FAQs for Investors
The term “Mortgage Fund” is often a generic term used for both a mortgage and a trust deed fund. A trust deed is like a mortgage but has the advantage of allowing lenders to foreclose on the property without going through a judicial process. California is a Trust Deed state, and therefore in California, when you hear the term “Mortgage Fund,” it is a Trust Deed fund.
The definition of a mortgage fund is a trust entity operated by a fund manager who invests in real estate mortgages. The Fund raises money by selling units in the entity, and that money is lent out as loans to a range of borrowers who refinance, buy, and develop properties.
Most mature mortgage funds have hundreds of loans in their portfolio. These loans are diversified by size and property type. The investors collectively share in all the loans in the pool.
A mortgage fund is typically constructed as a limited liability company or limited partnership that sells membership interests in the company.
Most mortgage funds have some form of SEC oversight with some exemptions. For example, Fidelis Private Fund, LP, is a limited partnership with SEC regulatory oversight under the SEC Reg D 506C, which permits the Fund to advertise and raise capital nationwide from accredited investors only.
A mortgage fund must comply with the state and federal government agencies described in their disclosure documents, which requires full transparency for the investor. Most mortgage funds have fewer than a few hundred investors making personal access to senior management more accessible, with more transparency than an investment in a large publicly-traded company.
Real estate is an excellent investment. There is minimal correlation with the stock and bond market. It’s a tangible asset with exceptional investment opportunities. However, the average person may not have the expertise or resources to own and manage investment real estate.
Therefore, a mortgage fund allows investors an opportunity to enjoy many of the benefits of real estate ownership without the associated costs.
Fidelis Private Fund is a mortgage fund that invests in a pool of diversified, secured real estate bridge loans generating a fixed income with minimal risk and acceptable liquidity.
- Target net annual yield of approximately 8% to investors.
- Minimum investment of $50,000 with a one-year commitment.
- Well-diversified secured portfolio of real estate investment loans (majority first trust deeds).
- Highly experienced management team with a proven track record, who are personally invested in the Fund and have existing infrastructure for deal flow and support.
- Unlike many mortgage funds, the General Partner is not paid a fixed management fee but is instead compensated with 15% of the Fund’s net income.
- Low maintenance investment with a low level of personal involvement. Many experienced trust deed investors may be attracted to the Fund because it is a more efficient investment vehicle in which the General Partner is responsible for ongoing investment decisions.
A unique characteristic of a mortgage fund vs a straight equity fund where real estate is owned and managed by the Fund is in a mortgage fund, you are essentially partnering with the owner of the real estate, who has a vested interest in managing the secured asset for you, increasing its value, and generating an income for the investor.
A disadvantage of a mortgage fund is that the investor doesn’t participate in the appreciation and tax benefits of owning real estate. However, on the flip side, a mortgage fund investor doesn’t incur the costs and hassle of owning and managing real estate successfully.
Investors best suited for a mortgage fund:
- Investors who want to invest in a tangible asset like real estate but don’t have the resources to do it directly as an equity investment.
- Investors who want a steady fixed income on their investment.
- Investors who are acceptable with receiving ordinary income where their investment is not an IRA tax-sheltered investment.
- Investors who understand and accept there is often no immediate liquidity and require advance notice when liquidating their investment.
- Investors who want their investment diversified in both the number and type of properties secured.
- Investors who want the option to let their investment compound rather than receiving periodic interest payments as their only option.
Ultimately, investors must determine what alternative investments are the best choice for their portfolio regarding their goals and appetite for risk. But for those who seek to realize a predictable monthly income while protecting their principal with an asset that can be resold if need be, mortgage funds offer excellent potential.
Fidelis Private Fund, LP, is a limited partnership with regulatory oversight by the Securities Exchange Commission under the SEC Reg D 506C, which permits the Fund to advertise and raise capital nationwide from accredited investors only.
- Security– The majority of all Fidelis loans are first trust deeds. The average LTV on the portfolio is approximately 60-65%.
- Experienced Fund Manager – The manager has successfully navigated a mortgage fund through some of the worst recessions in our history with no investor capital loss.
- Fixed Income Stream – Our loans provide a safe, predictable, fixed income to the investor with distributions made quarterly.
- Excellent Yield – The fund target is a competitive annualized return to investors of approximately 8%.
