Opportunities, Panic, and the Coronavirus Crisis Pacific Private Money

Best of Investing

Episode Aired: April 4th, 2020

Show Speakers: Edward Brown, Mark Hanf, and Nam Phan

Topic: The Latest in Real Estate, Lending, and Investing During the Coronavirus Era

Segment 1 of 5

Edward Brown:

Welcome! You’re listening to the Best of Investing! I’m your host Edward Brown, along with my cohost Mark Hanf and Nam Phan of Pacific Private Money. Our phone number is (888) 912-1190, use that number to answer the trivia questions for our five pack tanning certificate, given away during this show. That certificate’s not sponsored by the radio station, but by Tan Bella Tanning Salon with two locations, San Francisco and one in Marin. Today’s trivia theme is entertainment.

Edward Brown:

Guys, it’s really kind of interesting out there in the real estate market with this coronavirus, what’s the latest? We’ve kind of following this up week-by-week.

Mark Hanf:

Well, the latest is almost day-by-day. And when you say the real estate market, so we talk a lot about real estate here on the Best of Investing, and really there’s real estate issues, and there’s mortgage issues, and financial market issues. And really, here at Pacific Private Money, we live in the universe of mortgage, financial markets, and real estate of course, because we’re lending on real estate. And it’s really interesting what’s going on. I check my LinkedIn feed out fairly regularly, and I’ve got over 5000 contacts, but I limit my contacts really to only people in the real estate, finance, and mortgage industry.

Mark Hanf:

So, when I go through my LinkedIn feed, what’s great about it is I see a lot of good articles, good posts, good comments. But I’m also seeing things like a lot of the people in say the mortgage industry, who’ve been furloughed or laid off, who are looking for jobs. I’m also seeing commentary about lenders, mainly in the Non-QM space, who have completely frozen their businesses because they’re not able to unload loans that they’ve closed recently.

Mark Hanf:

So one of the things that happened in the financial markets, in the mortgage markets, and so when I say financial markets, I’m not talking about the stock market, I’m talking about really the mortgage sector of the capital markets. And what happened is that most lenders in the Non-QM space, and Non-QM is basically a non-agency, nonconventional, kind of a near prime loan. It’s the loans that mostly self-employed people have to use because they don’t quite qualify for the prime bank financing. So they pay slightly higher interest rates and they call that the non qualified mortgage market. Well most lenders in the Non-QM market, or I should say most originators, they put these loans together, and they bundle them up and then sell them to Wall Street. Well guess what? Wall Street stopped buying all of those Non-QM loan products. And so you have these companies that are sitting on hundreds of millions of dollars worth of loans that they have to offload off their credit lines.

Mark Hanf:

And so they’re suddenly in default. And so we have this liquidity crisis going on in the Non-QM lending market, which is part of the alternative lending space that we talk about a lot here at Pacific Private Money.

Mark Hanf:

Now contrast that with private money or hard money, which we do here at Pacific mostly. And because we rely on individuals, many of whom still want to earn, seven, eight, 9% on their money, they’re still eager to make well-secured real estate loans, to allow their capital to be part of a well-secured real estate loan. So you see a lot of LinkedIn feeds where private lenders are saying, “Hey, we’re still in business. So if you’ve got Non-QM fallout, or bank fallout, give us a call.” So that’s kind of the week for us at Pacific has been actually pretty manic. Nam and I probably have had two of our busiest weeks back to back while we’ve been sheltering in place at our office, by the way, we’re not letting anybody in, but we’ve got a half staff here at our office in downtown Novato, but the last two weeks have been probably the busiest two weeks we’ve ever had.

Mark Hanf:

Not necessarily because we’re doing more loans, we’re doing about the same number of loans, because some of the loans are falling out in our pipeline, and others are coming in on daily basis. But it’s just, there’s so much other manic activity that’s happening in the market, like borrowers calling us up and saying, “Hey, I can’t make my April 1st payment.” And then those private lenders who invested in the loans that we did maybe several months ago, or six months ago and they’re calling and going, “Well, what happens if the guy doesn’t make us his interest payments?”

