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Trust Deed Investing

Arixa Capital 2019 Summer Newsletter

Arixa Capital 2019 Summer Newsletter

We’re pleased to announce the publication of our Summer 2019 Newsletter. Inside you’ll find our annual portfolio manager’s letter about our top accomplishments in the past 10 years, the market risks ahead and how we’re preparing for them, as well as company updates on activities, publications, and events.

Arixa Capital 2018 Spring Newsletter

Arixa Capital 2018 Spring Newsletter

We’re pleased to announce the publication of our Spring 2018 Newsletter. Inside you’ll find our annual portfolio managers’ letter about what we’re seeing in the market and how we’re preparing for the next phase of the market cycle, as well as lots of other news about Arixa’s activities, publications and events.

Jan's New Article Appears on Seeking Alpha

Jan published a new article on Seeking Alpha last week, entitled "Apartments—A Contrarian View." The article analyzes a recent prediction by Moody's Investor Services that apartment values will increase substantially in the next few years. While Jan is not bearish on apartment values, he believes that the projections reveal a substantial misunderstanding of the market and that the projections are very unlikely to prove accurate. To read the article, please click here.

How Investors Are Restoring Equilibrium To The Housing Market

In a recent article on Seeking Alpha, Jan explains how investors are buying homes from banks, rehabilitating them, and either re-selling them or renting them. In doing so, they are both earning tidy profits and also performing a crucial service for the recovery of the housing market, by repairing homes that have been through the foreclosure process and have substantial deferred maintenance. To access the article, click here.

The Case For Single Family Homes

Jan Brzeski is a contributor to Seeking Alpha. The article below is a copy of what he posted on August 22, 2011. To access his article on Seeking Alpha, please click here.

I recently spoke to another Seeking Alpha contributor who expressed concern that home prices could drop significantly from their current levels. This article explains why that is very unlikely to happen.

Case Study: Phoenix I am a real estate receiver for a shopping center in northwest Phoenix. When visiting the property recently, I drove around the neighborhood surrounding shopping center, which featured 1970s-built ranch houses that would be familiar to many people who grew up in the western U.S. I was struck by two things: (1) many of the recent sales in the neighborhood were well under $100,000. Some were as low as $50,000; and (2) the other shopping centers nearby were not filled only with 99 Cent Only stores and check cashing shops. In fact, the closest grocery stores were upscale, with hardwood floors and expensive lighting in the produce area, as well as other upgrades.

Replacement Cost and Why It Matters The cost to build a new home similar to the ones I saw in Phoenix is at least $130,000. This includes land development costs such as streets, curbs, gutters and utilities, as well as city and county impact fees, plus hard constructions costs. I am assuming that the land is free -- with land costs of just $20,000 per lot the total cost is likely in excess of $150,000.

Now let's look at the historical population growth rate of Phoenix. Below is a chart, courtesy of Arizona State University's Water Simulation project.

If Phoenix is going to continue grow, even at half the projected growth rate, then home builders will eventually need to start building homes there again. However, the only place with vacant land to build homes is on the outskirts of the city, far from jobs, which tend to be closer to the core.

Granted, some people may prefer to live in a new home for $160,000 in the distant suburbs (this is about the lowest price at which homes can be built and sold profitably). However, others will prefer a 1970s house for $125,000 -- in a neighborhood with upscale grocery stores and a much shorter commute to work.

The bottom line is, home values in places like Phoenix are much more likely to go up in the coming years than to go down. In all likelihood, we are looking at a bottom right now. Values reflect the supply-demand imbalance brought about by the foreclosure crisis. But replacement value is a more fundamental driver of stabilized value. And replacement value dictates homes such as these are undervalued currently.

One More Data Point: Price History Past value is certainly no indication of future value in real estate. Still the table below showing the history of sales of a home in northwest Phoenix, which I chose more or less at random from website trulia.com, is remarkable. This home fell by 77% in six years. It recently sold for half of what it was worth 17 years ago, in 1994.

Note: this article does not purport to say anything about the near-term direction of the stock prices of home builders such as KBR or Beazer Homes. It only argues that at some point, their services will be needed once again and before that can happen, values of existing homes need to move up significantly.

