Fourteen months of distributions from 25k, and one loan that scared me

The workout memo is the thing I'd hold onto. A manager who'll write two pages to a 25k investor about a 1.9 percent position is a manager with a process. The ones who send a paragraph saying "the situation is being managed" usually don't have one.

How long from default notice to deed in lieu? Five months total sounds fast to me for a residential foreclosure and I'd want to know whether they got a cooperative borrower or whether that state just moves quickly. It varies a lot by state, and a non-judicial state can be months faster than a judicial one on the same facts.

Two things in your post are worth separating for anyone reading it as a template.

The first is the distribution consistency. Monthly payments in a tight band from 0.68 to 0.79 percent means the fund is distributing collected interest and has enough performing loans that one default gets absorbed. That is what diversification inside a pooled vehicle buys you compared with holding a single private loan, where the same default is 100 percent of your position. It is the central case for a debt fund over direct lending.

The second is the recovery. Principal plus most of accrued interest on a deed in lieu means the collateral cushion held. Loan sized against a value that stayed above the loan balance through a five month workout and a contractor bill. That is the whole game in debt. Borrower distress is survivable when the collateral covers it, and the loss shows up when it doesn't. Which is why the loan-to-value discipline and the vintage of the book matter more than the headline coupon.

What your fourteen months does not test: a market where values in that price band fall 15 percent while three loans default at once. A residential bridge book at conservative LTVs in the price range you describe is one of the more defensible corners of this, and your experience so far is consistent with that. It isn't evidence of it. Get the fund's realized loss history across the 2022 to 2023 origination vintages and ask for it in writing. That period will tell you more than your fourteen months will.

9.1 percent net over fourteen months is a real number and I believe it. What I want to know is the denominator.

Did the fund call your 25k on day one and start paying immediately, or was there a period where the cash sat uninvested? Some of these hold subscriptions in a cash account until they have a loan to fund, and if you sat idle for six weeks your actual return on invested days is higher than 9.1 and your return on the money you handed over is lower. Both numbers are true and managers quote whichever is friendlier.

Also: was that 9.1 after the manager's fee and after any fund-level expenses, audit, admin, legal? Net means about four different things in these documents.

@ledger this is exactly what I got tangled in last month. Two funds, both quoting "net to investor," one meant after management fee only and the other meant after everything including the audit. About 40 basis points apart on the same underlying book.

Ember, the 2 percent placement fee catch is the useful part of this post for me. Where did it appear in the documents? I want to know what section to open first.

I've been reading up for a while without doing anything, so it's useful to see someone actually pull the trigger on 25k. The lockup is what I keep stumbling on. One year plus 60 days notice means worst case you're about fifteen months from wanting money to having it, assuming they honor the queue. Did that bother you at the time or did you decide 25k was money you genuinely didn't need?

The workout is the part I'd push on. Deed in lieu, finish the house, sell it. That means the fund became an owner and a general contractor for five months. Who paid the contractor? If it came out of fund cash, that money wasn't earning interest while it was in drywall.

Not a criticism, it's the right call on a stalled flip. But it tells you the manager has to be willing and able to operate, and plenty of small funds are set up to originate loans and have no idea what to do when they own a half-finished house. I'd ask how many times they've done that and what the recovery was on each.

Ember, compare this against what 25k does in equity. You can't buy anything with it. You could be an LP in a syndication where the first distribution is in year two and the exit is year five. Monthly cash from month one is a different animal even at the same headline yield, because you can actually see whether it's working.

This is the setup I've been after. Nothing to renovate, no tenants, no phone calls at 11pm. I don't need it to beat anything, I need it to keep paying and be understandable.

The one thing I'd want before copying it is @rena-expert's point about the 2022 to 2023 vintages. Fourteen good months in a fund that started lending recently proves the manager can collect. It doesn't prove they can lose money well.

What did the subscription process actually feel like? I've never wired money to anything that wasn't a house and the accreditation questionnaire alone is putting me off. Did they verify it themselves or did you have to get a letter from someone?