Hard Cash For Property

In 2011, Ignite Funding found itself at a crossroads.

Since 1995, the Las Vegas-based company had functioned as the commercial lending element of a conventional mortgage business, but in the wake of the financial crisis, demand from developers and home builders for cash changed the business.

“We ramped up commercial lending,” Howard Robbins, a senior investment agent with Ignite, says. “From there, Ignite kind of took over the company, and now commercial lending is the entire business.”

Ignite facilitates hard money loans for home builders and developers in Nevada and Southern California by offering promissory notes secured by a deed of trust to investors.

Because Ignite links carefully screened borrowers and projects with suitable investors, lenders enjoy double-digit returns while being exposed to minimal risk. Today the firm boasts a $73 million servicing portfolio and over the past four years has funded more than $230 million in loans with investor capital.

After the 2009 financial crisis, hard-money lending carved a niche amid cash-hungry real estate developers and aspiring house flippers. That demand is still present: A 2015 report by Savills Studley, a New York-based real estate services firm, found that demand for real estate financing is rising, but banks aren’t loosening lending policies to meet the demand.

As investors demand alternatives to shield them from downturns in equities, maybe trust deed investing is a concept whose time has come.

Trust deed investors offer privately structured loans to borrowers, typically real estate investors who collateralize a property they plan on selling for a profit. The loans have short terms of usually two to three years and interest rates typically between 10% and 15%. Hard money rates are independent from the bank rate, relying more on market conditions. The rates sometimes approach the limitations of state usury laws.

Rajeev Kotyan became fluent with the product after co-founding Innovative Advisory Group, a Lexington, Mass.-based RIA specializing in wealth management and alternative investments, in 2008. The firm wasn’t focused on this loan type originally, but clients brought it to them.

“Very early on, our clients were investing in trust deeds,” Kotyan says. “That is where we came into the picture with these products.”

Now, Kotyan and his firm not only offer the investments, but also participate in trust deed opportunities themselves. In the past, single persons or entities have funded these loans, but more recently the loans have often been fractionalized among a group of investors.

For example, Newport Beach, Calif.-based CrowdTrustDeed.com is a peer-to-peer site that allows California real estate borrowers and trust deed investors to network. It was started by Sandy MacDougall in 2007 after he found that he was unable to keep up with demand from borrowers and investors for new properties to put money into.