Jeffrey D. Smith, General Manager STARFURY CAPITAL MANAGEMENT LLC - RADIANT WEALTH CREATION

Transcription

1 STARFURY CAPITAL MANAGEMENT LLC Jeffrey D. Smith, General Manager 1

2 INVESTMENT OPPORTUNITY To the extent that any of the proposed transactions referred to herein would be deemed, under federal or state securities laws, to be the offer or sale of a security, be advised that the securities described herein have not been registered under the securities act of 1933, as amended, or applicable state securities laws. The securities described herein have not been approved or disapproved by the Securities and Exchange Commission (the SEC ) or any state securities commission or other regulatory authority of any jurisdiction; nor has the SEC or any such state securities commission or regulatory authority passed upon the accuracy or adequacy of the information contained herein, or the merits of the securities described herein, nor is it intended that they will. Any representation to the contrary is a criminal offense. The securities described herein, if any, may not be sold, nor may an offer to buy be accepted, prior to the time an offering document describing the offering and disclosing the risks of an investment in the securities is delivered in final form. Under no circumstances shall the information contained herein constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale is unlawful. 2

3 COMPANY OVERVIEW 3

4 COMPANY OVERVIEW Starfury Capital Management LLC We invest in notes secured by residential and commercial real property. We gather together accredited investors and experienced sophisticated investors as a group of private financiers for structured financing to invest in real estate notes. The minimum yield to our private financiers for 1 st lien notes is 8%. The minimum yield to our private financiers for 2 nd lien notes is 14%. We use structured financing tranches to increase yield and reduce risk. We borrow funds from our private financiers to acquire the notes. We hypothecate (pledge) the note as collateral to our private financiers. We manage the acquisition, servicing, and disposition of the notes. 4

5 EXECUTIVE MANAGEMENT 5

6 GENERAL MANAGER Jeffrey D. Smith, General Manager Jeffrey D. Smith has over 10 years of experience in real estate financial investment analysis, including over 5 years as a licensed Colorado Real Estate Broker. He has excelled in dozens of real estate law and investment classes, and published articles, books, and educational videos on real estate investing. He has authored dozens of sophisticated Excel spreadsheets for real estate analysis and financial modeling. He sells some of his financial modeling Excel spreadsheets and investment courses to real estate investors. He presents educational real estate investing courses both for online and live seminar formats. He provides private consultation services to wealthy real estate investors. Jeffrey D. Smith is fully trained in all aspects of private commercial mortgage finance. His business acumen and leadership skills provides the expertise for personally negotiating contracts with attorneys and executive management, and financial analysis and structure. As General Manager, Jeffrey D. Smith is responsible for vetting and selecting the Power Team of local professional service providers (property & note sourcing, attorney, real estate broker, property management, title company, insurance), negotiating contracts, and supervising the transaction from start to finish. 6

7 POWER TEAM FUNCTIONS 1. Property & Note Sourcing Listing Brokers: Pocket listings, website registration for notification. Property Management Companies operating in the target markets (irem.org). Commercial Listing Websites: LoopNet.com, CoStar.com, CraigsList.org. Residential Listing Websites: Realtor.com, ForSaleByOwner.com, FSBO.com. 2. Due Diligence Financial, Physical, and Legal due diligence performed by local professionals. 3. Escrow Nationally recognized title and escrow services. Loan servicing by reputable insured company or local bank. 7

8 THE RADIANT WEALTH CREATION FORMULA 8

9 INVESTMENT STRATEGY Purchase seller finance notes, either 1 st lien or 2 nd lien (wraparound) position. Use structured financing tranches with multiple participants to increase yield and reduce risk. Fast closings with seller financing and private financing, both debt and equity. Create a substantial cash flow portfolio on an asset-by-asset basis in middle to upper markets. Exit strategy is for Payor to refinance or resale the asset to redeem our private financing note for rolling into the next transaction. ACQUISITION CRITERIA Luxury, high-end, exquisite homes in the $1,000,000 to $5,000,000 price range, possibly higher in some communities. We consider well-performing, quality commercial income properties. Primary geographic focus is in the "sand states" of Arizona (Phoenix and Tucson), Colorado (Fort Collins, Denver, and Colorado Springs), Nevada (Las Vegas and Henderson). We will also look in Texas and Oklahoma ("oil patch") as a secondary priority. Locations are in the established higherend communities. 9

