONEY Principal funds are deposited back into your bank account immediately. Allows for greater flexibility to reinvest in another high performing opportunity.

24 AGENDA 3 Why would a Borrower use a Private Lender?

25 The Borrower and Private Lending A common question is: Why would a Borrower choose a Private Lender and be willing to pay as high as 12%, or even higher, instead of using a Conventional Bank with lower rates? To answer the question, we need to look at the benefits for the Borrower BENEFITS FOR THE BORROWER IMMEDIACY Access to capital much faster than conventional lenders. ASSET BASED UNDERWRITING Borrower qualifications can be subordinate to value of the property. TIMELINESS Conventional lenders are not fond of short term loans. IMPROVEMENT COSTS Rehab Loans can include the cost to improve the property, thereby increasing equity. NUMBER OF LOANS Traditional lenders limit the number of loans.

26 AGENDA 4 How Private Lending Works.

27 How Private Lending Works Simple, we break it down into THE 5 STEP PROCESS Borrower Requests Loan & Submits Documents Lender Assesses Project & Establishes Terms Investor Introduced to Project & Commits Escrow Initiated to Completion Investor Payout REMEMBER: YOU ARE THE BANK

28 How Private Lending Works What does it cost the Investor to participate? Unlike financial institutions, e.g., Morgan Stanley, Goldman Sachs, Charles Schwab, etc. Charges No Investor Fees. EVER! SRCapitalManagement.com

29 How Private Lending Works A typical investment INVESTOR DEAL POINTS 25% - 70% loan to value (LTV) which translates to a protective equity of 75% - 30% on the monies invested. 6 to 18 month term. 1st or 2nd deeds of trust depending on deal structure. 6% -10% interest rate. Types of properties: Non-owner occupied, 1-4 unit residential properties. System in place for Borrower rehab loans for fix & flip deals that pay a bonus to the Investor after the sale.

30 How Private Lending Works How is the investment protected? PARTIES INVOLVED TO PROTECT THE INVESTMENT TITLE COMPANY Issues title insurance to insure the loan and works with escrow for bank to bank wiring for the Private Investor. ESCROW COMPANY Manages the paperwork and the process. Records the deed of trust against the property. LICENSED APPRAISER/REAL ESTATE BROKER Verifies a conservative value of the property with an appraisal or broker price opinion (BPO). LICENSED MORTGAGE BROKER Ensures proper documentation is complete and laws are maintained. FORECLOSURE COMPANY Handles delinquencies for the benefit of the investment.

31 How Private Lending Works How does the Private Lender make money? It s simple The Private Lender collects a spread between what is collected from the Borrower and what is paid to the Investor. SR CAPITAL MANAGEMENT Analyzes the prospective opportunity. Structures the deal. Coordinates, monitors, and facilitates the entire process from start to finish. Protects your interests every step of the way. Gives you the majority of the profits.

32 AGENDA 5 Risks and the Time for Private Lending.

33 The Risks & Mitigations Every investment has risk RISKS What if the Borrower has a late payment? What if the loan defaults? Why will very few make it all the way to a foreclosure auction? One of the most important things to look at in a deal is the value of the property. How do you know that the value of the home we are lending is not an inflated value? MITIGATIONS Expect that the Borrower will have at least one late payment. You get paid more from Borrower penalties. Some loans will default and go into foreclosure. Very few make it all the way to a foreclosure auction. There is simply too much protective equity to lose by the Borrower. Remember, when we structure deals we are moving risk to the Borrower, just like the banks. We cross verify the value of the home by an independent, licensed 3 rd party value analysis, providing an appraisal or broker price opinion just like a bank would require.

34 The Risks & Mitigations Every investment has risk, continued RISKS What happens if we experience another real estate crash like in 2008? MITIGATIONS We mitigate the time that the note is exposed to the market by creating short term loans. What is the risk for the Borrower? What if we have to foreclose? The Borrower has to bring cash or property collateral to the transaction. Again, we are always moving risk to the Borrower. A foreclosure takes about days and will result in the Borrower losing any interest and equity in the transaction. What does a foreclosure cost the Investor? Nothing. SR Capital Management handles the charges upfront and recoups the fees after taking control of the property.

35 Time for Private Lending The timing and conditions for Private Lending are ideal The Perfect Storm has been created by current economic challenges ECONOMIC CHALLENGES Tight credit markets. Home values down. Increase in foreclosures. Distressed banks. Limited opportunities for Borrowers to purchase properties.

36 Time for Private Lending What are the next steps? THE TIME FOR PRIVATE LENDING IS NOW Contact SR Capital Management to take advantage of this unique economic environment to start generating wealth with Private Lending. The Perfect Storm has created this limited window of opportunity. Don t miss out Take action today! David Stromswold david@srcapitalmanagement.com SRCapitalManagement.com

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