SafeGuard Capital partners Managed Real Estate Investment Program
Managed Real Estate Investment Program Over the years, many of our clients (both experts and novices) asked us to assist in identifying high-yield real estate investments that would eliminate the hassles of finding, buying and managing their own income-producing properties. To meet the need, we designed and implemented a managed Program focused on single-family rental homes with annualized returns of 9% to 12%...or higher. The investments are strictly "hands-off" and are fully compliant with all IRS rules and regulations governing Self Directed plans. With our Program, a Self Directed IRA or 401(k) plan, or personal funds, can either purchase rental property, or be the bank and hold a private mortgage...with real estate as security. Minimum investment for a rental property is about $70,000. Private lending, ranges from $25-60,000. Property locations have been chosen where rent-to-value ratios are highly favorable, and employment is stable. Properties have been fully rehabbed to very high standards. A tenant and property management is in place and, in some cases, a rental guarantee and home warranty is offered as part of the package...if you choose ownership. Investment Strategy: Cash Flow vs Appreciation Much has changed in the real estate investment market in the last 5 years, and the long-term economic outlook indicates that we should be anticipating low, single-digit appreciation rates for single-family rental homes into the foreseeable future. In our ebook Investing In Real Estate With An IRA or 401(k), we point out that investors should be focused primarily on cash flow. While appreciation must be factored in over the long-term, it is not the core focus of a passive investment strategy involving singlefamily rental homes. 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 2
Investment Partners When we developed the Managed Real Estate Investment Program, we knew that some investors would be reluctant to invest outside their immediate location. We understood that the issue is mostly one of finding a trusted source to work with. We solved this problem by selecting Investment Partners with proven track records, high ethical standards and superior customer service, in stable geographic regions where rent-to-value is high, relative to other locations. Additionally, multiple client references are available and onsite visitation is welcomed. Two Options for Investing: Own or Loan There are 2 options for investing with real estate as security. You can either own a property that is fully managed, or you can choose to lend funds and hold a private mortgage for a property that has been rehabbed by one of our Partners. Either way, you receive monthly rental or interest payments. Underlying Security: A High Quality Property Regardless of whether you re buying a single-family rental to be fully managed or you are purchasing a note that is secured by the underlying real estate, be assured that every property has been rehabbed to a high level of quality. Additionally, the occupying tenant has been thoroughly screened and professional property management is in place. 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 3
Option #1: Owning An Income-Producing Property With this option, you, or your retirement plan, purchases the property and holds title. At the point of purchase, rehab will have been completed and a reliable tenant will have been selected and will be occupying the property. Each month, on a specific date, net rental income is direct deposited to your bank account, after a fee for property management is deducted. The fee includes the collection of rents, attendance to minor maintenance and handling of all tenant issues. Typical property management fees are 8-10%. The following property is an example from the Safeguard database in Houston, TX. Purchase price is $83,000 with monthly gross rent of $1025 and expenses of approximately $338. The ROI of 9.81% is based on an all-cash purchase. Our partner acquired and rehabbed the property, then installed a tenant and is handling property management through his company. As of this publishing date (April 23, 2013), certain cities like San Diego, San Francisco, Las Vegas, Phoenix, Atlanta, Austin and others are seeing a shortage of inventory which is driving up prices and creating, in some cases, bidding wars for properties, including income properties. 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 4
These are cities that have always been popular for various reasons, and coupled with tightening inventory, prices are rising faster than most of the country. However, even in less attractive cities, prices are also going up...just not as much. In 2008, the housing and mortgage markets collapsed along with the rest of the economy. Housing prices plummeted, foreclosures became commonplace and banks were stuck with a huge inventory of properties they couldn't sell. Slowly, the inventory began to be purchased, not just by homeowners, but also by investors. In fact, in the last 5 years more than 40% of all single family home purchases have been by cash buyers and Self Directed IRA & 401(k) investors. Over time, foreclosures began to slow, banks started holding on to properties longer and builder's haven't been able to borrow funds to build new houses. This has created a shortage of available single family homes resulting in what we re seeing in some cities as described above...too many buyers, not enough houses. This is in stark contrast to the areas where we operate. These are areas that have never been susceptible to wild price swings no matter what goes on with the economy: Jackson, MS; Birmingham, AL; Orlando, FL; Memphis, TN; Indianapolis, IN. They are solid communities with good job bases where there is a favorable ratio of rent to value. Option #2: Private Mortgage Lending (Also Known as Trust Deed Investing) Most investors have, at some time in their lives, borrowed money to complete a real estate transaction. Generally speaking, they have not had the opportunity to be on the other side of the fence and be a lender. But, Safeguard s private lending option gives investors the ability to loan money secured by a real estate deed of trust, or mortgage. A private mortgage loan (or trust deed investment) is executed through a title and escrow company, or closing attorney, and subject to real estate licensing and laws of the 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 5