- Minimal investment is required – Accredited investors can get started with as little as a $50,000 investment.
- Diversification – The investment risk and return on investment are spread over multiple loans and product types.
- Compounding Interest is Available – Investors may automatically reinvest interest distributions to take advantage of compound interest. Note: this benefit is not available in other fractional interest investment vehicles.
- IRA Investment Opportunity – Invest through your IRA or Pension Plan to take advantage of the tax benefits.
- Remain Fully Invested – Through efficient cash management, funds can be invested immediately and remain working as loans are funded and paid off. Note: this is unlike fractional interest trust deeds, where timing and change of investments can require constant investor involvement resulting in lower overall returns.
- Hedge Against Inflation – Limited interest rate risk since all loans are short-term, less than three years.
- Liquidity – Investors may, with proper notice, withdraw their investment after one year with no penalty.
Fidelis offers accredited investors the opportunity to invest in a diversified pool of real estate secured loans generating a competitive rate of return with moderate risk and reasonable liquidity.
Fidelis Private Fund’s objective is to provide an investment opportunity that generates income and preserves capital. We have the expertise and experience to capitalize on the market inefficiencies using strong underwriting fundamentals and a disciplined approach to capital preservation to maximize the return to our investors.
Real estate is an excellent investment and a great hedge against inflation. However, the average person may not have the expertise, resources, or want the responsibility that comes with owning and managing real property.
An alternative to owning and managing investment real estate to hedge against inflation is an investment in a mortgage fund like Fidelis Private Fund for the following reasons:
- Trust Deeds on real property secure the investment.
- The investment is in fixed dollars secured against real estate assets that inflate in value, creating instant equity and additional security.
- The investment is secured by numerous short-term loans, so as interest rates rise, the Fund will adjust with the market reducing interest rate risk.
- The investment can take advantage of compounding monthly income, which helps offset the loss of purchasing power when inflation occurs.
A mortgage fund like Fidelis Private Fund is an indirect way for an investor to passively invest in real estate and still hedge against inflation while enjoying many other benefits of owning real estate without all the headaches and costs of real estate ownership.
The Fidelis Private Fund, LP, General Partner, Fidleis Private Fund, Inc., participates in 15% of net income, thereby participating in all Fund expenses and any losses of the partnership. The typical mortgage fund is paid a % of the net assets managed regardless of the Fund’s performance. What makes Fidelis unique is the Fidelis Private Fund, LP’s general partner, is paid based on performance, not on net assets managed, which aligns the limited partner’s interest with the general partner.
Yes, the Fund has established a loan loss reserve with a target of 2% of total loan commitments to further enhance the Fund’s investors’ security. The allowance is increased by provisions for losses charged against income and is reduced by charge-offs, net of recoveries. A charge-off is determined by the General Partner and recorded when a loan is deemed uncollectible. Any allocations to the loan loss reserve are accounted for monthly in the expenses and are allocated pro-rata to the investor’s capital accounts. The loan loss reserve is deemed equity in the Fund and accessed at the sole discretion of the General Partner. Limited Partners have no rights to funds allocated to the loan loss reserve upon withdrawal of capital from the Fund.
Yes, Fidelis has prepared annual audited financial statements from a reputable third-party accounting firm.
idelis has had no foreclosures that have resulted in REO properties.
Accredited investors only. See the definition of an accredited investor in the frequently asked question.
In today’s economic environment, there are plenty of investment options, and they all come with some level of risk.
Fidelis Private Fund is a direct portfolio lender specializing in commercial and residential investment real estate loans and offers accredited investors the opportunity to invest in a pool of real estate secured loans generating a competitive rate of return with moderate risk and reasonable liquidity.
When it comes to making private money bridge loans, it’s an art, not a science,
We find inefficiencies in the market to help borrowers and generate a premium for our investors.
Since its inception, Fidelis has generated an annualized yield of over 8% by creating value in satisfying a borrower’s real estate need, not by taking on additional real estate risk like higher leverage.
For example, when conventional lenders cannot promptly meet a borrower’s demand for a loan, Fidelis steps in to make it happen at the same conservative loan amount without taking on additional real estate risk generating an excellent return.
Here are three types of loan scenarios that add value to our borrowers and generate a premium for our investors without the additional risk:
- Where Timing is Critical: Occasionally, a borrower needs to close a loan where timing is critical to make the transaction happen.
