Frequently Asked Questions
Thank you for taking time to look through our frequently asked questions. If you can’t find the answer to your specific question here, please feel free to write us at: email@example.com
What is a Mortgage Investment Company (MIC)?
There are four ways to invest in mortgages:
- Personally lend money directly to real estate investors.
- Buy loans that are secured by real estate from brokers.
- Find a fund that invests in mortgages (Mortgage Investment Company).
- Find other people who are also investing in mortgages and form your own investment pool with them.
American Mortgage Fund I, LLC (AMF) is a Mortgage Investment Company (MIC). As such, AMF does not originate loans but, rather, uses investor funds (along with our own capital) to purchase existing, funded, 1st position loans that are performing and secured by real estate. These loans are short-term in nature, typically 12 to 24 months. The loans involved in mortgage investments are not from the typical single-family home-buyer. Instead, the loans involved in mortgage investments are typically from self-employed entrepreneurs and real estate investors who, for one reason or another, could not, or chose not to obtain financing through traditional lending facilities.Return to Top
How is American Mortgage Fund able to offer an 11% return?
The typical loan we selectively purchase has an interest rate in the 12.5% to 13.5% range. That is what allows AMF to offer accredited investors who invest a minimum of $250,000 an 11% Priority Return interest rate. For accredited investors who invest less than $250,000 the Priority Return rate is somewhat less depending on the specific amount of their investment.Return to Top
How can I know whether I am an ‘accredited’ investor or not?
An accredited investor is either; (a) an individual with a net worth of at least $1,000,000 exclusive of the value of their primary residence or, (b) an individual with an annual income of at least $200,000 for the past two consecutive years or, (c) a married couple with a combined annual income of at least $300,000 for the past two consecutive years.Return to Top
Why would any borrower agree to pay a much higher interest rate than what banks charge?
Most of the time the borrowers on the loans which AMF purchases are self-employed and are borrowing for a business purpose. One critical reason borrowers turn to asset-based equity lenders is time urgency. Equity lenders are able to close and fund loans usually in under two weeks, far faster than the amount of time it takes for traditional institutional lenders to close. Another reason is that many self-employed borrowers have a difficult time documenting their income and equity lenders are far less concerned with a borrower’s inability to document their creditworthiness than are institutional lenders because equity lenders look primarily to the value of the property and the low Loan-To-Value ratio for security on the loan. For these reasons, there is a high borrower demand for equity-based type loans and a limited supply which is why there is a premium to which many borrowers are willing to accept.Return to Top
Why is the yield offered by American Mortgage Fund higher than the yield on a typical bond?
The yield on mortgage investments is higher than the yield on bonds for two main reasons. First, mortgage investments have less liquidity when compared to bonds. There is not a centralized marketplace for mortgage investments, so finding a buyer for the investment is difficult. Since investors require a return premium as compensation for the lack of liquidity, the yield on mortgage investments is higher than the yield on bonds. Second, there is a large imbalance in the demand for mortgage financing and the supply of financing. When demand exceeds supply, prices increase. Similarly, since the demand for mortgage financing far exceeds the supply, investors are able to demand a higher rate of return from borrowers than are typically offered on bonds.Return to Top
Why aren’t mortgage investments offered by major Wall Street firms?
Wall Street firms do not offer mortgage investments because the market is not big enough to make it profitable for them. The dollar amounts in the individual loans together with the work that must go into structuring the deals correctly make them undesirable for large financial institutions. As a result, smaller investors dominate the mortgage market. Wall Street firms are involved in the securitized loan market, which is related to mortgage investing.Return to Top
What is the investor’s margin of safety in investing with American Mortgage Fund?
The margin of safety in investing with American Mortgage Fund is essentially twofold; (1) the equity stake in the properties securing every loan we purchase and, (2) the title commitment ensuring AMF as 1st position lien holder on every loan we purchase. That is true for each and every loan AMF acquires. The difference between the property value and the loan amount creates a buffer that allows AMF to collect the full loan amount plus accrued interest and fees in the event of a default by the borrower. Should the borrower default, the collateral property can be sold to meet the loan obligation. Since the typical loan-to-value ratio is around 55% to 65% or less, there is ample equity protection. And with a title commitment underwritten by a top underwriting company ensuring AMF as 1st position lien holder, and property/fire insurance in place, the margin of safety for AMF investors is strong and secure.Return to Top
Who does the appraisals on the properties for the loans AMF purchases?
When evaluating the Loan-to-Value ratio before purchasing a loan AMF never considers a property appraisal that was provided by the borrower. AMF always bases loan acquisition decisions on an independent property appraisal and that is most frequently done through a company called Appraisal Nation, an industry leader which provides top quality residential and commercial appraisal services nationwide.Return to Top
Is it better to invest in mortgages or to invest in real estate directly?
