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Pcg.Financial Planning Ce Presentation

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The document discusses trust deed investing as an alternative investment approach. It provides an overview of trust deed financing, including that it involves direct lending secured by real estate. It then gives examples of how financial planners have used trust deed investments to enhance fixed income portfolios, diversify equity-heavy portfolios, and help fund healthcare costs and longer lifespans in retirement planning.

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Trust Deed Investing An alternative Approach for Todays Complex Investing Environment
Agenda Introduction The case for Alternative Assets Trust Deed Financing Case Studies Innovative Approaches to Solving Financial Planning Issues Audience Q and A
Equities have underperformed The Lost Decade Total Return on $10,000 invested in the S & P 500 April 1999 through March 2008 Source: Wall Street Journal, March 26, 2008
Diversification is becoming more difficult Correlation of Standard Domestic Equity Classes* Large Growth Stocks Large Value Stocks Small Growth Stocks Small Value Stocks Midsize Growth Stocks Midsize Value Stocks Large Growth Stocks 1.000 Large Value Stocks 0.799 1.000 Small Growth Stocks 0.822 0.653 1.000 Small Value Stocks 0.689 0.792 0.853 1.000 Midsize Growth Stocks 0.924 0.720 0.944 0.772 1.000 Midsize Value Stocks 0.754 0.953 0.712 0.888 0.739 1.000 *Correlation Coefficient Dec-1986 to Jun-2007
Alternative Investments Can Help Correlation of Alternative Equity Index Classes* Technology Energy Financials Healthcare Materials Real Estate Technology 1.000 Energy 0.341 1.000 Financials 0.514 0.432 1.000 Healthcare 0.536 0.331 0.586 1.000 Materials 0.527 0.583 0.640 0.508 1.000 Real Estate 0.286 0.334 0.522 0.343 0.489 1.000 *Correlation Coefficient Dec-1986 to Jun-2007
Current Fixed Income Environment Low interest rates Declining Yields Safe Bond Funds exposed to Sub-prime Some markets becoming illiquid
An Alternative Approach: Private Mortgage Financing Known as Private Money lending Niche market for borrowers and properties that do not meet typical institutional lending requirements $ Billions in private money loans made annually Typically offer high returns to investors ~ 10%+
What is Private Mortgage Investing? Private Mortgage investing is very similar to a bank writing a mortgage. Except: You are now the bank. You receive the monthly income. You have a lien against the land or project, until your principal and your stated return is paid in full Premiere Commercial Group, Inc.
Trust Deed Investing Not Sub-prime Not a derivative security Direct lending, individual Deeds of Trust Loan to Value ratios low Quality, well-underwritten loans Short-term in nature Quick response
What Current Investors Like About Private Mortgage Investing Relatively secure and predictable, but returns beat inflation significantly Monthly income rebuilds wealth Simple, transparent Like RE investing without the hassles of ownership .and with the benefits of relative liquidity Premiere Commercial Group, Inc.
Private Mortgage as a Lower Risk Proxy for Real Estate Mortgages are tied to RE benefits of collateralization with hard assets, but risk is shared with borrower Smaller minimum investments easy to achieve true diversification across multiple projects Unlike direct real estate investing, returns are immediate and stable Premiere Commercial Group, Inc.
Credit Crunch = Opportunity Banks tighter credit standards mean fewer borrowers qualify PCG can tap many attractive lending opportunities ineligible for bank loans Premiere Commercial Group, Inc.
What Are The Advantages? High Yield on Investment Collateral Invested capital is secured by real estate with an appraisal, title policy, recorded lien, and hazard insurance Minimal Management All underwriting, servicing, and, if necessary, foreclosures are handled by highly experienced professionals. Monthly Income Interest payments are due every month Premiere Commercial Group, Inc.
What is the Standard Structure? The standard investment opportunity consists of a note and mortgage in the 1 st lien position that will encumber investment property owned by the borrower. The standard terms of the note are as follows: 12 24 month maturity Monthly interest rate 65% loan to value Personal guarantee from borrower Premiere Commercial Group, Inc.
What Are The Risks? All investments involve risk. The risk of a real estate note is default. However, the risk of loss is a function of recovery i.e. foreclosure and subsequent sale. Default risk is mitigated by strict underwriting and insisting on a least at 35% equity cushion in every loan Other risks include a drastic change in market conditions and the length of time it takes to recover a property and liquidate it. Premiere Commercial Group, Inc.
Extending Tax Advantages RIA Accounts Private mortgage investments combine stability with regular, substantial yields an excellent combination for self-directed retirement or education portfolios Income accumulates tax free until withdrawal taking full advantage of tax deferral on income Premiere Commercial Group, Inc.
