Frequently Asked Questions
What is the Mortgage Fund?
The LJL Secured High Yield Income Fund I, LLC is a California Limited Liability Company that allows investors to pool their financial investments through the acquisition of membership interests. The Fund's pooled resources will be loaned to real estate owners and developers and secured by deeds of trust encumbering the underlying real estate.
What is "Hard Money"?
Hard money is a term that is used to describe loans that have credit quality that typically would not qualify for traditional financing. It is highlighted by the fact that the subject properties have a large amount of protective equity -- typically at least 45%. Click here for more terminology.
What is my security?
You have an interest in the entire portfolio of Trust Deeds owned by the mortgage fund rather than one individual Trust Deed. In the unfortunate event of a default, having your investment capital diversified among many Trust Deeds will mitigate a temporary reduction of your monthly income.
What happens if the real estate market totally tanks?
Investing in a dynamic pool of residential mortgages allows investors to diversify their portfolio, but more importantly in today's declining market, where loans are made every month, the portfolio enjoys the benefit of dollar-cost-averaging, by adding new loans at the new real estate price on a continual basis.
The chart above shows the effect of real estate price declines ranging from 10% to 40% in one year on the loan to value of the portfolio. Loans are originated at a 55% loan to value based upon the lower of a recent appraisal and a broker provided price opinion of the 30 day sale price of the house.
Industry accepted foreclosure costs range between 12% and 15% with the result that investors capital could be threatened once the loan to value reaches 85% to 88%. So, even with a catastrophic drop in the real estate market, your investment will remain relatively unscathed.
Is there a minimum term?
Yes. There is an initial 12-month term once you purchase your shares. After that time you may redeem some or all of your shares at will by giving us written notice and we have 60 days to redeem your shares based upon the availability of cash resources within the fund.
Can I move my current investments into the mortgage fund?
Yes, we can do this for you immediately or when your current investments pay off.
Why do real estate owners and developers borrow from the LJL Secured High Yield Income Fund I, LLC?
A variety of circumstances lead borrowers to private money. A sampling of what we see on a daily basis:
- Real estate purchase opportunities with a short escrow
- Reducing the need for equity participation
- Credit challenges
- Unexpected project cost overruns
Every borrower and lending opportunity is unique, and it takes experience and discernment to select the best.
What happens if the borrower defaults?
LJL Funding, LLC, the holding company of the Fund manager has contracted with a major national mortgage servicing company who has extensive expereince in dealing with borrower defaults and the foreclosure process. Foreclosure and sale of the real estate may be part of the process.
What is my protection as an investor?
You are a member of the LJL Secured High Yield Income Fund I, LLC with all the rights and limited liability protection afforded to members of a limited liability company by law.
What is the minimum investment amount for the LJL Secured High Yield Income Fund I, LLC?
The minimum investment is $25,000 for investors and $3,000 for IRA's.
Is the fund investment open to everyone?
No, there are investor suitability standards. These standards are:
Each investor must represent in writing that such investor is either a bona fide resident of the State of California or a non-U.S. citizen who resides in a foreign nation (or if the investor is a trust, corporation or other entity, that the principal office of such trust, corporation or other entity is located in California or a foreign nation). In addition:
- Each Investor must have either (a) a net worth (exclusive of home, furnishings and automobiles) of at least $250,000 and an annual gross income of at least $65,000; or (b) a net worth (exclusive of home, furnishings and automobiles) of at least $500,000; and
- The amount of each Investor's investment in Interests offered hereby must not exceed ten percent (10%) of such Investor's net worth (exclusive of home, furnishings and automobiles).
What role does LJL Funding play in the LJL Secured High Yield Income Fund I, LLC?
LJL Funding is the parent company of the fund manager and the fund invests in loans originated and underwritten by the firm's underwriting guidelines, using their underwriting process and guidelines developed over twenty years.
Can a member/investor continuously add or subtract contributions to the fund?
Investors can invest in the fund as long as the fund is offering membership interests. Subject to the 12-month holding period, investors can redeem their shares by giving written notice to the fund.
Who regulates the fund?
The fund is licensed by the California Department of Corporations under permit number 506-3260. (This permit is permissive only and does not constitute a recommendation or endorsement of the securities permitted to be issued.)
What are the fees charged?
The fund pays its manager a management fee of 1% per annum. In addition the fund pays LJL Funding, LLC a loan servicing fee of 0.5% per annum on loans in the portfolio and a maximum of 0.5% per annum for costs of administering the fund.
What yield can I expect?
Investors receive the actual interest paid by the borrowers to the fund less the costs of managing the fund, servicing the loans and administering the fund. The Fund will make monthly distributions in an amount equal to eight percent (8%) per annum of each Members' respective outstanding capital account balance as of the first day of the preceding month. At the end of each calendar quarter the Manager will adjust the monthly payment in accordance with the actual return realized by the Fund for the preceding quarter. In the event the actual return is less than eight percent (8%), the Manager will collect the shortfall upon the earlier to occur of the next quarterly adjustment or the Members' withdrawal from the Fund.
Why does the Fund borrow money to make or purchase Trust Deeds?
The fund has the ability to utilize leverage by borrowing funds against the portfolio of loans in order to offset the costs associated with the fund and to increase investment returns.
How do I know how much money I've made with the LJL Secured High Yield Income Fund I, LLC?
As an investor you will receive a monthly statement of your account. You also have the ability to go online at anytime to view the details of your account.
What type of loans will the fund make?
Fund loans will be secured by deeds of trust almost exclusively on residential real estate, however the fund is licensed to do loans on improved commercial, industrial and unimproved land. Properties will be located primarily in the western United States, but the fund is permitted to operate nationally. Fund loans may consist of: (1) loans secured by fully improved commercial or residential real estate located within or outside California; (2) construction loans made pursuant to a construction loan agreement governing the construction of one or more new structures on the security property; (3) rehabilitation loans, where a portion of the loan proceeds may be used to make repairs or construct certain rehabilitation type improvements to the security property; and (4) loans secured by raw land. No more than 20% of Fund loans will be secured by property located outside of California.
Can dividends be reinvested?
Investors have the choice of (1) receiving regular monthly cash distributions of Fund income, or (2) having their income credited to their capital accounts and reinvested by the Fund. An investor may elect to switch from one of these options to the other only upon ninety (90) days' notice to the Manager.
Can I invest funds from my IRA or self-directed pension plan into the fund? The LJL Secured High Yield Income Fund I, LLC is excellent for self-directed IRA and Pension Plans. If you weren't aware that you could invest in trust deeds through your IRA, talk to us. We can show you how.