Mark Hanf:

So there’s a lot of babysitting going on, that Nam and I are doing right now.

Edward Brown:

I don’t know, you guys look pretty rested though. I’m looking at once

Mark Hanf:

Oh yeah.

Edward Brown:

You guys look really rested.

Mark Hanf:

We’re recording this on Thursday afternoon, and I’m really bummed that it’s supposed to rain again this weekend because I just feel like I’ve done absolutely nothing but sit at my desk for two straight weeks.

Nam Phan:

Yeah. Or sit on my couch at home.

Mark Hanf:

Yeah.

Nam Phan:

But like Mark was saying, we’re fielding a lot of calls from former AEs with Non-QM lenders who are saying, “Hey, I still have borrowers who need alternative finance. I’m no longer an option for them. My company isn’t. So can you guys, are you guys number one, are you still lending?” And thankfully we’re saying yes to that, and private lending hard money is actually probably the strongest segment of alternative lending right now.

Edward Brown:

Well let me ask you, are a lot of these transactions brand new, or are they ones that were, let’s say started in late February and just had a fallout, and so you’re picking up from there?

Nam Phan:

Both.

Edward Brown:

Both.

Nam Phan:

Maybe last week and the week before, they were-

Mark Hanf:

I don’t know if any of them are brand new though. Wouldn’t you say that a lot of them are, they’re new in that they were engaged with another lender, and that loan fell through. Like anybody that had a commitment from a Non-QM lender basically got a call that said “Sorry.” And then now they’re calling us.

Nam Phan:

Well, yes, absolutely. But we’re also getting new loans coming in, not necessarily from referral sources, not necessarily from Non-QM, but borrowers who are coming, needing a loan for the first time.

Edward Brown:

So are they coming direct or are they coming through your normal referral sources?

Nam Phan:

Both.

Edward Brown:

Both.

Nam Phan:

Both. They’re coming, some coming off the website, some people are coming because, said “I have a business and I need to possibly pull some cash out of my home to keep the business running.” And those are new. And then there are some who were in the middle of a transaction with a Non-QM lender who have come to us and said that, “My Non-QM lender has pulled the rug from under me and I need an alternative source.”

Edward Brown:

Wow. All right guys, we are going to cut to our first commercial break. The trivia theme is entertainment. So here’s the first question. What song earned Natalie Cole and Nat King Cole, a Grammy award in 1991? The first caller with the correct answer is going to win that tanning certificate. Yeah, that is call (888) 912-1190 to answer this question. What song earned Natalie Cole and Nat King Cole, a Grammy award in 1991? You guys remember they did a duet, and if I remember correctly-

Mark Hanf:

I do-

Edward Brown:

-he had passed on.

Mark Hanf:

-and I’m just searching my brain for the song’s name.

Edward Brown:

Yeah. So he had passed on, and they just kind of meshed it together.

Mark Hanf:

Yeah.

Edward Brown:

All right. Stay with us. You are listening to the Best of Investing. We are going to be right back.

Segment 2 of 5

Edward Brown:

Welcome back to The Best of Investing! I’m Edward Brown, your host, along with Mark Hanf and Nam Phan of Pacific Private Money. Our first trivia question was, what song earned Natalie Cole and Nat King Cole a Grammy award in 1991?

Mark Hanf:

Unforgettable…

Edward Brown:

That’s right. Very good. If I remember correctly, Nat King Cole-

Mark Hanf:

My bad Nat King Cole impression.

Edward Brown:

Yeah. He had passed away, and the people who do this computer generation, whatever, melted the two voices together.

Mark Hanf:

Yeah, for the time it was really clever. Nowadays, you can do anything.

Edward Brown:

Yeah.

Mark Hanf:

For more than 20 years ago, it was like, whoa.

Nam Phan:

Two years from now, Mark will be performing in Vegas regularly. People will be like, “How did you get your start?” “Well, it’s funny. It was during the coronavirus.