Reasons for Borrowing
Demand: Timing Does not meet standard guidelines: Relocation issues Purchase escrow bridge loan Emergencies: cash needs for alternate use Purchase financing falls out at the 11 th hour on new acquisition Sale of existing residence falls out at the last minute
Does not meet standard guidelines: Non-owner occupied cash out required High land value to improvement Property type Not a 1-4 unit residential Demand: Property
Does not meet standard guidelines: Divorce Liens/Judgments Borrower in denial Opportunity cost saving, e.g. save money elsewhere by moving quickly or business opportunity Family issues medical, death, disability Demand: Situation
Does not meet standard guidelines: Citizenship issues resident alien Vesting Corporations, partnerships and trusts Income unverifiable, high ratios, self employed, no IRS 4506, stated income required Employment self, new, career change, new industry, unemployed, independent contractor, or gaps in employment Credit No credit scores, BK situations, questionable credit, excessive debt, multiple loans to borrower Demand: Borrower
How Financial Planners Are Using Trust Deed Investing We actually use these quite a bit. We like that it is not correlated to the stock market and position this as an exclusive, private investment that only our clients have access to. To us, these trust deed investments are a key tool in our portfolios. Wealth Manager, $260 million AUM I handle it as an alternative asset:high yield fixed income with its best selling point being both the yield and its low correlation with other market assets. Financial Planner, $750 million AUM When we use this vehicle I call it high yield, and make it part of my bond asset class, separate from, and therefore adding to diversification , any other bond type. Wealth Manager, $1 billion AUM Premiere Commercial Group, Inc.
Financial Planning Case Studies Enhance Fixed Income Portfolios Diversify Over-Weighted Equity Portfolios Healthcare in Retirement Issues Longer Life Spans
1. Enhance Fixed Income Portfolios Current Situation: $1 million conservative fixed income portfolio Money markets, Treasuries, short term bond funds 4% blended rate of return, $40K income Key Issue: Client needs additional income For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
Solution Allocate 25% of portfolio towards Trust Deeds returning 10% Result: New blended rate of return is 6.25%, yielding $62,500 Allocate incremental $22,500 towards goal Further diversified portfolio Maintained liquidity and conservative portfolio profile 1. Enhance Fixed Income Portfolios For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
2. Diversify Over-weighted, Equity Portfolio Current Situation: $1 million aggressive portfolio Tech, small cap, growth stocks in poor performing funds and money markets 1% blended rate of return over past 10 years Key Issue: Client needs higher returns to fund long term goals and further diversification to lower risk For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
Solution: Allocate 20% towards mortgage pools Result: Diversified portfolio to 70-20-10 Enhanced return of portfolio to 7% Lowered portfolio risk through diversification Maintained aggressive return portfolio profile 2. Diversify Over-weighted, Equity Portfolio For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
3. Health Care in Retirement Current situation: Client aged 78 is experiencing healthcare issues Spouse, aged 70 is in excellent health Due to increased costs ($50k), conservative retirement portfolio (5% return) projected to be depleted within next 10 years Key Issue Clients need increased return to stretch portfolio for surviving spouse, while maintaining liquidity and conservative risk profile For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
Solution: Allocate 30% of portfolio to Mortgage Pools returning 10% Result Increased blended rate of return to 7% Stretched retirement portfolio out to 2025, when surviving spouse is 88 Maintained conservative portfolio risk profile and liquidity 3. Health Care in Retirement For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
4. Longer Life Spans Facts: Clients aged 75 are in excellent health Family history of living to 90+ Current conservative retirement plan constructed to return 6% to fund retirement based on life span of 85 Clients worried they will outlive assets Key Issue Clients need increased return and liquidity to ensure portfolio funds lifestyle through age 100 For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
Solution: Allocate 35% of portfolio to Trust Deeds returning 10% Reduce lifestyle expenses Result: Increased return on portfolio to 7.5% Maintained conservative profile and need for liquidity Stretched portfolio to age 100 4. Longer Life Spans For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
QUESTIONS?
How Do I Participate? Partner with a firm, like PCG, who: Doesnt charge any fees to investors That will do all of the work for you Professionally manages your investment Maintains the highest integrity and a diligent ethical culture Premiere Commercial Group, Inc.
Investments/Lending Contact Ralph Abbott [email_address] 614-339-4255 ext 1001 www.premierecommercialgroup.com Premiere Commercial Group, Inc.