Arixa Capital Releases FAQ About Trust Deed Investing

Arixa Capital Advisors has provided answers to a series of Frequently Asked Questions (FAQs) about investing in short term real estate loans--also known as trust deed investing. Our goal in doing so is to educate investors about various aspects of this lesser-known area within the real estate investment world. Arixa Capital Advisor runs a program of making such investments with its own funds as well as the funds of selected high net worth clients. We are releasing the FAQ in part because we feel trust deed investing offers attractive risk-adjusted returns as of mid-2011, relative to other real estate investment strategies. To access the FAQs, please click here:  http://arixacapital.com/trust-deed-investing-faq/

We hope you find this resource useful.  If you have any questions, or feedback, please contact Jan Brzeski at (310) 846-1754.

 

Steering Clear of Owner-Occupied Housing

This podcast explains why we do not make loans secured by owner-occupied homes but instead focus exclusively on lending to professional real estate investors. Lending to homeowners who have poor credit is a separate business and we have no interest in this business for a variety of reasons, some of which are explained in the podcast.

Assessing the Risk: Is a particular SFR Trust Deed Safe?

This podcast explains the pricing and terms private lenders can expect when lending to established, high volume single family residential rehabilitation specialists. It also explains the loan-to-cost and loan-to-value underwriting criteria that are typical in our market as of mid-2011. The current market is profitable for both lender and borrower, and provides an appealing opportunity for real estate investors looking for high current yields with a solid margin of safety.

Why We Chose Bridge Lending

This podcast explains the organic process through which we launched our residential bridge lending program. The founder of Standard Capital had cash available and was looking for something very safe with a fairly short maturity as an interim investment. The residential bridge loans went so well that Standard Capital launched a program allowing other investors to participate in these investments. The process was not planned out ahead of time, it evolved naturally as it became clear that the program really works.

The Three Sub-Markets of Trust Deed Investing

This podcast examines three different sub-markets within the trust deed investing universe: (1) single family residential "fix and flip" six-month loans; (2) single family investor loans of up to 24 months; and (3) commercial real estate bridge loans of 12-24 months. The podcast compares and contrasts these three areas from the investor's perspective. Please watch our blog as we will be posting one new podcast roughly every week. There will be about 30 podcasts total in the series, and this is the seventh. If you are interested in learning more about what we do, please sign up for our newsletter at www.arixacpital.com or give us a call at 310-846-1754.

WSJ: Home Market Takes a Tumble

This article details that house prices continue to drop in the U.S., down 3% in the past year on average. Standard Capital is a bridge lender to builders who buy homes from banks and rehabilitate the homes before re-selling them for a profit to families that occupy the houses. The drop in home values means lower profits for our borrowers. We see affordability becoming attractive which should help create a floor for home values even as prices continue to ease in the next 12 months or so. In our view, as long as the Federal government continues its policy of providing low-cost mortgages, the market is unlikely to drop dramatically from current values. Click here to access the article on the Wall Street Journal website. -or- To access a PDF of the article, please click here: WSJ_Home Market Takes a Tumble

Are you looking for a speaker on real estate investment?

We take education seriously at Arixa Capital we pride ourselves not only on being capable real estate investors, but also on being able to explain what we do and how we do it effectively to a wide variety of audiences. We do not advertise but we do look for opportunities to share our knowledge and expertise to groups of individuals who have a reason to be interested in real estate investment. If you have a speaking opportunity that would be suitable for us, we would like to hear from you.

Please access a package of information about Jan Brzeski's speaking credentials by clicking here.

Trust Deed Investment Paths and Outcomes

This podcast gets to the heart of what outcomes the trust deed investor must be prepared for. There are two main outcomes: (1) get paid back, on time, with interest; and (2) borrower fails to perform, in which case there is a default and lender pursues a foreclosure to protect lender's interests. Within this second outcome, there are two sub-paths: (2a) foreclosure auction takes place, and the lender is outbid by another investor, in which case the lender gets paid back, with interest and reimbursement of attorney's fees; or (2b) lender is the highest bidder at the foreclosure sale in which case lender owns the property after the foreclosure sale. Lender can then hire a broker to sell the property. If the loan wasn't excessively large relative to the value of the property, lender should ultimately get his or her money back, with an attractive return, to compensate for the hassle and work involved in foreclosing and having to hire a broker and sell the property.

Please watch our blog as we will be posting one new podcast roughly every week. There will be about 30 podcasts total in this series. If you are interested in learning more about what we do, give us a call at 310-905-3050.

