Investment Strategy
Arixa Secured Income Fund (ASIF) provides short-term loans secured by real estate to professional developers who purchase, renovate and resell single family homes, multifamily buildings and small balance commercial real estate projects. These loans provide investors with a steady stream of income from interest payments while borrowers are able to access working capital for their projects.
How it Works
A borrower finds a property that he/she believes can be renovated and resold for a profit.
Arixa lends up to 80% of the purchase price to buy the property at a 9.99%-11.99% interest rate. Arixa’s loans are secured by the property in the first position.
The borrower renovates the property, which improves the value, further protecting the loan.
If everything goes according to plan, in 6 months, the borrower sells the property for a profit and repays the loan.
If the borrower defaults, Arixa forecloses on the property. The 20%-40% difference between the value of the property and the loan amount provides a margin of safety for Arixa to recoup its principal and any lost interest at a foreclosure sale.
Rationale for Investment Strategy
High Current Income
Professional single family home renovators have special requirements, such as short funding timelines, that traditional institutional lenders are unwilling to accommodate. This provides an opportunity for private lenders who cater to this market to command premiums on their capital.
Comfortable Margin of Safety
Loans are secured by a first lien on a house. Borrowers typically provide 20%-25% of the capital needed to buy the house. Additionally professional developers often create equity at the time of purchase by buying houses at prices below retail value. They further enhance the value of the collateral through renovations that they fund with their own equity.
Diversification Reduces Default Risk
Investing in a well diversified portfolio of loans across multiple borrowers protects principal in the event of default.
Low Interest Rate Risk
In a rising interest rate environment medium and long duration bonds can lose substantial value. Arixa Secured loans to renovators have short maturities as most projects last from six to twelve months, preserving principal in a rising interest rate environment.
Liquidity
Due to the short term nature of renovation loans, the portfolio is constantly turning over as loans pay off. This allows investors to redeem their investment on relatively short notice.
Uncorrelated Returns
Returns from investing in bridge loans are unlikely to move in tandem with returns in the stock market. Adding real estate bridge loans to a portfolio will typically reduce overall portfolio volatility.
Arixa's differentiation & Value added
Conservative Approach to Underwriting
The Fund performs a consistent and detailed underwriting process on each investment that it makes. This underwriting combines a deep knowledge of local real estate markets to establish collateral value along with strong relationships with borrowers and an understanding of their strategy and capabilities. As a result of this approach, no losses have been incurred on any Fund I investments since inception.
Established Relationships to Source High Quality Investments
The Principals have been investing actively in California since 2009 and have strong relationships with borrowers, brokers and other lenders, resulting in a steady supply of loans that meet the Fund’s investment criteria. As a result, Arixa Secured has enjoyed more than 90% utilization (investments in income-generating loans) since inception.
Audited Track Record of Consistent Returns
All fund financial statements have been audited each year since the Fund's inception in 2010. The Fund has experienced low volatility in its returns since inception, targeting annualized net returns of 8.0-9.0%.*
Arixa Capital’s funds are only open to accredited investors as the term is defined by the Securities Act of 1933 under Rule 501 of Regulation D. Before accepting an investment in one of Arixa’s Funds, Arixa Capital must verify an investor’s Accredited Investor Status.
*Net returns reflect the deduction of management fees (1% on assets for the Fund) and all applicable Fund expenses. Returns are time weighted and calculated based on the capital contributions received from limited partners since the inception of the Fund in March 2010, assuming re-investment of interest income. The time weighted returns for limited partners who invested after the inception of the Fund may be lower. The performance information contained herein is provided for informational and discussion purposes only. Past performance is not an indication of future results.