For example, a buyer finds a property to purchase and negotiates a below-market purchase price with a motivated seller and needs a loan, but must close within ten days. Due to the short time frame, most conventional lenders could not meet the timeline.
Since Fidelis can move quickly and close a loan in a matter of days due to a less cumbersome bureaucratic underwriting process, the borrower will pay a premium for the service, especially where there is plenty of profit in the transaction.
The choice to use a lender like Fidelis, who can perform within days will save the buyer way more than the higher cost of the private money. Thus, the premium paid was not a result of an increase in risk, but only timing.
- Where Convenience is Wanted: A borrower who values simplicity and ease of doing business as a high priority.
For example: When a self-employed borrower who owns numerous entities with complex tax returns goes through a conventional lender who requires extensive paperwork, the result is a lot of “brain damage” in getting the loan done. At Fidelis, we focus on the equity in the real estate, the borrower’s character, and their ability to repay the loan, and don’t get caught up in the bureaucracy of paperwork.
This makes a much quicker, smoother, and easier loan process. For many borrowers, the higher financing cost to use Fidelis is well worth it when facing the demanding, time-intensive, conventional lender underwriting requirements.
- Where Thinking Outside the box is Needed: A borrower that does not fit the typical lender criteria required by a conventional lender.
For example, a borrower who filed bankruptcy due to a complicated divorce resulted in a low credit score. Because of the bankruptcy, the borrower cannot get a conventional loan. Instead of declining the loan strictly on the bankruptcy, like most conventional lenders, we look into why the bankruptcy was filed and how the borrower handled his credit as a factor in making the loan.
With Fidelis’s willingness to look beyond the surface and think outside the box, we can fund secure real estate loans with adequate equity for character-worthy borrowers that conventional lenders often overlook.
Three common traits: Integrity, follow-through, and the willingness to understand a borrower’s story, as illustrated above, are reasons a borrower chooses to get a loan with Fidelis and pay the higher cost.
Our ability to perform for our clients has resulted in developing strong, lasting relationships with our borrowers, brokers, and other referring lenders.
The element of timing, ease of doing business, and the ability to look beyond the surface and understand the story are where value is added and a premium is received without the additional risk.
No matter where we are in the economic cycle, there are always opportunities to create value and generate a premium for lenders like Fidelis and their investors.
- An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status, or professional experience. The definition of an accredited investor is put forth by SEC in Rule 501 of Regulation D.
An accredited investor, in the context of a natural person, includes anyone who:
- Has earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
- Has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
There are other categories of accredited investors, including the following:
- Any trust, with total assets in excess of $5 million, not formed specifically to purchase the subject securities, whose purchase is directed by a sophisticated person, or
- Any entity in which all of the equity owners are accredited investors.
Accredited Investors can be Invested as:
- IRA’s or Profit-Sharing Plans
- LLC’s or Corp.
In 2020, the U.S. Congress modified the definition of an accredited investor to also include registered brokers and investment advisors.
- Review the Fidelis Private Fund, LP Private Placement Memorandum and the Limited Partnership Agreement.
- Execute the Verification of Accredited Investor Form. Fidelis Private Fund, LP is a 506(c) private placement, and we are required to accept only accredited investors in the Fund. Therefore, we first need you to have your financial advisor, CPA, or attorney verify that you are an accredited investor.
- Complete and execute the Subscription Agreement. Sign the W-9 Form and complete the Distribution Election Form.
- Submit the Investment to Fidelis Private Fund, LP.
- Mail or scan and email the executed Verification of the Accredited Investor Form and the Subscription Agreement along with the Distribution Election Form and W-9 form signed. If emailed, please follow up by mailing the originals to the below mailing address.
- Wire the investment into the Fidelis Private Fund, LP account. See attached wire instructions. When the funds are wired, please email John Lloyd at Jlloyd@fidelispf.com and include the name used under your investment, date of wire, reference number, and the amount.
- If the information requested is not emailed and funds are not wired / Mail information and a check for the investment. Make Check payable to Fidelis Private Fund, LP, along with the executed Accredited Investor Form, the executed Subscription Agreement.
- $50,000 is the minimum investment. However, the General Partner has the authority to make an exception to this minimum.