Edward Brown:

Oh my gosh. Mark, continue on. You’ve got a few-

Mark Hanf:

Well, Nam had an article he was just going to share.

Nam Phan:

Yeah. This is from Doctor Chris Thornberg with Beacon Economics. He’s somebody who we follow close and who we’ll listen to. He’s a very levelheaded economist. His insights are really one that we like to look at, because it goes beyond the mania and the headlines that you see in mainstream media. This is his report from I think earlier this week, The Age of the Coronavirus: Economic Turmoil Expected Through Second Quarter Spring 2020. He starts off by saying just how much of an impact the coronavirus will have on the global US and California economies is a, “monstrously ominous and looming question now facing government leaders, physicists, individuals around the world. Certainly surrounding the spread, containment and recovery rates of the disease and the extremely fast moving nature of the events makes estimating the direct economic impact of the pandemic close to impossible.”

Nam Phan:

Just a few weeks ago he had a report saying that, “Gosh, there’s all of this hoopla about that we’re in a recession or that we’re in a depression.” He said, “Hold on a second, the fundamentals are still really, really strong. What will determine whether or not it actually turns into a recession is how long we’re in a shutdown.”

Mark Hanf:

What’s interesting is … Again, let’s bring this back to investing and real estate and mortgage investing. We’re feeling a lot of inquiries from our clients, from our investors. Some of them are pulling money out of our fund. Although, very few fortunately, but more than average. Whatever you want to believe, whatever kind of person you are, and you know who you are, if you’re one of those doom and gloom kind of guys or one of your tinfoil hat wearing kind of guys in your belief systems, you’re going to find all kinds of articles to support the idea that this is the worst thing that’s every happened in the history of Earth and it’s going to be way worse than anybody … I mean, just complete and utter, in my opinion, nonsense being written by anybody and everybody, because there’s so many people that are just sitting at home with nothing better to do but to write inflammatory posts.

Mark Hanf:

I just don’t see … First of all in California, let’s just keep it local. Somebody this morning told me, “Well, what are you doing about the fact that real estate prices are already down and maybe down 20% in six months?” Where do you get that information? Real estate prices haven’t gone anywhere. It’s way too early, number one.

Edward Brown:

I think you’re right.

Mark Hanf:

When things open up again, so it’s April. It’s early April. We’ve got four more weeks of sheltering in place, and then hopefully sometime in May we’re starting to kind of restart things again. You think that California home sellers who know that home inventories are at all-time lows … and, yeah, fewer people are going to elect to buy their next home. A lot of people are going to decide, “Well, it’s not going to happen this year. We’ll wait until next year.” I don’t see home sellers lowering their prices. I just don’t see it happening. There’s not the …

Mark Hanf:

The metrics in 2008 and 2009 were so much different than what we have now, including the fact that we had overbuilt a ton of subdivisions. There were these empty subdivisions with unsold homes all over California. That ain’t happening today. Those don’t exist. We still have fire ravaged communities where the home inventory has yet to be replaced. I’m sorry, there will be pockets in California where, yes, the prices will go down. Overall in California, I’m feeling pretty bullish about the collateral, the loans that we’ve made at Pacific Private Money and we’re servicing over I think $165 million worth of loans right now all secured by real estate. Most of that single-family residential real estate in California.

Mark Hanf:

I don’t see a situation where we’re facing underwater loans. Are we facing challenged borrowers who may struggle with their payments for the next couple of months? Absolutely. We have a plan to deal with that, and we’ve enacted that plan already this past week. I just don’t think there’s any evidence other than in mass hysteria to suggest that the real estate … I saw an article about, “The bubble has burst.” Really? You’re an idiot. I’m sorry. You don’t know what you’re talking about. There’s no bubble, and it hasn’t burst.