10 1234 LAKEVIEW DR, ANYTOWN, AX Live the dream at AnyTown Lake, a gated, private lake community! 10

11 EXQUISITE DESIGN 11

12 ELEGANT LUXURY 12

13 TRADITIONAL SALE TRANSACTION The Traditional Sale Transaction is the most familiar way of selling a property. The buyer provides all cash at closing. Some of the cash is equity as a down payment. The remainder of the purchase price is new debt from a 3 rd party lender. 13

14 TRADITIONAL SALE TRANSACTION HAS NON-QM HURDLES FOR THE WELL-QUALIFIED BUYER The Traditional Sale Transaction has difficult hurdles even for the well-qualified buyer. Non-Qualifying Mortgage (Non-QM) loans have onerous requirements: Most jumbo lenders require at least 700 FICO credit score. 20% down up to $750, % down from $750,001 to $2,000, % down from $2,000,001 to $3,000,

15 TRADITIONAL SALE PARAMETERS Fair Market Value (FMV) Existing Equity 35.00% Existing Debt 65.00% Annual Interest Rate 6.00% Amortization Periods 300 Monthly Payment Purchase Price Redeem Existing 1 st Lien Gross Cash to Seller at closing Closing Costs 1.50% Real Estate Broker Commission 5.00% Net Sale Proceeds Required Cash Out to Seller Investment Proceeds Annual Yield 5.00% Monthly Income 84 Total Monthly Income Redeem Investment Proceeds Total Investment Return Cash to Seller at closing Total Cash to Seller $1,975, $691, $1,283, $8, $1,975, $1,283, $691, $29, $98, $562, $275, $287, $1, $100, $287, $388, $275, $663, ($691, equity) 15

16 SELLER FINANCING SALE TRANSACTION The Seller Financing Sale Transaction is a creative way of selling a property. The buyer provides some cash at closing. Some of the cash is equity as a down payment. The remainder of the purchase price is new debt from the seller acting as a lender. The seller originates one or more promissory note and security instrument, mortgage or trust deed. The seller can keep or sell the note to a 3 rd party. The seller usually sells the 1 st note and keeps the 2 nd note for cash flow. 16

17 SELLER FINANCING 1 ST LIEN AND 2 ND LIEN Fair Market Value (FMV) Discount Points 6.00% Purchase Price Down Payment 25.00% 2 nd Lien Seller Finance Note 15.00% 1 st Lien Seller Finance Note 60.00% Annual Interest Rate 9.75% Amortization Periods 300 Monthly Payment Maturity 84 1 st Lien Note Purchase Yield 11.00% Private Financier Yield 8.84% Private Financier Monthly Income 84 Private Financier Total Monthly Cash Private Financier Maturity Private Financier Total Return $1,975, $118, $2,093, $523, $314, $1,256, $11, $1,137, $1,182, $10, $846, $1,023, $1,870, (compensate for risk) (56.48% ITV) (amortizing) ($1, to company) ($113, to company) (1.58 equity multiple) 17

18 2 ND LIEN SELLER FINANCE NOTE 2 nd Lien Seller Finance Note 15.00% $314, (versus $287,820.00) Annual Interest Rate 11.50% Amortization Periods 300 Monthly Payment $3, (versus $1,199.00) Maturity 84 $290, st Lien Note Purchase Yield 11.00% $1,182, (56.48% ITV) Down Payment $523, Redeem Existing 1 st Lien $1,283, ($691, equity) Gross Cash to Seller at closing $422, Closing Costs 1.50% $31, Finance Consultant Fee 2.50% $52, Real Estate Broker Commission 5.00% $104, Net Cash to Seller at closing $233, (versus $275,000.00) Total Monthly Payments $268, =84 $3, nd Lien Maturity $290, Total Cash to Seller $792, (versus $663,536.00) 18

19 THE WRAPAROUND NOTE A junior lien can include one or more senior liens, called "wraparound" (WRAP) or "All-Inclusive Trust Deed" (AITD). The wraparound note payments are sent to a neutral 3 rd party loan servicing company, or a CPA escrow account, or a bank collections department. The note payor pays the nominal servicing fee. The servicer pays the liens in priority order, and then any remaining funds to the note holder. A maturity (balloon) payment on the wraparound note also pays the senior liens in priority order, and then pays any remaining funds to the note holder. 19