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Pcg.Financial Planning Ce Presentation

  • 1. Trust Deed Investing An alternative Approach for Todays Complex Investing Environment
  • 2. Agenda Introduction The case for Alternative Assets Trust Deed Financing Case Studies Innovative Approaches to Solving Financial Planning Issues Audience Q and A
  • 3. Equities have underperformed The Lost Decade Total Return on $10,000 invested in the S & P 500 April 1999 through March 2008 Source: Wall Street Journal, March 26, 2008
  • 4. Diversification is becoming more difficult Correlation of Standard Domestic Equity Classes* Large Growth Stocks Large Value Stocks Small Growth Stocks Small Value Stocks Midsize Growth Stocks Midsize Value Stocks Large Growth Stocks 1.000 Large Value Stocks 0.799 1.000 Small Growth Stocks 0.822 0.653 1.000 Small Value Stocks 0.689 0.792 0.853 1.000 Midsize Growth Stocks 0.924 0.720 0.944 0.772 1.000 Midsize Value Stocks 0.754 0.953 0.712 0.888 0.739 1.000 *Correlation Coefficient Dec-1986 to Jun-2007
  • 5. Alternative Investments Can Help Correlation of Alternative Equity Index Classes* Technology Energy Financials Healthcare Materials Real Estate Technology 1.000 Energy 0.341 1.000 Financials 0.514 0.432 1.000 Healthcare 0.536 0.331 0.586 1.000 Materials 0.527 0.583 0.640 0.508 1.000 Real Estate 0.286 0.334 0.522 0.343 0.489 1.000 *Correlation Coefficient Dec-1986 to Jun-2007
  • 6. Current Fixed Income Environment Low interest rates Declining Yields Safe Bond Funds exposed to Sub-prime Some markets becoming illiquid
  • 7. An Alternative Approach: Private Mortgage Financing Known as Private Money lending Niche market for borrowers and properties that do not meet typical institutional lending requirements $ Billions in private money loans made annually Typically offer high returns to investors ~ 10%+
  • 8. What is Private Mortgage Investing? Private Mortgage investing is very similar to a bank writing a mortgage. Except: You are now the bank. You receive the monthly income. You have a lien against the land or project, until your principal and your stated return is paid in full Premiere Commercial Group, Inc.
  • 9. Trust Deed Investing Not Sub-prime Not a derivative security Direct lending, individual Deeds of Trust Loan to Value ratios low Quality, well-underwritten loans Short-term in nature Quick response
  • 10. What Current Investors Like About Private Mortgage Investing Relatively secure and predictable, but returns beat inflation significantly Monthly income rebuilds wealth Simple, transparent Like RE investing without the hassles of ownership .and with the benefits of relative liquidity Premiere Commercial Group, Inc.
  • 11. Private Mortgage as a Lower Risk Proxy for Real Estate Mortgages are tied to RE benefits of collateralization with hard assets, but risk is shared with borrower Smaller minimum investments easy to achieve true diversification across multiple projects Unlike direct real estate investing, returns are immediate and stable Premiere Commercial Group, Inc.
  • 12. Credit Crunch = Opportunity Banks tighter credit standards mean fewer borrowers qualify PCG can tap many attractive lending opportunities ineligible for bank loans Premiere Commercial Group, Inc.
  • 13. What Are The Advantages? High Yield on Investment Collateral Invested capital is secured by real estate with an appraisal, title policy, recorded lien, and hazard insurance Minimal Management All underwriting, servicing, and, if necessary, foreclosures are handled by highly experienced professionals. Monthly Income Interest payments are due every month Premiere Commercial Group, Inc.
  • 14. What is the Standard Structure? The standard investment opportunity consists of a note and mortgage in the 1 st lien position that will encumber investment property owned by the borrower. The standard terms of the note are as follows: 12 24 month maturity Monthly interest rate 65% loan to value Personal guarantee from borrower Premiere Commercial Group, Inc.
  • 15. What Are The Risks? All investments involve risk. The risk of a real estate note is default. However, the risk of loss is a function of recovery i.e. foreclosure and subsequent sale. Default risk is mitigated by strict underwriting and insisting on a least at 35% equity cushion in every loan Other risks include a drastic change in market conditions and the length of time it takes to recover a property and liquidate it. Premiere Commercial Group, Inc.
  • 16. Extending Tax Advantages RIA Accounts Private mortgage investments combine stability with regular, substantial yields an excellent combination for self-directed retirement or education portfolios Income accumulates tax free until withdrawal taking full advantage of tax deferral on income Premiere Commercial Group, Inc.