Edward Brown:

Here’s the other thing too is that Pacific Private Money is not a federally chartered bank, so you don’t have to follow specific rules with regard to deferring payments. I mean, you might want to do it because it’s prudent. Whereas some of the big banks, they’re legislated that they have to do certain things to work with the borrowers. Again, you’ll do the prudent thing. The other thing is, other experts have also said that this situation maybe more of a V than a U, meaning, yeah, it may go down sharply, the economy, but as soon as this virus thing is over, it’ll just come right back because, like you said, the metrics are not showing that we’re in a bad economy.

Mark Hanf:

I like the V model versus the U model, absolutely.

Nam Phan:

I’ll take it all day long. Chris Thornberg also said, “Essentially California’s hit one big pothole in the road.” The lost output from Q2 can be made up in Q3. So, there will be pent up activity because of this pause, which is part of his reason why he’s saying, “If there is a recession or a temporary … as he puts it, pothole, it can be made up later in the quarter or later quarters this year.”

Edward Brown:

Yeah, if you think about let’s say restaurants who have had to lay off 50 or 60 people, as soon as this thing is over, those people theoretically should get rehired. I mean, why wouldn’t they? Unless they suddenly turned their model into a to-go model where some restaurants are open where people can just collect their food and go. Right?

Mark Hanf:

Look, there’s no doubt that there’s going to be record number of bankruptcies both business and personal like we’ve never seen before in the coming months. That’s a given. With those bankruptcies are going to be people rising like phoenix from the ashes. Because of technology and what we have in place and the opportunities, I think it’s going to be a quick bounce back.

Edward Brown:

Yeah, because this is nothing like 1918 Spanish Flu, because they didn’t have the internet. People could still work now. They couldn’t work back then.

Mark Hanf:

Yeah. Absolutely.

Edward Brown:

Okay. Second trivia question. We’re coming to another commercial break. Which actress won an Oscar for her performance in the 1998 movie Shakespeare in Love for all you romantics out there? Call 888-912-1190. First caller with the correct answer’s going to win that tanning certificate, which they’re probably closed right now. But I’m sure they will honor it for a year. So, it’ll be fine.

Mark Hanf:

I’ll need a tan after this. That’s for sure.

Edward Brown:

Yeah. Again, which actress won an Oscar for her performance in the 1998 movie Shakespeare in Love? Stay with us. You are listening to The Best of Investing with Edward Brown, Mark Hanf and Nam Phan. Don’t touch that dial. We’re going to be right back.

Segment 3 of 5

Edward Brown:

Welcome back to the Best of Investing! Again, I’m Edward Brown, your host along with Mark Hanf and Nam Phan, of Pacific Private Money. Second trivia question was, which actress won an Oscar for her performance in the 1990 movie Shakespeare in Love?

Nam Phan:

Gwyneth Paltrow?

Edward Brown:

That is correct. Holy smoke.

Mark Hanf:

Good guess, Nam.

Nam Phan:

Founder of Goop. Founder of Goop.

Mark Hanf:

Goop, is that was it is?

Edward Brown:

Pacific Private Money is a major sponsor of the show, it’s you guys. What do you guys do for … tell us, I mean, we’re talking about loans, real estate, and all that. You give us a deal of the week, so give a little backstory as to why people need you.

Nam Phan:

Yeah, so Pacific Private Money, we are private lenders, alternative finance lenders on real estate, mostly residential real estate, but also some small balance commercial. We do ground up construction as well. We lend throughout California to borrowers who come to us for a myriad of reasons. I mean, whether it’s they need money quickly, which is one of the main reasons why people go to private lenders, and it’s just less onerous in terms of paperwork, and a number of other reasons too which we’ll highlight later.