state. Safeguard does not handle your funds. They are wired from your bank account direct to an escrow or trust account for a specific transaction. This investment is made up of two parts: a promissory note and a deed of trust. The trust deed is a document that provides the collateral for the promissory note. It is filed with a county recorder s office indicating that there is a loan against a property, creating a secured lien. (All of Safeguard s investments put the lender in 1st lien position.) Trust Deed Lending @ 50% LTV (Loan-to-value) Risk associated with trust deed investing is very low. And, the more equity in a property that is being financed, the lower the risk. With 50% LTV, the risk is lowest because at the beginning of the transaction, the property owner will have put 50% cash down, meaning there is 50% equity in the property. These loans are originated through our local Partners who are turn-key providers of investment property. They acquire a property, rehab it, put a tenant in place, sell it to an investor and then handle the property management. When the investor needs a private mortgage loan to complete the transaction, our Partner turns to Safeguard, and our clients, for the 5 year note investment. From an investor point of view, this is the best of all worlds in terms of risk: a 50% down payment by the investor (ALL CASH), a high-yielding promissory note at 9% secured by a 1st lien (deed of trust), and the property is managed by a trusted Safeguard Partner. Prior to making the loan, the investor is provided with copies of closing documents, photographs of the property and the appraisal. The loan documents and filings are handled by a closing attorney in the county in which the property is located. Also, the investor is carried as an additional insured on the property insurance policy. 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 6
Trust Deed Transaction Overview Note Purchase Price: $30,000 to $50,000 Security: Note secured by Deed of Trust (1st lien position) Note Term: 5 year balloon note Interest Rate: 9% interest Payment Terms: monthly, interest-only or principal & interest payments Loan to Value: 50% (based upon an appraisal) Option To Extend: yes Risk: Very low Example of an Actual Transaction Our Partner in Memphis sourced the property, did the rehab and sold it to an Australian investor. The investor put 50% down and our Partner originated a seller note at 9% interest. (Our Partner also manages the property for the investor.) A Safeguard client bought the note and is now receiving monthly payments for a term of 60 months. The client may renew the note at his option, but is not contractually obligated to do so. 3 BR/2 BA Single Family Home - Memphis, TN Borrower - Australian investor Sales Price - $88,000 Down Payment - $44,000 Loan Amount - $44,000 LTV is 50% (based upon an appraisal) 5 year note @ 9% Monthly interest only payment of $330.00 Principal balance due to note holder at end of term - $44,000 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 7
Closing a Transaction Depending upon whether you're owning or lending, it takes anywhere from 2 to 6 weeks to complete a transaction. All closings go through a title and escrow company, or a closing attorney. We walk you through the closing and review all documents prior to you signing anything. Funds for closing are wire transferred to an escrow or trust account. When a property or note is selected, Safeguard handles the following issues: 1. Obtain all available information on a property or note, and forward to client 2. Review inspection, BPO or appraisal, scope of work completed, etc. 3. Prepare an overview and forward to client along with due diligence docs 4. Order a new third party inspection to insure accuracy 5. Order an appraisal, if current appraisal is more than 90 days old 6. Review new inspection and appraisal 7. Share inspection and appraisal reports with client and answer questions 8. Finalize any negotiations and/or details with client 9. Inform Partner to order closing documents from local title company 10. Review all closing docs and notify title company to make any necessary changes Exit Strategy For Ownership of Rental Property As long as you own a property or hold a note, Safeguard will be right there with you every step of the way. But, every investment should start with consideration for an exit strategy that makes sense for the investor s goals and objectives. For retirement investors, it s especially important. If you re a note investor, the exit strategy is very simple, but when purchasing a rental property, other factors must be considered. 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 8
