The Private Placement Memorandum or PPM is the legal term for investing into thousands of private companies throughout the United States. Liberty Creek specializes in the underperforming markets of the Distressed Real Estate business. Participation in these markets can be in multiple forms: Debt, Equity or a combination of both. The following are three types of Funds that Liberty Creek offers for Investors.
Debt investing is where the PPM will state what the given return on investment is going to be provided to the Investor. In this Company structure, the risk is that the Manager will have to make sure the investments made are above the amount of the interest being paid out to the Investor / Members. The Manager will generally be paid any of the excess income made by the investments and that is their incentive to acquire the property properly. The investments are usually made in income producing property to mitigate the interest paid to the Investors first, this makes for a much less volatile Fund with security provided by undervalued income producing assets. This is an excellent Fund for those Investors looking for a quarterly income payment to augment their lifestyle during retirement, with the Units purchased either by Self Directed IRA or savings.
Equity investing is where the Manager invests in assets that will appreciate with time. Returns are generally higher in this type of investment structure as assets are purchased at deeper discounts such as non performing Mortgage Notes. These are usually purchased for 20-30% of the fair market value, but will take as much as two-three years to complete the foreclosure and mature the full value of the investment. These also will have more risk involved as the mitigation costs are unknown until complete. Normally, Companies will roll income returns back into new investments to create a larger payoff when the Fund is closed, usually with 5-7 years. This is an excellent investment for passive investors using retirement accounts as an IRA where the length of time the capital is tied up is not an issue. The PPM will state how the income is divided between the Investors and the Manager.
Debt and Equity investing. In this PPM, the Company provides a preferred return to Investors first, and then splits the balance of the income when the Company is closed, usually within 5-7 years. This is generally the way Liberty Creek sets up the PPM’s that it sponsors.
In any event of investing within these PPM structures, the Investor’s capital is secured by undervalued assets purchased at deep discounts in relationship to the current market value or it isn’t considered for acceptance into the Company portfolio.
The last segment of the series will discuss Promissory Note investing.