Nam Phan:

But the deal of the week for this week is actually a borrower, actually, you know what, during the Great Recession, a lot of people, opportunistic investors, people with capital, really jumped on the opportunity when things like this happened. This past couple of weeks we had a borrower come to us for needs for several properties. This one is one in Mendocino where he’s purchasing a property valued at 2 million and the loan amount was 1.1, so it’s 55% loan to value. And Mark, you have some insights into this borrower and what he is planning to do with-

Mark Hanf:

Well, this was one that isn’t as common as it was 10 years ago, but it was bank owned, it was owned by a major bank. And there was litigation involved, and the bank got to a point where they just wanted to dispose of the property. And so this opportunistic entrepreneur was able to convince the bank to sign a purchase and sale agreement selling him the property at basically 50 cents on the dollar. Now the bank didn’t know this. I guess they got their own price opinion, and of course the bank never sent anybody out to actually look at the property. So it’s one of those situations where they just didn’t really know what they were getting rid of, so to speak. So it was one of those where we provided 100% of the purchase price financing. He bought it for 1.1 million, we lent him 1.1 million.

Mark Hanf:

But we had two strong broker price opinions from local brokers that actually put the likely value of the property in the low $3 million with some … replace the carpet, and paint, some lipstick remodel, replace the appliances, that kind of thing. But regardless, we said that it’s at least worth 2 million. And so at that, we figured we were at a very strong loan-to-value. Now a guy like that can’t go to a bank. Only private capital, only the private slash hard money capital lending environment is going to take that type of low request under consideration because the banks, they’re just not equipped to understand the story because they really don’t lend that way. They lend based on a certain amount, a certain percentage of the purchase price.

Mark Hanf:

So again, just an opportunistic one that, again, I thought that was fairly unusual. I was actually surprised to see one of those, because we hadn’t gotten one like that, quite that juicy, in some time. But that was almost like the rule of thumb when we were doing loans back in 2010. And part of me wonders if there is, in certain pockets and certain communities, a decrease in real estate prices or a substantial decrease, which I don’t believe will happen. But if it does, there will be those opportunists who will come out who have cash ready to be able to take advantage of those opportunities. And we’re the company that they would more likely, or companies like Pacific Private Money, is really where opportunists, entrepreneurs, contractors, real estate investors … private capital is really the only source.

Mark Hanf:

Bank financing, unless you don’t need the money, I mean, when you own a business or you’re an entrepreneur, unless you’ve got a really strong balance sheet and you have money in the bank or a stock portfolio, banks don’t want to lend you money for a real estate acquisition. I know it doesn’t sound like it makes sense, but banks just really want to loan to homeowners buying homes they’re going to live in, that’s the business they’re in.

Edward Brown:

And how do people get ahold of you if they’re interested in getting a loan, because they couldn’t get one from the bank?

Nam Phan:

They can just give us a call here at the office, which is, phone number’s (415) 883-2150. Or they can go to the website, which is www.pacificprivatemoney.com. I would say you can come to our office, but we’re not going to let you through our doors right now.

Mark Hanf:

You’ll have to look in the window.

Nam Phan:

We’ll talk to you through the glass. But we’re operating. Every person on our team is working, whether they’re remote or here at the office, although I think some of us will be winding down our time here so we can get through this shelter in place soon.

Mark Hanf:

I can’t believe we got four more weeks of this stuff, just crazy.

Edward Brown:

Yeah, it is crazy.

Mark Hanf:

At least.

Edward Brown:

And then you guys are, well, before we talk about the webinar, which we’ll do next week for potential investors, you guys, where do you get your money from to fund these loans?

Nam Phan:

We get them, you know what? That’s really interesting, we’ve been talking about this for the last few days. We get it from individual investors, a lot of people who are looking for the returns, like the ones that we provide through the Pacific Private Money Fund, so in the 7 1/2 ish range for fund investors and then slightly more if you’re a trust deed investor. To date, we have 200 investors in our fund and over 500, I would say, trust deed investors. We also get some of our money from institutional capital people, essentially, Wall Street money that buy some of our loans.

Nam Phan:

And I’ll tell you this, over the last month, I feel so fortunate that our capital has come from a diverse group of individual investors and institutional. Because we were talking about non-QM earlier, all of them were backed by institutional and most of the institutions have pulled back completely, and that’s pretty much wiped out their business. We have all these trust deed investors who are really what will keep private lending going strong during this time.