20 2 ND LIEN WRAPAROUND INVESTMENT Fair Market Value (FMV) Discount Points 6.00% Purchase Price Down Payment 10.00% 2 nd Lien Investment to Value 90.00% Incentive Fee 0.00% 2 nd Lien Seller Finance Wrap Note 90.00% Annual Interest Rate 9.75% Amortization Periods 300 Monthly Payment Maturity 84 Redeem Senior 1 st Lien Maturity to Seller Net Maturity to Note Buyer 2 nd Lien Wrap Note Purchase Yield 20.00% Private Financier Yield 15.07% Private Financier Monthly Income 84 Private Financier Total Monthly Cash Private Financier Maturity Private Financier Total Return $1,975, $118, $2,093, $209, $1,884, $0.00 $1,884, $16, $1,706, $1,079, $223, $403, $254, $2, $228, $322, $551, (compensate for risk) (well-qualified buyer) (varies with points) (73.46% ITV) (compounding) ($ to company) ($80, to company) (2.17 equity multiple) 20

21 2 ND LIEN SELLER FINANCE WRAPAROUND NOTE 2 nd Lien Seller Finance Wrap Note Annual Interest Rate 9.75% Amortization Periods 300 Monthly Payment 1 st Lien Monthly Payment Note Buyer Monthly Cash Flow Seller Monthly Cash Flow $1,884, $16, $7, $3, $5, (versus $3,191.97) 2 nd Lien Wrap Note Purchase Yield 20.00% $254, (73.46% ITV) Down Payment $209, Gross Cash to Seller at closing $463, Closing Costs 1.50% $31, Finance Consultant Fee 2.50% $52, Real Estate Broker Commission 5.00% $104, Net Cash to Seller at closing $275, (versus $233,594.30) Total Monthly Payments $462, =84 $5, nd Lien Maturity $223, Total Cash to Seller $960, (versus $792,348.55) 21

22 HIGHER YIELD AND LOWER RISK WITH THE WRAPAROUND NOTE Most note buyers are too risk-averse to leave an existing lien on title. They will price the wraparound note to redeem the existing lien, and any remaining investment funds go to the note seller. Some 1 st liens are too expensive to redeem with prepayment penalties, yield maintenance and defeasance restriction, or the note Payee can legally refuse principal redemption according to the lock-out terms of the note. A wraparound note is the only solution for the seller. We consider these caseby-case. Our Competitive Advantage: Buying a wraparound note and leaving in place the existing senior debt can provide much higher yield through leverage and reduce risk by lowering the amount of investment to acquire control of the cash flow. This is how banks achieve leverage by borrowing low cost funds, marking up the rate, and then re-lending to consumers. 22

23 BENEFITS OF THE WRAPAROUND NOTE Proper leverage is the key to wealth creation. The wraparound note provides leverage for both the property seller and the note buyer. The cash at closing, monthly cash flow, and maturity (balloon) payment are much higher for the seller compared to selling a 1 st lien seller financing note and retaining a 2 nd position seller financing note. This is achieved by leveraging the existing 1 st lien debt from a liability into an asset. The low investment to buy the 2 nd lien wraparound note and retain the existing low interest rate 1 st lien reduces exposure to default. There is less money at risk, and that money is earning a much higher yield compared to buying a 1 st lien note. More notes (i.e., cash flows) can be bought by reducing the investment per note, thus diluting the risk and increasing the total yield. In the example, the note buyer can acquire many 2 nd lien cash flows compared to the one cash flow from a 1 st lien note, and the yield is much higher. 23

24 WHAT ABOUT THE DUE ON SALE CLAUSE? Almost all residential mortgage loans have a "Due on Sale" or "Due on Transfer" clause that allows, but not requires, the note holder to accelerate the loan (i.e., call due the unpaid principal balance) when ownership of the collateral is transferred to an unrelated 3 rd party. If the payments are kept current and the fair market value is maintained, then there is no reason for the senior note holder to foreclose. During times of stable or declining interest rates, there is no incentive whatsoever to foreclose on a performing loan. Lenders DO NOT WANT the property; they WANT THE PAYMENTS. The Investment to Value (ITV) ratio at 80% of purchase price provides sufficient equity margin for us to initiate our acceleration clause against the note Payor, or offer "cash for keys" through a "Deed in Lieu of Foreclosure", and then resale the asset to redeem the senior lien and our investment, or resale with a seller financing wraparound note. 24

