What you need to know to be a Trust Deed Investor:
The Four Essential Elements to Investing in Trust Deeds:
1. Knowledge, experience, and integrity of the Hard Money lender through whom the transaction may be made or arranged
2. Market value and equity in the Property
4. Loan Servicing
#1. We have over 45 years of combined experience in the field of Hard Money lending. We currently have a large investor base who have entrusted us with over $100 million in our Trust Deed Offerings. Pension Plans, IRA’s, and Retirement Accounts are available ways for investors to purchase our Trust Deed Offerings. Annual Returns Range from 8%-10.99% depending on the Offering and an investors portfolio.
#2. Hard Money Loans are based on the amount of equity in a property, also known as the Loan to Value ratio (LTV). To qualify for a Hard Money loan a property must have a minimum amount of equity, no less than 35%. Most loans fall between 60%-65% Loan to Value. The Loan-to-Value Ratio is calculated by the total loans against the Property, including your loan, divided by the market value of the Property. This determines the loan-to-value ratio. For example, if a borrower has a first deed of trust in the amount of $25,000.00 and is requesting a second deed of trust in the amount of $40,000.00 and no other liens will be placed against the Property, which is valued at $100,000.00, and the loan-to-value ratio is 65% ($25,000.00 + $40,000.00 divided by $100,000.00 = 65%).
The lower the loan-to-value ratio and the greater the borrower’s equity, the more incentive for the borrower to protect the equity in the Property (i.e., sell or refinance the Property if unable to make payments under your promissory note) or for a third-party bidder to purchase the Property at a foreclosure sale. If the Property is over encumbered (the total loans or other liens exceed a reasonable loan-to-value ratio or exceed the market value), the Property will provide little or no security for your investment. A sufficient amount of equity should be maintained in the Property to allow for the fees, costs, and expenses that you will incur in foreclosing if that become necessary.
#3. Your investment is secured by a Trust Deed that is recorded against the property and a Promissory Note Securing a Deed of Trust on the property that is being used as collateral. We do 1st and 2nd Trust Deeds and all loans go through a rigorous review process before they are presented to the investors. For a property to make it through the process from approval through closing, the following conditions must be met:
- A full Appraisal Review by our in house appraiser.
- A complete and through Title search to see if any judgments or liens are outstanding.
- All senior liens MUST be brought up to date directly through escrow.
- All outstanding property taxes MUST be paid directly through escrow.
- Any liens or judgments against the title MUST be paid directly through escrow.
- Property insurance must be in place for 12 months.
- A full policy of Title Insurance is to be issued.
- All these conditions must be satisfied for a loan to be funded and then closed.
#4. Once the loan closes it is imperative that it is serviced properly. Checking on Senior Liens, making sure the property insurance is in place and that property taxes are current are just a few of the things that a servicer handles on each loan. We use Del Toro Loan Servicing, a premier name in this field to handle all of our servicing needs. They can be visited at www.deltoroloanservicing.com. Their knowledge and professionalism in servicing Hard Money loans in particular, will leave you feeling comfortable that your investments are being watched over closely
So if you are looking for safe investment, feel free to contact us to so we can an answer any questions you may have about Trust Deed investing. Click the link below for Department of Real Estate guide to Trust Deed Investing.