The Hook
When I sit down with prospective investors, one technical term causes the most confusion: the loan-to-value ratio, or LTV. Most understand it’s a key metric, but they aren’t always sure why it is the “pulse” of their investment security.
At Fidelis, we challenge the industry’s obsession with “position” alone. We believe that while being in first position is a standard defense, a properly structured loan with a conservative LTV is the true armor of an investment—even when that loan sits in 2nd position.
The Investment Structure
Let’s simplify the math. LTV is the loan amount divided by the property’s appraised value. If a property is valued at $1 million and the loan against it is $600,000, the LTV is 60%. The remaining 40% is the borrower’s equity.
When you invest with Fidelis, you aren’t the landlord; you are “the bank.” As the bank, the borrower’s equity is your primary safety net. It is the cushion that must be wiped out completely by a market crash before your principal is ever threatened.
The 2nd Trust Deed “Inefficiency”
Many lenders reflexively avoid 2nd Trust Deeds because they “aren’t in first.” We view this as a massive market inefficiency. Because most lenders blindly lump all 2nd Trust Deeds into a “high-risk” category, they miss out on high-yield opportunities that are actually very safe when structured with surgical precision.
At Fidelis, we don’t eliminate a loan just because it’s in 2nd position. Instead, we underwrite it as if it were a 1st. We apply the same strict maximum Combined Loan-to-Value (CLTV)—usually around 60-65%—that we would if we held the entire debt ourselves.
How We Eliminate the “Additional” Risk
We don’t just “take” a 2nd Trust Deed; we engineer it. Our management team, which successfully navigated the Great Recession without losing a dime of investor capital, follows two ironclad rules to ensure parity with 1st positions:
The Small 1st Rule: We never go behind a massive 1st mortgage that we can’t control. We only fund 2nd positions behind small 1st Trust Deeds that Fidelis has the liquidity to pay off immediately. If the borrower defaults, we simply pay off the 1st and take full control of the asset’s destiny.- The “Win/Win” Strategy: Imagine a borrower with a $400k 1st mortgage locked in at a 3% interest rate. They need $500k to build ADUs on a property valued at $1M (increasing to $1.8M post-construction). By providing a 2nd, we let the borrower keep their cheap debt while we secure a higher interest rate for our investors—all while maintaining a rock-solid 50% CLTV.
The Reality Check: From a risk standpoint, a 60% LTV 1st position loan is mathematically identical to a 60% CLTV 2nd position loan, provided the lender has the capital to protect their interest. By ignoring the “label” and focusing on the math, we generate superior yields.
The Bottom Line
LTV isn’t just an underwriting statistic; it’s the primary structural defense protecting your principal. By focusing on the total equity cushion rather than just the lien position, Fidelis takes advantage of market gaps to generate higher returns without taking on additional net risk.
We use our decades of experience to find the “win/win” where the borrower saves money and our investors earn more, all while staying protected by a substantial margin of safety.
Call to Action
If this still feels complex, give me a call. I believe the best partnerships start with a simple conversation—no pressure, just clarity. Reach me directly at 760-258-4486 or email jlloyd@fidelispf.com.
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