Is 5-year Amortized Too Long For You?

Question

I have a client who develops affordable housing. We want to crowdfund their projects in tranches but the only way it pencils is if investors get paid over 5 years amortized. Even though it pays a 10% annual rate, I'm concerned that might be too long of a timeframe. Opinion?

Jeff Rabinowitz · Answer

Who are you looking to attract? For unsophisticated people who are looking at the  return on their money market account, 10% may seem attractive. For investors familiar with the returns available on real estate or the returns available lending secured by real estate, 10% will not be very attractive at all, now. Require them to commit for 5 years in a likely rising rate environment--that return may start looking pretty anemic. I don't know many who would bite at that; but, my circle contains sophisticated investors.

Dan Summers · Answer

Hi Jeff - I am looking to attract only accredited investors per rules in place by the 2012 JOBS Act, so I assume at least some level of sophistication. We regularly offer debt transactions on a P&I basis but have never offered amortization on a deal thus far and are curious as to whether or not that would increase the appeal on a 5-year investment. Thank you for your feedback.