25 BENEFITS OF INVESTMENT GROUPS Private financiers can be grouped together to invest in a note or a portfolio of notes. Investment groups further reduce the risk by spreading the total funds over a group of several private financiers, thus reducing the required funds from each private financier. For example, an investment to buy the 2 nd lien wraparound note could be spread between five private financiers at one-fifth cost per financier. The higher yield is pro-rata shared across the investment group. Participating in an investment group to finance our purchase of a note maintains the high yield and increases the private financiers' ability to investment in multiple notes. The note or portfolio of notes is hypothecated (pledged) as collateral to the investment group for their loan to us to buy the note or portfolio. The private financiers are pari passu (equal stance) in proportion to their capital contribution to the investment group. 25

26 ALTERNATIVE TO HYPOTHECATION AGREEMENT The Note Purchase Contract to buy the seller finance note can be assigned (sold) to a private financier. The private financier then completes the note purchase, and now owns the seller finance note. Our company is paid by an installment schedule with a promissory note for a monthly cash flow from a split of the note payments, and a split of the balloon payment. Multiple private financiers can group themselves into an investment LLC to buy the seller finance note in the name of the investment LLC. The note holder in due course is responsible for managing the income, the maturity, and foreclosure (i.e., asset management). Our company can be retained for asset management of the seller finance note. 26

27 THE INVESTMENT PROCESS CYCLE 27

28 PROCESS CYCLE OVERVIEW Manage & Distribute Income Seasoning & Refinance Escrow Closing Property & Note Search Escrow Financing Analysis Due Diligence Negotiation & Contract 28

29 KEYS FOR SUCCESS 29

30 KEYS FOR SUCCESS 1. Management selects an experienced Power Team with a proven investment strategy for property & note selection, buyer and seller qualification, and structured finance. 2. Focus on luxury, high-end, exquisite homes that are move-in ready. The home is taking too long to sell, the seller is anxious to move on, and the buyer is unable or unwilling to qualify for bank jumbo financing with a 20% down payment. The luxury and high-end real estate brokers provide inventory to us. 3. Offer Unmatched Competitive Advantage. Our private financiers are accredited investors or experienced sophisticated investors, they can decide and close quickly, they can recognize value, and they have the capacity for multiple profitable opportunities to spread the risk. 4. Favorable Industry and Economic Conditions. The market for luxury, highend, exquisite homes is a separate tranche of well-qualified owner-occupants. They recognize value, are financially literate, and appreciate the discretion of private financing. 30

31 STARFURY CAPITAL M ANAGEMENT LLC WORKS WITH PRIVATE FINANCIERS 31

32 STARFURY CAPITAL MANAGEMENT LLC WORKS WITH PRIVATE FINANCIERS We are pleased to offer competitive investment alternatives for sophisticated and accredited investors, especially those who are looking for better yields than stocks, mutual funds, or bonds, and backed by luxury, high-end, exquisite homes and commercial real estate. The Radiant Wealth Creation formula is a time-tested, proven business model for acquiring cash flowing assets secured by high quality real property. The assets increase in equity by structured financing. Equity is redeemed by resale or refinance of the real property. Shifting the created equity into new projects while retaining cash flow creates larger income streams and creates more equity. We have learned that using the Radiant Wealth Creation formula creates excellent opportunity for profit by buying well-structured notes that are secured by high quality, luxury, exquisite homes and guaranteed by well-qualified payors: Creating better pricing power from unmatched competition. Managing risk better, because of the predictable outcomes. Producing consistent high-yield investment returns by buying well-structured notes. Our Radiant Wealth Creation formula increases prosperity for society. If this niche real estate investment strategy appeals to you, then we cordially invite you to contact us to learn about how you can be a private financier for these prosperous projects. 32

33 CONTACT INFORMATION You can learn more by contacting us: Jeffrey D. Smith, General Manager Starfury Capital Management LLC A Colorado Limited Liability Company 1067 S HOVER ST, UNIT E-205 Longmont, CO Office FAX For faster response, we recommend contact: jeffrey-smith@starfurycapitalmanagement.com 33