An investment firm headquartered in Incline Village has begun raising money to finance house flippers in California markets.
The Klaraos Deal Support fund launched by Klaraos Ventures LLC wants to raise $30 million to provide short-term working capital to folks who buy houses on the courthouse steps, then get them back onto the market quickly.
J.J. Mueller, president of Klaraos, says the new fund in an outgrowth of an earlier offering by his company, Klaraos Neighborhood Development, which raised $8 million its designated cap to invest directly into distressed properties in the Central Valley.
Klaraos Neighborhood Development has purchased about 100 homes and sold more than 75 of them.
The company's new investment vehicle, however, takes a step back and allows experienced flip investors to handle the transactions.
Klaraos Deal Support provides up to 70 percent financing to investors who are buying homes through trustee sales, short sales or bank sales.
The 30 percent equity put up by the borrower provides some cushion to the fund's investors, says Mueller. Borrowers also may be required to provide personal guarantees of their debt with Klaraos.
But for flip investors who often have trouble getting working capital from other sources, the Klaraos Deal Support financing can help them leverage up and acquire a larger number of properties at a single time.
That's important because flip investors want to move quickly to buy, rehabilitate and sell foreclosed properties.
Typically, homes are selling in California foreclosure actions these days for 50 to 70 percent of their current market value, Klaraos says in offering materials for the new fund.
Flippers hope to do necessary repairs and get homes back onto the market quickly.
A risk, Klaraos makes clear to investors, is this: The residential market could deteriorate even further, leaving flip investors upside down and unable to repay their working capital loans from the investment fund.
Mueller says the strategy of his company has been development of investment vehicles that are in sync with the business cycle. He expects that the new fund will stay in sync for a while at least a year or two while foreclosed homes are brought back onto the market.
"We don't see any sign of it slowing," he says.
But if the flip investor market dries up, the fund's guiding documents allow it to make traditional secured mortgages and construction loans.
Minimum investment in the new fund, which is limited to buyers who meet the "accredited investor" standard of the Securities and Exchange Commission, is $1,000.
Mueller, who previously worked as a certified public accountant, and Geoffrey Zahler, a real estate developer in Incline Village, are principals of Klaraos Ventures LLC.
The firm employs seven.
