- A mortgage fund PPM should be tailored to lending mechanics, not adapted from a generic equity fund template
- Choosing between Regulation D 506b and 506c depends on whether the fund plans to publicly advertise or rely on pre existing relationships
- Fee structures typically combine an annual management fee with origination points, often split between the GP and LPs per the fund's governing documents
- Oregon based lenders face additional considerations, including possible NMLS licensing triggers and Trust Deed Act foreclosure procedures
- Avestor's Customizable Fund bundles formation coordination, compliance, and administration for hard money and mortgage fund managers
Setting up a mortgage fund requires navigating both the standard private fund formation process and considerations specific to lending, from loan underwriting mechanics baked into the offering documents to state level licensing questions that don't apply to a typical equity fund. Hard money and mortgage pools have grown as an accessible entry point for private lenders seeking to originate loans secured by real estate rather than acquiring properties directly. Avestor, based in Beaverton, Oregon, supports the formation and administration side of this process for emerging fund managers.
What Is a Hard Money Mortgage Fund?
A hard money loan is a short term loan secured by a hard asset, usually real estate, where lenders focus primarily on the asset's value and potential rather than a borrower's credit or income. A mortgage fund pools capital from multiple investors to originate these loans at scale, giving the fund manager the ability to diversify across many borrowers rather than each investor funding a single loan directly.
Drafting a PPM for a Mortgage Fund
A Private Placement Memorandum for a mortgage fund should be tailored to the specific mechanics of a lending pool rather than adapted from a generic equity fund template, addressing loan underwriting criteria, loan to value limits, fee structure, distribution mechanics, and risk factors specific to hard money lending, including borrower default and illiquidity of non performing loans.
Choosing Between Regulation D 506b and 506c
Rule 506c permits general solicitation and public advertising but requires verifying every investor is accredited, while Rule 506b prohibits public solicitation but allows self certification of accredited status, typically relying on pre existing relationships. Mortgage fund managers who plan to market broadly online often choose 506c, while those raising from an existing network of investors may prefer 506b.
Structuring Management and Origination Fees
Hard money loan funds generally charge an annual asset management fee to cover operating costs, with origination points on individual loans sometimes split between the General Partner and Limited Partners depending on the fund's governing documents. Fee structures vary by fund and should be clearly disclosed in the offering documents so investors understand exactly how compensation flows before committing capital.
| Component | Purpose |
|---|---|
| Asset management fee | Annual fee covering fund operations |
| Origination points | Fee charged at loan origination, split terms vary by fund |
| Loan to ARV cap | Underwriting discipline limiting loan size relative to after repair value |
| Avestor support | Fee and distribution tracking built into the Customizable Fund |
Oregon Specific Considerations for Beaverton Based Managers
Setting up a fund that only finances commercial LLCs generally triggers different licensing considerations than one lending to individual consumers, and Oregon NMLS mortgage lender license requirements may or may not apply depending on the structure of the lending activity. Fund managers should also understand Oregon's Trust Deed Act, which generally governs the non judicial foreclosure process, setting out the legal steps and timeline required to seize a property if a fix and flip or other borrower defaults, with costs and timelines varying by county. Oregon usury law considerations also apply to interest rates and points charged on private commercial lending, though commercial transactions are often treated differently than consumer loans. Managers should confirm current requirements with the Oregon Division of Financial Regulation and legal counsel before originating loans.
Understanding the Local Competitive Landscape
Fund managers researching the Portland metro hard money lending market often look at established regional trust deed investors and competitors to understand active interest rates, loan to value maximums, and typical terms before setting their own underwriting standards. Access to reliable local property data, including tools for calculating after repair value in Washington County communities such as Beaverton, Aloha, and Hillsboro, is similarly important for underwriters evaluating distressed properties.
Authoritative Resources
Related Avestor Resources
Frequently Asked Questions
Key Takeaways
- Setting up a mortgage fund requires a PPM tailored to lending mechanics, a Regulation D exemption choice between 506b and 506c, and a clear fee structure disclosed to investors.
- Oregon based managers face additional considerations, including possible NMLS licensing triggers, Trust Deed Act foreclosure procedures, and usury law nuances for commercial lending.
- Loan to after repair value discipline is a core underwriting tool for hard money lenders, limiting loan size relative to a property's post renovation value.
- Fee structures typically combine an annual management fee with origination points, split between the GP and LPs per the fund's governing documents.
- Avestor's Customizable Fund bundles formation coordination, compliance, and administration for hard money and mortgage fund managers, per its About page.