Funding Large Loans…
I wanted to report nothing but good news here at Sun Pacific Mortgage. Last month was another record production month. We are funding an ever increasing number of loans and larger and larger loans.
To get some of the larger loans done we have had to “fractionalize” the loan. This is the formal term we use that describes having more than one investor contribute funds to get the loan done. As an example: $750,000 loan amount and 2 investors each invest $350,000. Another example: Same loan amount of $750,000, but Investor 1 funds $300,000, Investor 2 funds $200,000, Investor 3 funds $200,000 and the final Investor funds $50,000. This is a very common investment tool.
Here are some of the pros and cons of “fractionalization” from the Investors viewpoint.
Pros first: These are just a few of the reasons to do a “fractionalized” loan.
- This allows you to have a share in a very good loan spreading the risk to a number of investors.
- It allows you to get your money out there rather than waiting for a loan that fits your available funds.
- You don’t have to have all your eggs in one basket. Rather than doing just 1 loan you spread your investment dollars around on a number of smaller investments.
- All investors need to agree on a course of action if the loan gets into trouble. This is only real con I could come up with. I must point out that this has not been an issue in the past 5 or 6 years as we have not had a residential foreclosure in that time, that I am aware of. The decision that matters is to foreclose or not foreclose. It’s usually pretty obvious.
Fractionalization can be an amount from $100,000 to $1,000,000. Hopefully this description of “fractionalization” can expand the opportunities for you as the Investor.