What Are First Position Commercial Mortgage Notes?

Barry Kornfeld pic

Barry Kornfeld
Image: fftaxgroup.us

Barry M. Kornfeld is an experienced financial advisor based in Boca Raton, Florida. As a principal of First Financial Tax Group, Barry Kornfeld advises clients on alternative income and wealth management opportunities, including first position commercial mortgage (FPCM) notes.

For individuals planning for, or who are already in, retirement, first position commercial mortgage notes present an attractive alternative income source. First position commercial mortgage notes allow clients (of a given financial institution) to act as lenders of private third party loans. Secured by high value commercial real estate properties such as multifamily residential buildings, office buildings, and retail centers, these bridge loans yield monthly interest payments for a relatively short duration. At a minimum, they provide returns of six percent for one year, paid out monthly.

FPCM notes are a lower-risk option for individuals seeking alternative monthly income. As indicated by their name, first position commercial mortgage notes allow lenders to hold the first lien on a commercial property. This ensures that they hold priority over all other lien holders, giving them greater security.

First position commercial mortgage notes typically require a low minimum initial commitment of just $25,000 and may be strategically incorporated into a diverse array of financial portfolios. To take advantage of this opportunity, lenders may use funds from a variety of accounts, including trusts, joint accounts, or IRAs.

Advertisements

Advantages of First Position Commercial Mortgage Notes

Barry Kornfeld pic

Barry Kornfeld
Image: fftaxgroup.us

Barry Kornfeld offers fixed income alternatives to clients seeking safer means of generating additional income. As a financial advisor, Barry Kornfeld focuses on First Position Commercial Mortgage Notes, or FPCMs. These notes are a type of commercial mortgage loan that is secured by tangible assets, and generally has a advantageous annual percentage yield.

Clients approach financial advisors who handle FPCMs to lend their money to firms that specialize in the short-term notes. These firms, together with third-party companies, identify commercial property owners qualified for these bridge loans. FPCMs are different from other fixed income alternatives in several key ways. Here are some of their advantages:

1. High yield over a short term – The lender’s money is locked in for only one year at a time, but he or she will still enjoy at least a 6% annual, fixed percentage yield, that is paid out monthly.

2. Security – FPCM firms structure the security of notes by ensuring that lenders have first-lien position and using the property’s equity as collateral. The value of the property is always more than the value of the loan.

3. Monthly interest payments – FPCM notes offer lenders monthly interest payments, regardless of the underlying commercial property owner’s borrower’s ability to meet payment obligations. The FPCM’s originator is contractually obligated to pay both interest and principal.

The Reliability and Yield Advantages of FPCM Notes

stocks and bonds

stocks and bonds

 

Respected Florida financial advisor Barry M. Kornfeld leads First Financial Tax Group in Boca Raton. He offers clients a full range of retirement advice and income planning services. At the core of Barry Kornfeld’s offerings are first position commercial mortgage notes, or FPCMs, which are designed as fixed income alternatives that offer a safer pathway to monthly income.

Also known as secured bridge loans, FPCMs provide a reliable route toward predictable 6 percent returns over a one-year period, with interest paid on a monthly basis. Secured through insured property that acts as collateral, FPCMs are not subject to the fluctuations experienced with portfolio strategies such as stocks and bonds.

This type of loan is particularly valued for its combination of principal stability, high yields and short duration. This can free up funds for discretionary use once the one-year term has ended. Because the commercial mortgages have hard assets at their foundation, they provide lenders with peace of mind. Should a default occur, the property will simply be foreclosed on and the funds used in securing the loan recouped by the commercial lending firm that sponsors the transactions. Importantly, monthly payments and full principal redemption are contractual obligations of the commercial lending firm that Kornfeld uses for these transactions, even if the underlying property owner defaults. Importantly, the commercial lending firm that Kornfeld uses for these transactions, will have a second lien position in every FPCM that is offered, which is subordinate to all first lien positions. So, they can’t get their money out, until all FPCM clients get theirs out first.