Although mortgage and real estate investments have the same underlying collateral, they are very different assets. Direct real estate investment has the ability to provide cash flows from both income and capital appreciation. The potential returns may be higher with a direct investment in real estate, but so is the capital investment and investment horizon. Purchasing real estate is capital intensive, and investment horizons are generally a minimum of five years. There are also additional cash investments required to manage the property. Real estate owners, however, also have tax benefits such as the mortgage interest deduction and the lower tax rate on capital gains.
Mortgages are loans secured by real estate, but mortgage investments only generate returns from income and not from capital appreciation. Since mortgages usually mature in less than five years, the investment horizon is shorter and finite when compared to direct investment in real estate. In addition, all income from mortgage investments gets taxed at the higher ordinary tax rate. Mortgage investing offers the benefits of both a relatively low-risk investment option that also provides a moderate rate of return. Investors receive monthly payments, and generally, earn rates of return of 8%-11%. The risk and return profile is very favorable compared to other comparable investment alternatives. A built-in “margin of safety” mitigates the risk of losing money in a mortgage investment.Return to Top
How does investing with American Mortgage Fund differ from buying notes directly?
First and foremost, risk diversification. By investing with AMF, an investment fund, investors are far better protected from a disruption of their investment generated income caused by a default than they otherwise would be if invested directly in a single note or two. Second, with the experienced and seasoned management of David Crantz, the president and manager of AMF, (watch the “Meet the Manager’ video) investors are alleviated from having to do their own research and analysis to evaluate the risks and merits of acquiring each individual loan note. AMF investors are able to relax and passively receive their monthly interest payments without any active involvement.Return to Top
Who services the loans in AMF’s portfolio?
Every loan acquired by AMF is serviced by a loan servicing company called FCI Lender Services, Inc. They are a leader within the industry and they receive the monthly interest payments from the borrowers on the loans purchased by AMF. FCI handles the accounting and distribution of funds to AMF. They have established affiliates all over the country and should the need arise to foreclose on a particular loan in default they handle the process along with a local affiliate attorney.Return to Top
What is the average size loan that AMF acquires?
The overall average size loan acquired by AMF is about $350,000. Most loans are secured by either commercial property or by residential property for a business purpose loan. AMF never purchases a non-business purpose loan secured by a borrower’s primary residence property.Return to Top
How soon would American Mortgage Fund begin paying me my monthly interest payments?
A lot of other MIC’s operate by first taking in money from investors and then using the investor funds to go out to search for loans to acquire into their portfolio. That approach wastes investor’s time and reduces the yield on their investment. AMF does just the opposite. We use our own capital to first acquire performing loans into our portfolio to generate income before we accept investor’s funds. That allows AMF investors to start earning their Priority Return rate of interest the same day their investment is accepted by AMF.Return to Top
For how long would my investment with American Mortgage Fund be tied up?
The Termination Date in the Operating Agreement of AMF is December 31, 2021. However there is a 30-day redemption clause in the AMF Operating Agreement which allows for investors to give management a 30-day written request to withdraw part or all of the funds in their AMF Capital Account.Return to Top
Am I allowed to investment with American Mortgage Fund through my trust or tax deferred retirement plan?
Yes.Return to Top
Should I be concerned as an investor that AMF is a relatively new fund?
Although AMF is a relatively new fund, the security to AMF investors is unrelated to the length of time since the fund began. The security to investors with AMF is the equity stake of the properties which secure the 1st lien position loans which AMF acquires into its portfolio, along with the title insurance ensuring 1st lien position of those loans. Although AMF is a relatively new fund, David Crantz, the manager of AMF, has over 30 years of extensive experience in every aspect of mortgages and real estate all around the country, both residential and commercial, as a lender, borrower, investor and landlord.Return to Top
As an investor/member of American Mortgage Fund, what company reports would I receive?
Annual reports concerning the Fund’s business affairs, including the Fund’s annual income tax return, will be provided to Members, together with their respective Form K-1 within 120 days after the close of the Fund’s Fiscal Year. The annual report will include audited financial statements (balance sheet, income statement and statement of changes in financial position for the Fiscal Year) and shall be accompanied by the report thereof of the independent accountants who prepared such financial statements on behalf of the Fund. Interim balance sheets and income statements, prepared by third parties without audit or by the management shall also be provided for the first 3 quarters of the Fiscal Year.Return to Top
Would I have the option to increase my investment with American Mortgage Fund after my initial investment?
Yes.Return to Top