Edward Brown:

Gotcha. Hey, guys, cut to another commercial break here.

Edward Brown:

Third trivia question, on the cover of the Let It Be album, which Beatle had the least amount of facial hair? All right? Call (888) 912-1190. First caller with the correct answer wins the tanning certificate. Here’s trivia question again. On the cover of the Let It Be album, which Beatle had the least amount of facial hair?

Edward Brown:

All right, you are listening to the Best of Investing. We’re talking all things coronavirus pretty much, affecting real estate, and also with the fund. And when we get back, we’ll explain a little bit more how the fund works. If you’re interested in investing, stay with us. The Best of Investing will be right back.

Segment 4 of 5

Edward Brown:

Welcome back to the Best of Investing! One more time. I’m Edward Brown, your host, along with Mark Hanf and Nam Phan, of Pacific Private Money. Our third trivia question was on the cover of the Let It Be Album, which Beatle had the least amount of facial hair?

Mark Hanf:

Trying to think it. Was it Ringo?

Edward Brown:

No, it was actually John Lennon.

Mark Hanf:

Oh, John, really?

Edward Brown:

It’s funny because if you go to the Abbey Road one, it’s Paul McCartney. He doesn’t really have any. John Lennon looks like a wolf man. But, yeah, on the Let It Be album John Lennon had the least amount. I guess he was-

Mark Hanf:

All right.

Nam Phan:

Speaking of wolf man, we’re going to all look like wolf men in about another month here.

Edward Brown:

Yeah, I guess, nobody’s coming to the office.

Nam Phan:

Edward, you’re pretty clean shaven.

Edward Brown:

There you go. I like that.

Mark Hanf:

You got buzzed right before, you saw this coming, so you ran to the barber.

Edward Brown:

No, this is au natural. I just combed it for the first time in a week? No. Okay. An email comes in from a listener and says, “What if a borrower changes his mind before closing of a transaction? Is there any penalty?”

Mark Hanf:

Well, unfortunately for us, no, in most cases. So at Pacific Private Money, we’re a California licensed lender and the state of California on loan … Well, our primary loans are made to single family residential, but that’s probably 75% of the loans we make are on what they call residential, one through four unit properties and residential one through four are governed differently than commercial properties when it comes to lending, mortgage lending.

Mark Hanf:

The state of California frowns on taking deposits on loan applications involving residential one through four property and that includes even rental properties or investment properties or fix and flip properties. You’re really not supposed to collect advanced deposits other than maybe collecting a fee for an appraisal or a credit report, which by the way, we don’t do. So what that does, what that means is, is that we make a best efforts basis to provide funding for the loan applications we get.

Mark Hanf:

We just had this happen last week where we went to docs on a loan application where the borrower signed our letter of intent for the terms and conditions of that loan. It was four pieces of property. It was actually a nice set of loans. We went to loan docs called the guy up to tell him that the documents were ready to sign and he said, “Never mind, I’ve gone in a different direction,” which is funny how they all seem to use that term when they mean, I just screwed you guys over because I went with another lender, didn’t tell you that I had applied for multiple lenders at the same time.

Mark Hanf:

So really for companies like ours, if you’re operating in accordance with California law we’re really, we get paid only when a transaction closes. We do, from time to time lose out on deals where we thought we were doing everything we had promised to do and the borrower went in a different direction.

Edward Brown:

Since you have something like that where you have four pieces of property, I mean, that’s a lot of work that you guys-

Mark Hanf:

It was a lot of work. Yeah. Our agents who had brought that to us was pretty upset. I feel for guys like that, because they put a lot of work into it, a lot of hours and then you don’t get paid for it. That’s similar to real estate agents who put in a lot of work to sell a home and oftentimes, they don’t get paid. They may work for months on trying to sell a home and then the homeowner changes his mind and goes with a different realtor. Says, “I’m not going to renew my listing agreement with you because I’m going to go in a different direction.”

