Are the returns guaranteed?

 

The SEC regulates private equity funds and has the right to investigate and prosecute any sponsors who represent returns as being “guaranteed.” There is a degree of risk associated with any investment, and it is up to each investor to assess that risk before investing.

 

Refer to the Private Placement Memorandum (PPM) for details. Start at page 18 of the PPM, which is page 24 of the PDF.

 

You are to form your own opinion, but we do not see a feasible way for our investors to lose their investment or fail to receive the projected returns. This is due to the fund’s structure and strict lending criteria. That structure involves the fund making quality loans that are secured by first liens on rural land and rural land notes.

 

Should I consider investing in multifamily properties?

 

Investments in multifamily syndications or private equity funds are very common and can be very lucrative. They can also be seen as risky by more conservative investors.

 

This isn’t covered in the slide deck, but the video discusses one risk of these types of investments. Let’s say a group of investors purchases an asset for $10M using $2M of investor capital and $8M of debt. If the value drops to $8M after two years, the lender can recuperate the majority of its capital, but the equity investors stand to lose their $2M.

 

In spite of the risk, many multifamily properties have generated exceptional returns for their investors over the last few years. This is largely due to a phenomenon known as “cap rate compression” whereby multifamily buyers have been paying increasingly large amounts for the same amount of cash flow. This has allowed investors who are selling to reap large profits.

 

Seasoned investors tend to have the same concerns about multifamily properties: 1) This “cap rate compression” phenomenon is generally seen as being largely unable to continue and thus hurts projected IRRs. 2) These properties appear to be highly overvalued after seeing a huge runup over the last few years, 3) There’s an extremely large amount of “dumb money” chasing very few real deals, 4) and multifamily operators have the money, staff and fee structure in place and are therefore incentivized to keep doing deals, even if they are weak or risky.

 

Boding well for these types of investments, however, are rising rents and underlying land values that are largely being driven by inflation. It’s up to each investor to decide whether the positive or negative forces will ultimately prevail and whether investing in this asset class is a wise move at this point in the market cycle.

 

Should I consider investing in the stock market?

 

The S&P 500 tends to generate a return of about 9-11% per year, but that varies wildly.

 

We do not claim to be stock market experts but encourage you to look at the indicators found on this popular website. You can click into each one for more details. The Buffett Indicator is of particular interest.

 

Both the slide deck and video reference a study by Dalbar, Inc., which shows that people often start their investment journey when they are excited about the market’s upward trend and sell after the market stalls and reverses course. If they hold, it can sometimes take decades for their portfolio to recover.

 

How have ranchette sales been of late?

 

Sales have been strong, and we’re positioned for another record-setting year. We give credit to both the sales team and a resilient business model.

 

If we have a weak sales month, it’s generally because we were a little short on inventory or because we were working to push projects along, not because there was a shortage of buyers.

 

You can view historical ranchette sales by going here. Refer to recent email updates for pictures and more.

 

What does the paperwork look like for each transaction?

 

The following paperwork is common and required each time we buy land or sell a ranchette. Many of these documents protect the fund’s position as a lender:

 

RMLO Package for a Ranchette Sale: This contains all information related to qualifying and approving a borrower. It is assembled by Texas Pride Lending in Dallas.

 

Title Package for a Ranchette Sale: This is the documentation that is presented and signed by all parties during the sale of a ranchette at a title company.

 

Sample Deed of Trust for a Loan Against Land: This document secures the fund’s loan with a first lien against the land. It is filed at the courthouse where the property is located.

 

Sample Promissory Note for a Loan Against Land: This document details the terms of the fund’s land loan.

 

Sample Collateral Transfer of Note and Lien: This document secures the fund’s loan with a first lien against a note. It is filed at the courthouse where the property is located.

 

Sample Promissory Note against a Land Note: This document details the terms of the fund’s loan against a note.

 

How do monthly distributions differ from reinvestments?

 

This was covered in the video but not the slide deck (PDF).

 

Investors are receiving $833.33 per month, which is $10,000 per year, on each $100,000 invested. Those who have chosen to automatically reinvest their monthly returns are benefiting from compounding over time. This helps raise their internal rate of return (IRR) to 10.47%.

 

An investment of $100,000 is projected to be worth $150,000 after 5 years if you choose to take your distributions and leave them in a checking account. That same investment is projected to be worth $164,531 after 5 years if you chose to have your returns automatically reinvested.

 

A $100,000 investment is projected to be worth $300,000 after 20 years if you take your distributions and leave them in a checking account. That increases substantially to $732,807 if you chose to have them automatically reinvested.

 

As you can see, reinvesting can lead to vastly improved outcomes over time. This is why Albert Einstein referred to it as the “miracle of compound interest.”

 

What is an accredited investor, and do I qualify to invest?

 

This is a Reg D Rule 506(b) offering and must comply with associated SEC requirements. As a result, all investors must be accredited or sophisticated.

 

Per the SEC, an individual must meet one of the following two criteria to invest:

 

“Net worth over $1 million, excluding primary residence (individually or with spouse or partner).”

 

“Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year.”

 

Find more details on the SEC’s Accredited Investor page.

 

Because this is a Rule 506(b) offering instead of Rule 506(c), you’re able to self-identify as accredited during the investment process. We do not ask you to provide us with any documentation or other proof.

 


BACK TO TOP