288. Analyzing 7,000 Properties: How To Maximize Cash flow Today with Chris Lopez
Tax Smart Real Estate Investors Podcast
Understanding Debt Funds and Their Investment Returns
Debt funds typically offer returns ranging from 8% to 12%, influenced by market conditions and competition levels. They primarily focus on hard money loans for short-term needs such as fix-and-flip projects or bridge loans, with terms lasting from three to twelve months. Lenders in these funds often provide 60% to 70% of the property's After Repair Value (ARV), ensuring that the loans are secured by properties with a low leverage ratio. Loans are frequently structured as first position deeds of trust, incorporating both property and basic borrower credit checks for underwriting. In the event of foreclosures, the leverage ratio allows investors to mitigate losses by taking ownership of the property, enhancing downside protection. Rates of return can vary significantly depending on market competition; for example, returns of about 10% in Denver and 12-14% in more competitive Midwest markets are common. Overall, debt funds typically yield a desirable return of about 10% to 12%, making them an attractive option for tax-advantaged accounts like self-directed IRAs or 401(k)s, offering potential higher returns compared to traditional stock market investments while maintaining risk protection.
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