Nam Phan:

Or right now a lot of listing agents may have paid out of pocket for the staging for their seller. Then all of a sudden the seller’s saying, “You know what, I’m pulling my home off the market now because of the uncertainty.” Oftentimes there’s a carrying cost for real estate agents.

Edward Brown:

Sure.

Mark Hanf:

Yeah. So the bottom line is if you’re a borrower, you’re really in a good position when you’re dealing with legitimate private lending companies in California because you really are in control. They can’t force you to take a loan. They can’t charge you fees for not taking a loan. It’s hard to get hoodwinked in this industry. So as a borrower you shouldn’t ever hesitate to call and engage us in a conversation about a possible transaction because there’s just no way we can trick you into paying us for something, for a service that we haven’t provided for you.

Mark Hanf:

You really get to the decide all the way to the end, you can change your mind as you’re sitting at the signing table at escrow that, you know what, this just doesn’t feel right. I’m not going to do this. That’s the risk we take is that we have to decide that this is a borrower with a legitimate transaction and a legitimate need and we’re providing a service that is going to put them in a better position.

Edward Brown:

How often does that happen to you where you get fall outs like that? I mean, it’s probably fairly rare that it happens right at closing, but.

Mark Hanf:

Right. Yeah, it’s the degree. The, right closing, is rare. It happens a few times a year, but fall out happens a lot. I mean, fall out, happens … They call and they say, Oh that’s… We have a conversation about a loan. We give them the terms, they say, “Hey, that’s great. Send me an application.” And then we never hear from them again. Or they send us the application and then they go dark. There’s stages in the process where they may go dark.

Mark Hanf:

We may collect the application, create the pre-disclosure documents and send them to them to sign because we won’t start the full loan doc set until they sign the pre-disclosures, even on investment property and sometimes they’ll sign that, send it back, but then that’s the end of it. So it’s just they go dark on multiple stages, but I don’t know, what percentage would you think if you had to guess?

Nam Phan:

I would say one out of 10.

Mark Hanf:

One out of 10? yeah, that’s probably, yeah, it’s not huge. So, but again, the key to this is that the consumer is king here, the borrower is king. We can’t trick you into paying fees or charges that you weren’t expecting. Now, that’s not to say they’re not illegitimate lenders out there because I could name names and I won’t, but there are known private lenders out there that are just the scum of the earth and you just want to be careful and you want to deal with legitimate companies.

Edward Brown:

Okay. Quickly before we go to another break here. Regarding the fund, right now, what’s the yield in the fund to the investor?

Mark Hanf:

Well we’re waiting for the March. We haven’t done March accounting yet. January was an annualized rate in the mid eights but the February distribution was in the low sevens so the March might pop up again. It’s hard to look at. You have to look at like a trailing 12 month distribution. The trailing 12 months for the fund is in the high 7% rates, about 7.8%.

Mark Hanf:

It’s a pretty good, well, it’s a really good return in terms of what California mortgage pool funds are offering on average, which on average it’s more in the mid to high sixes. We’re in the high sevens because of the types of loans we make and the fact that we share our fee income, our origination fees with the fund members. And so the accounting gives it a better yield.

Edward Brown:

All right. When we come back, we’ll talk a little bit more about that because we want to get into, are there any fees to get in fees to get out, that sort of thing. The holding periods. All right, let’s see here. Oh, actually, you know what? We already asked our trivia questions.

Mark Hanf:

Yeah. We’ve got some time here still.

Edward Brown:

Yeah. I got a little time.

Nam Phan:

Can I-

Edward Brown:

Yeah. Go ahead.

Nam Phan:

Next fund event.

Edward Brown:

Yes, go ahead.

Nam Phan:

The next fund event is April 16th online.

Mark Hanf:

The webinar.

Nam Phan:

Yeah, we canceled the March one that we were planning for Mountain View, but the next one will be April 16th and you can register by calling us 415-883-2150 or going to www.pacificprivatemoney.com/events. You can find it there now on the events page and register.