Even though a property is newly rehabbed at the time of purchase...you could begin to encounter escalating maintenance issues after the first 5 to 7 years (especially with an older home). Prior to this period of time, you should experience very low maintenance costs, with the net effect of maximizing ROI. During the first 5 to 7 years ROI is maximized because expenses are low. After that period of time, maintenance issues can start to erode ROI. As maintenance needs increase, and the property s interior starts to require more than a refresher, it becomes more difficult to retain long-term tenants, and vacancy rates could also go up. So, our philosophy is to start evaluating the market and the property at the 5 year mark. If the property is still solid and doesn t require major maintenance, wait a year and then re-evaluate. (Safeguard Capital Partners will assist with this process, at no charge.) This exit strategy is the secret to investing into rehabbed residential rental property in an environment where appreciation is not the big factor, and it s not difficult to replace an aging asset with one that has been completely refurbished. Of course, this strategy is a generalization and there may be other compelling factors that could cause you to stick with the property for a longer period of time. DISCLOSURES It s anybody s guess as to what will ultimately happen with the global economy and as far as guarantees go...there are NO guarantees with investments. There are only high risk, medium risk and low risk investments. The type of investment real estate options offered in our Managed Program is in the low risk category. It has the added benefit of being able to produce cash flow even if the value of the property falls. That s simply not the case with the stock market. For retirement investors, there is no better time to invest into income-producing real estate or to hold a high-value note and deed of trust. The good news is... you don t have to do it alone. That s why we created Safeguard s Managed Real Estate 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 9
Investment Program. Following are disclosures and information that is relevant to our investment offerings: Use of Self Directed Retirement Funds Self Directed IRA & 401(k) funds are eligible and suitable to invest through our Managed Real Estate Investment Program in accordance with applicable laws, rules and regulations as established by the Congress of the United States, the Department of Labor and the Internal Revenue Service. Investments have been structured to provide an environment in which the investor does not risk the possibility of a prohibited transaction, self dealing or otherwise violate the rules and regulations which are intended to insure that retirement funds are preserved for the future benefit of the account holder. Certification of Partners According to our due diligence, each Partner has conducted his business ethically and offers excellent customer service. Transparency and ongoing communication is of vital importance. Each Partner is properly licensed (if required) and/or is conducting business in accordance with the real estate and other laws of the state(s) in which they are operating. Life Changing Event If at any time after making an investment, you suffer a life changing event that dictates the need to cash out, Safeguard Capital Partners will step in on your behalf. We ll either find another investor to take your place, or otherwise dispose of the investment at a minimal cost to you. Compensation for Transaction The investor DOES NOT incur fees or closing costs related to the purchase of a trust deed note or a rental property. As is customary in a transaction of this nature, a fee is paid by the seller to Safeguard for facilitating the sale. In this case, the seller is Safeguard s local partner. The purchase price of the property, or the note, is not inflated to cover this fee. It is simply a cost of doing business on the part of the seller. 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 10
Investment Performance There are NO guarantees of performance for any investment. There are only high risk, medium risk and low risk investments. The type of investment real estate options offered in our Managed Program are in the low risk category. These investments have the added benefit of being able to produce cash flow even if the value of a property falls. That s simply not the case with the stock market. For retirement investors, there is no better time to invest into income-producing real estate or to hold a high-value note and deed of trust. The good news is... you don t have to do it alone. That s why we created Safeguard s Managed Real Estate Investment Program. Robert Hubbard Managing Director Morningstar Holdings, LLC dba Safeguard Capital Partners 900 Washington Street, Suite 800, Vancouver, WA 98660 Email: Robert@SafeguardCapitalPartners.com Telephone 360-818-4795 Safeguard Capital Partners, its vendors and affiliates, are not registered investment advisors or broker/ dealers, and make no claims as such. Information, calculations and projections on this website are purely for illustrative purposes and are not a guarantee of performance on any particular investment. All statements made herein with respect to projected investment results are based on information or sources believed to be reliable. No representations are made as to the accuracy or attainment off such results, estimates, or implications as to investment performance, and we do not guarantee the accuracy of such statements. Past performance is not necessarily a guide to the future performance of an investment. Nothing contained herein should be construed as an offer to buy or sell securities and does not constitute financial, legal, tax or investment advice. All investments involve different degrees of risk. You should be aware of your risk tolerance level and financial situations at all times. You should not make any decision based solely on the contents of this website or information given by anyone associated with Safeguard Capital Partners without undertaking independent due diligence. Trust deed and mortgage note investments facilitated through Safeguard Capital Partners are not valid for Oregon residents and may not be available to investors in other states where prohibited or restricted by law. 900 Washington Street, Suite 800, Vancouver, WA 98660 877-280-5771 www.safeguardcapitalpartners.com 11