Investors looking at private real estate lending run into three words that sound alike: participation, fund, and co-lending. The difference that matters most is simple. Where does your name sit when the loan is made?
What is the difference between them?
In a fund, you own part of the fund. In a participation, you own part of one loan. In co-lending, you fund a loan beside the lender, with the lender's own money in the same loan.
A fund pools investor money and the manager chooses the loans. A participation sells an investor a share of a loan a lead lender made. Co-lending, the way we do it, is a participation with two extra features: our money is in every loan, and your share is recorded with the county in your name.
How do they compare side by side?
The biggest differences are what you own, whether it is on the public record, and who picks the loans.
| Fund | Participation | Co-lending with Damen Capital | |
|---|---|---|---|
| What you own | An interest in the fund | A share of one loan | A share of one loan |
| Your name on the county record | Usually no | Often no, unless an assignment is recorded | Yes, a recorded partial assignment |
| Who picks each loan | The manager | Varies | You, loan by loan |
| Lender's own money in the loan | Varies | Varies | Yes, every loan |
| How you are paid | Fund distributions | Your share of payments | 10% on your money, monthly |
| Getting out early | Limited redemptions | Rarely possible | Rarely possible |
Terms in funds and participations vary from sponsor to sponsor. Read the documents for the one in front of you.
Invest beside us?
Co-lend on first lien land loans we fund with our own money. 10% paid monthly, your share recorded with the county. Accredited, $500K minimum.
See How Co-Lending WorksInvestor FAQWhy does your name on the record matter?
Because a recorded interest is public and tied to the land, while an unrecorded one lives only in a private contract.
With a recorded partial assignment, a title search on that land shows your share of the lien. Your position does not depend only on the sponsor's books. We cover the document itself in what is a partial assignment of mortgage.
Takeaway: before you invest in any loan, ask where your name will be written down.
Which structure fits which investor?
Passive investors who want someone else to pick the loans lean toward funds. Hands on investors who want to choose each loan lean toward co-lending.
- A fund fits if you want diversification across many loans and do not want to review deals.
- A participation fits if you want a share of a specific loan and trust the lead lender's servicing.
- Co-lending fits if you want to see each deal, decide yes or no, have the lender's money beside yours, and hold a recorded interest.
How does co-lending work at Damen Capital?
We originate first lien land loans, fund our own share, and accredited investors fund a share beside us that is recorded in their name.
Loans are 65% of value or less, and borrowers put 20% or more down on standard loans. Investors earn a straight 10% on their money, paid monthly through our in house servicing, and the minimum is $500,000. See how co-lending with us works, or the general guides on co-lending, loan participations, and fractional note investing.
This post is general information, not legal, tax, or investment advice.
Frequently Asked Questions
What is the difference between a loan participation and a fund?
A participation is a share of one specific loan. A fund pools money from many investors and the manager picks the loans, so you own an interest in the fund, not in any one loan.
Is co-lending the same as a loan participation?
They overlap. At Damen Capital, co-lending means you fund a share of a loan beside us, with our own money in the same loan, and your share is documented with a participation agreement and a partial assignment recorded with the county.
Which structure lets me choose each loan?
Co-lending and most direct participations let you decide loan by loan. In a fund, the manager decides and you do not approve individual loans.
Are any of these investments liquid?
Rarely. Participations and co-lending positions usually have no secondary market, and funds often limit redemptions. Plan to hold for the life of the loan or the fund term.