What Safety Mechanisms Does Brooktree Use to Preserve Investor Capital?

Investment Security

Brooktree Fund’s ability to achieve consistent returns while preserving capital stems most importantly from the security provided from a first trust deed position. In addition to this investment advantage, there are a number of precautions and advantages that Brooktree implements to leverage returns while preserving your principal investment.

A Title for Real Estate Investing Secured by Trust Deeds in Los Angeles Southern California

Alta Title Insurance

Since Brooktree uses property to collateralize the loans that we make, it is imperative that the property’s title is clear of any liens, judgments, defects, or encumbrances.

In addition to engaging industry-leading title companies to perform title inspections prior to funding a loan, Brooktree also purchases an ALTA title policy as a secondary precaution. All loans made by Brooktree are protected by an ALTA Title Insurance Lender’s Policy.

In California, there are two types of title insurance policies. The CLTA (California Land Title Association) policy insures the property owner and the ALTA (American Land Title Association) is an extended coverage policy that insures the lender against possible unrecorded risks excluded in the CLTA policy. The ALTA lender’s policy remains in place until the loan is paid off.

Conservative Loan-to-Value

As a lender, Brooktree engages certified third-party appraisers to perform appraisals on all collateral properties. These appraisals are the basis for our loan-to-value ratios, which do not exceed 65% for construction loans and 70% for all other loan types.

By making loans with a conservative loan-to-value, Brooktree ensures a margin of safety, which insulates the collateral property from market fluctuations and other unforeseen risks that may negatively impact the subject property’s value.

Loan Interest Reserves

The entirety of our borrower’s interest payments is held by Brooktree in a trust account, thus ensuring the borrower’s ability to make interest payments over the course of the loan.

An added benefit to retaining our borrower’s interest payments is a reduction in administrative work related to debt collection. This reduces internal overhead expenses and allows us to pass along the savings to you as an investor.

Area Expertise

We focus on Southern California and leverage our area expertise during the appraisal, underwriting, origination, and management process.

Many lenders cast a wide net when looking to originate loans. This can result in a loan portfolio that consists of properties located in tertiary markets throughout the country. Every real estate market is unique and presents its own economic and development considerations.

For many of these lenders, it is practically impossible to be informed on the nuanced considerations of each of these markets.

Photo Credit Cameron Venti

By exclusively focusing on Southern California, Brooktree is able to gain additional market insight on every loan that we service. This valuable data then, in turn, informs our lending strategy moving forward.

Further, by focusing exclusively on direct lending in Southern California, Brooktree has built a strong network of reputable industry professionals over the years to assist in title, escrow, legal, and accounting services.

Finally, as an added benefit, we can get in our car and look at every property we lend on. And oftentimes, we do! 

Short-Term Commitments and Staggered Loan Lifecycles

Within Brooktree Fund, we diversify our loan portfolio by limiting any one specific loan to 5% of our fund’s capitalization. We generate consistent returns by adjusting loan positions to reflect opportunities in the economic cycle.

In many cases where lenders make long-term loans, the lifetime of the loan moves through positive and negative economic events that occur. While these events are to be expected, the specific nature and impact of these events are unknowable.

In situations like the financial crisis of 2007-2008, these events can significantly impact borrowers’ ability to pay back their loans. Further, the value of the collateralized asset may be reduced significantly, leading to a loss of investor capital.

By exclusively making short-term loans Brooktree is better situated to avoid significant portfolio losses. Our choice to only make short-term loans means that we are able to consider economic conditions and adjust our approach accordingly throughout the year.

Another benefit to staggering our loans and lending short-term is the ability to adjust our product offering to meet market demand. As an example, if market conditions lead to an increase in Southern California construction, Brooktree is able to focus on in-demand construction loans. These loans would generate higher interest rates and investor returns as a result of the related demand.

If market conditions were to change and refinance loan products came in to demand, Brooktree’s portfolio would not be fully committed to construction loans for the long term.

In this hypothetical situation, as Brooktree’s short-term construction loans mature, we would be able to re-allocate the related capital towards refinance loans now being issued at higher interest rates as a result of the increased demand.

Domain Expertise – Over $100M Loans Funded to Date

Brooktree prides itself on customer service with both borrowers and investors, which is why over 75% of our loans are with repeat clients, totaling $100M+ in loans in the greater Los Angeles area.

We are a proud member of the American Association of Private Lenders and have worked in the industry for over ten years.

On average Brooktree Fund provides an 8% return to our investor partners. Brooktree Fund provides accredited investors the security and returns of real estate investing without the expertise required to identify, acquire, rehab, maintain, manage, and eventually resell actual real estate.

To learn more, schedule your free initial consultation or give us a call today!

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