Edward Brown:

Okay.

Nam Phan:

So it’ll be a web based. It’ll be a lot of content.

Edward Brown:

All right. When we come back, we’ll talk about fees to get in fees to get out. How people can earn over 7.5% percent secured by those mortgages. Don’t touch that dial. The Best of Investing will be right back with some closing comments.

Segment 5 of 5

Edward Brown:

Welcome back to the Best of Investing! Last time for today, I’m Edward Brown, your host, along with Mark Hanf and Nam Phan of Pacific Private Money. We already asked our trivia question, so I want to get into the fund for just a minute. So, right now it’s paying somewhere in the seven to 8% range. Are there any fees or loads to get into the fund?

Nam Phan:

No.

Edward Brown:

That’s a very quick answer. No. All right, no fee to get in. No fee to get out. Is there any hold period, like you have to hold your money in there for a period of time?

Nam Phan:

Yeah, there is a one year hold. That’s actually by regulation. Up until 2017, we had a two year hold, but nobody was redeeming, so we lowered it to a year. Still people generally aren’t redeeming. If anything-

Edward Brown:

Who would if they’re getting over seven and a half percent?

Nam Phan:

Exactly. People will usually start out, and the minimum investment is $50,000 and people typically start out when they invest to at the minimum, or lately actually, if it’s somebody who came to us through another investor, they’re starting out at a hundred or more, but over time they typically add to their investments and any new capital that they add isn’t subject to a new one year hold. So, for instance, if you invested in January this year for the first time, and then in June you decided to add to your investment, then the hold period for that June edition would only be the remaining months. So, six months in this case. So, minimum one year hold, $50,000 minimum investments and investors do need to be accredited, which is a credit investors, somebody who has a million dollar net worth exclusive over their primary residence where they can qualify on income, which is $200,000 per year over the last two years or $300,000 as a household.

Nam Phan:

Real quick, I want to go back to the fund events that we’re having. The webinar in April, we’re going to, as we always do, talk about the Pacific Private Money Fund and its performance. Why the fund exists, why do people borrow from a private lender? The beginning of our show this week, we talked a lot about the coronavirus, and two weeks from now is when we’re going to have the event and a lot’s going to happen in the next two weeks.

Nam Phan:

Let’s spend some time talking about the virus’ impact on the economy and how it impacts our borrowers, investors and real estate in general. I think it’ll be a really good event for people to participate, listen, and because it’s online, we welcome interested parties from wherever.

Mark Hanf:

I would expect a lot of our existing investors are going to be on that call because it’s funny, I mean I just got an email in from someone’s whose email address I didn’t recognize just as we’re sitting here saying, “Hey Mark, how come, you should really reach out and write the state of the market to your investors.”

Mark Hanf:

I wrote back. “Who is this?” You get a lot of wacky emails, but I can’t tell you how much time I’ve spent the last couple of weeks doing exactly that. Writing, and speaking individually and in groups, and in my investor newsletter that I just sent out last week, that gave a state of the moment so to speak because it does change day by day and week by week.

Mark Hanf:

We’re very active in listening, engaging, reaching out and keeping our investors apprised of what we think is going on. Since we’re the mortgage investing universe why we believe that mortgage investing is still a good investment today.

Edward Brown:

All right. One other exciting part is that we always forget to mention, not always, which we sometimes forget to mention is that the fund qualifies for the QBID deduction, which means that if you’re qualified, 20% of that income does not have to be reported. So, that’ll boost the yield very handsomely as we say.

Edward Brown:

All right guys, we’re going to cut out for today. Here’s our thoughts for the day. People who wonder whether the half glass is half full or half empty are missing the point. The glass is refillable, right, and it takes less time to do things right then to explain why you did things wrong. I like that.

Edward Brown:

Tune in next week to the Best of Investing, we’re going to be giving away more free prizes for answering trivia questions. Thanks for listening. On behalf of our team, I’m Edward Brown wishing you the Best of Investing. So long.