  • 18. Demand: Timing Does not meet standard guidelines: Relocation issues Purchase escrow bridge loan Emergencies: cash needs for alternate use Purchase financing falls out at the 11 th hour on new acquisition Sale of existing residence falls out at the last minute
  • 19. Does not meet standard guidelines: Non-owner occupied cash out required High land value to improvement Property type Not a 1-4 unit residential Demand: Property
  • 20. Does not meet standard guidelines: Divorce Liens/Judgments Borrower in denial Opportunity cost saving, e.g. save money elsewhere by moving quickly or business opportunity Family issues medical, death, disability Demand: Situation
  • 21. Does not meet standard guidelines: Citizenship issues resident alien Vesting Corporations, partnerships and trusts Income unverifiable, high ratios, self employed, no IRS 4506, stated income required Employment self, new, career change, new industry, unemployed, independent contractor, or gaps in employment Credit No credit scores, BK situations, questionable credit, excessive debt, multiple loans to borrower Demand: Borrower
  • 22. How Financial Planners Are Using Trust Deed Investing We actually use these quite a bit. We like that it is not correlated to the stock market and position this as an exclusive, private investment that only our clients have access to. To us, these trust deed investments are a key tool in our portfolios. Wealth Manager, $260 million AUM I handle it as an alternative asset:high yield fixed income with its best selling point being both the yield and its low correlation with other market assets. Financial Planner, $750 million AUM When we use this vehicle I call it high yield, and make it part of my bond asset class, separate from, and therefore adding to diversification , any other bond type. Wealth Manager, $1 billion AUM Premiere Commercial Group, Inc.
  • 23. Financial Planning Case Studies Enhance Fixed Income Portfolios Diversify Over-Weighted Equity Portfolios Healthcare in Retirement Issues Longer Life Spans
  • 24. 1. Enhance Fixed Income Portfolios Current Situation: $1 million conservative fixed income portfolio Money markets, Treasuries, short term bond funds 4% blended rate of return, $40K income Key Issue: Client needs additional income For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
  • 25. Solution Allocate 25% of portfolio towards Trust Deeds returning 10% Result: New blended rate of return is 6.25%, yielding $62,500 Allocate incremental $22,500 towards goal Further diversified portfolio Maintained liquidity and conservative portfolio profile 1. Enhance Fixed Income Portfolios For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
  • 26. 2. Diversify Over-weighted, Equity Portfolio Current Situation: $1 million aggressive portfolio Tech, small cap, growth stocks in poor performing funds and money markets 1% blended rate of return over past 10 years Key Issue: Client needs higher returns to fund long term goals and further diversification to lower risk For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
  • 27. Solution: Allocate 20% towards mortgage pools Result: Diversified portfolio to 70-20-10 Enhanced return of portfolio to 7% Lowered portfolio risk through diversification Maintained aggressive return portfolio profile 2. Diversify Over-weighted, Equity Portfolio For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
  • 28. 3. Health Care in Retirement Current situation: Client aged 78 is experiencing healthcare issues Spouse, aged 70 is in excellent health Due to increased costs ($50k), conservative retirement portfolio (5% return) projected to be depleted within next 10 years Key Issue Clients need increased return to stretch portfolio for surviving spouse, while maintaining liquidity and conservative risk profile For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
  • 29. Solution: Allocate 30% of portfolio to Mortgage Pools returning 10% Result Increased blended rate of return to 7% Stretched retirement portfolio out to 2025, when surviving spouse is 88 Maintained conservative portfolio risk profile and liquidity 3. Health Care in Retirement For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
  • 30. 4. Longer Life Spans Facts: Clients aged 75 are in excellent health Family history of living to 90+ Current conservative retirement plan constructed to return 6% to fund retirement based on life span of 85 Clients worried they will outlive assets Key Issue Clients need increased return and liquidity to ensure portfolio funds lifestyle through age 100 For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
  • 31. Solution: Allocate 35% of portfolio to Trust Deeds returning 10% Reduce lifestyle expenses Result: Increased return on portfolio to 7.5% Maintained conservative profile and need for liquidity Stretched portfolio to age 100 4. Longer Life Spans For illustration purposes only. Hypothetical examples that are general in nature and do not take into consideration individual circumstances, tax, legal or other issues.
  • 33. How Do I Participate? Partner with a firm, like PCG, who: Doesnt charge any fees to investors That will do all of the work for you Professionally manages your investment Maintains the highest integrity and a diligent ethical culture Premiere Commercial Group, Inc.
  • 34. Investments/Lending Contact Ralph Abbott [email_address] 614-339-4255 ext 1001 www.premierecommercialgroup.com Premiere Commercial Group, Inc.