WSJ: A Bull Market in Rental Housing

To access the article Jan discusses below, please click here: A Bull Market in Rental Housing - WSJ This article from the Wall Street Journal makes the case that buying apartments should yield attractive returns today. It is true that prices are down from their peak and the outlook for future increases in rental income is positive. However, the article sidesteps the single largest challenge for apartment investors--the market is overheated. In Los Angeles, there are hundreds of wealthy individuals and families searching for small properties to buy for all cash. They have pushed down capitalization rates, defined as initial cash flow from operations divided by purchase price, to the 5% to 6% range. Even though interest rates are low, the initial cash-on-cash return for apartment investors in California, defined as cash flow after debt service divided by the buyer's down payment, is in the low single digits.

For a very long term investor who has lots of extra cash to invest, buying apartments does indeed represent a valid investment investment strategy. However, for professional investors and others with limited resources to invest, buying apartments in Southern California at full retail value should be considered with skepticism. At the moment we prefer to make short-term loans to opportunistic investors who are buying assets from banks. By taking a strategy that is far off the main beaten path, and focusing on loans that are too small for real estate private equity funds, we cut the competition by 80 to 90% vs. the competition to buy apartment deals. With less competition comes better risk-adjusted returns, in our view. This is not to say that we won't buy any apartments...only that there needs to be a very unusual situation in order to entice us to spend time chasing an apartment acquisition, given today's high prices relative to cash flow.

Why do borrowers need private lenders like Arixa Capital?

This podcast addresses the question "Why do borrowers need private lenders like Arixa Capital?" The answer is that banks will only make loans that fit into their current, restrictive criteria. Many of the loans we make are good quality loans but they don't fit banks' current lending criteria. Please watch our blog as we will be posting one new podcast roughly every week. There will be about 30 podcasts total in this series. If you are interested in learning more about what we do, please sign up for our newsletter or give us a call at 310-846-1754.

February 2nd Panel Discussion Video

For those of you who were unable to attend our February 2nd panel discussion, or would simply like to listen to the discussion again, the UCLA Ziman Center was kind enough to record the event this year. Download the file here to view on your computer's media player: The New Normal Panel Discussion, February 2nd, 2011

or watch the video online at http://www.anderson.ucla.edu/x25943.xml

If you have suggestions for making the event even better next year, or would like to reach us for any other reason, we would love to hear from you. Please email Kari Burns at kburns@stndcap.com.

Feb 2nd UCLA Event Photos and Video

To all who registered for and/or attended our event last week, thank you for coming. If you were able to attend, we hope you found it valuable.

If you are interested in the photos that were taken of the event, please click here.

With more than 230 people present, it was our largest event yet. We held our first event six years ago and it has grown organically ever since. The unique value proposition for this event series is the high quality networking and educational opportunity combined with the very low registration fee ($15 for pre-registration or $20 at the door). The fact that beer, wine and appetizers are included in the price is also popular with participants.

For those of you who were unable to attend, or would simply like to listen to the discussion again, the UCLA Ziman Center was kind enough to record the event this year. We plan to post this video within the next week, so please check back on this blog for that link.

If you have suggestions for making the event even better next year, or would like to reach us for any other reason, we would love to hear from you. Please email Kari Burns at kburns@stndcap.com.

Our February 2 Event is only three weeks away!

Please join us for an evening of networking and stimulating discussion among noted real estate investment experts in our region. Our latest co-sponsor is GlobeSt.com, a leading web-based publication serving the real estate investment industry. Both GlobeSt.com and the Daily Journal currently have senior editorial staff on our registration list in anticipation of a newsworthy back-and-forth dialogue among our panelists. The event starts at 6:30 p.m. with an hour of networking, wine, beer and hors d'oeuvres, with the panel discussion going from 7:30 p.m. to 8:30 p.m. Questions and answers and the event will conclude at 9 p.m. Pre-registration is just $15 with a major credit card.

What makes our event different and why did we attract almost 200 people last year?

I think our event has three special qualities that set it apart: (1) great panelists who are unusually candid about what is happening behind the scenes in the real estate investment market; (2) a low price and excellent value, thanks to our generous sponsors; and (3) a collegial atmosphere in which the speakers are more accessible than usual. Our event is not set up to earn a profit…it is designed to build community and provide a venue for all of us to become better investors by tracking a group of experienced real estate pros through the ups and downs of the real estate market cycle.

Please feel free to call me directly if you have any questions about the event, or need help registering, or if you have any special requests or ideas to make our event better. I look forward to seeing you on February 2.