- An Investor’s combined capital account(s) may not exceed $2,000,000. This maximum does not include accrued interest. However, the General Partner has the authority to make an exception to this limit.
One (1) year, a 10% withdrawal fee is applied to the amount withdrawn before the end of one year.
- An investor may withdraw some or all of the current year’s income quarterly without a withdrawal fee with a two-week written notice to the General Partner. Note there is never a withdrawal fee for investor income.
- Investors who want recurring income withdrawals quarterly, semi-annually, or yearly need only notify the General Partner once.
- Investor income distributions will be made after quarter-end within a reasonable time to allow for the quarter-end accounting of the investors.
- There is no exit fee associated with the withdrawal of capital unless a withdrawal is requested prior to the one-year commitment.
- General Partner. The withdrawal will be subject to the availability of cash as determined by the General Partner.
- The withdrawal fee only applies to the capital being withdrawn, not to the whole capital account.
- Capital withdrawals require a 45-day written notice to the General Partner and are distributed quarterly at the same time quarterly income distributions are made unless the General Partner makes an exception.
- Abnormally large capital withdrawals that compromise the integrity of the Fund may be paid over a reasonable period based on the circumstances as determined by the General Partner.
- If the Investor elects to sell all or part of their account, the Fund has a Right of First Refusal with a 10-day notice requirement.
- Substituted Investors require the consent of the General Partner.
- Based on circumstances deemed appropriate by the General Partner, the restrictions for the withdrawal of capital may periodically be changed without prior notice.
- Capital withdrawals will only be restricted when there is not adequate liquidity in the Fund to satisfy the request, or the General Partner may restrict the withdrawal of capital only to protect the integrity and liquidity of the Fund as may be reasonably determined by the General Partner.
- Investor income distributions will be made after quarter-end within a reasonable time to allow for the quarter-end accounting of the investors, which is usually around the 10th of the month following quarter-end.
Yes, a limited partner’s capital investment compounds monthly. It is the choice of the limited partner as to whether to request quarterly, semi-annually, or annual income distributions or leave the investment to compound monthly.
- The Fund may admit new investors, and existing investors may increase their capital accounts at any time.
- In mid-month, capital invested in the Fund does not share in that month’s allocation of Fund profit or loss. However, on the first day of the following month, the contribution is included with the other investor capital accounts for monthly allocation of the Fund profit or loss.
All capital investments are at Par with no associated application fee.
- Interest income as a quarterly distribution.
- Interest income as a semi-annual distribution.
- Interest income as an annual distribution.
- Interest income is automatically reinvested and compounded monthly
- Investor income distributions will be made after quarter-end within a reasonable time to allow for the quarter-end accounting of the investors, which is usually around the 10th of the month following quarter-end.
Yes, however, the investment must go through a custodian that is set up to accommodate self-directed accounts and has approved Fidelis Private Fund as an acceptable investment vehicle.
- The worse case is if all the borrowers defaulted on their loans, Fidelis Private Fund would foreclose on the real estate, and the partnership would own the properties with all the limited partners owning a prorata share of the assets based on their capital account balances.
- The limited partners would benefit on all future property appreciation while Fidelis managed the properties to maximize net income
- As a source of accountability to our investors, the General Partner has formed an
Accountability Committee “Advisory Board” that meets quarterly is comprised of a select group of investors in an advisory capacity only that has a vested and aligned interest to protect the integrity of the Fund. The Accountability Committee cannot and will not be responsible to or represent the investors; investors are obligated to independently make their own investment decision.
- The Fund is licensed under the California Finance Lenders License #60DBO-105717 and the California Department of Real Estate #02102102.Management’s Purpose, Vision, and Commitment to our Investors
- We exist to provide our investors with a safe, predictable source of fixed income secured by real estate with moderate to low risk. We consider ourselves stewards to protect and grow our investors’ investments and make decisions in good faith and fair dealing and in a manner that first protects the investor’s assets and does not place the General Partner in a position to benefit from or be competitive with the investors.
- The timely liquation of the assets would be made in the partnership’s best interest to repay all capital account balances.
Yes, the investor has secure online access to their capital account, transaction history, K-1’s, and a dashboard showing real-time fund performance and all company reports and financial statements.
Yes. Fidelis does have a line of credit with a local bank for the purpose of managing cash flow to optimize investor yield. The target is to have no more than 20% total investor capital leveraged.