BiggerPockets

How to Find a Qualified Trust Deed Provider

Saturday, May 12

The advantages offered by trust deed investing has finally begun to be recognized by savvy investors. Accredited individuals and companies have found that the combination of above market interest rates with a loan backed by real estate asset offers a superior financial vehicle for their investment dollars. Finding the right deal and the right borrower is not always an easy task, but with the proper due diligence, you can gain the required knowledge.

The Need for a Trusted Provider

One of the most important reasons to use a qualified trust deed provider is that these companies have the experience to identify and evaluate the borrowers and the deals. In addition, they understand the intricacies and legal requirements that must be followed in order to properly consummate one of these deals. In short, they ensure the integrity of the process from the beginning to the end.

Secondly, they can provide the resources to protect the interests of both the borrower and the lender. From title searches through property insurance and everything in between, a trust deed provider has access to a reputable group of companies that specialize in these services.

Lastly, a trust deed provider can help with the monitoring and management of the loan. Again, with a trusted partner or service company, they can help ensure that payments are collected, insurance is kept up-to-date and that taxes are paid. A qualified trust deed provider can bring far more to the table than just the deal itself.

Finding the Right One

Identifying a qualified trust deed provider requires a little work, but the effort will result in better investments and greater piece of mind. The following factors are some of the most important to consider when choosing a provider.

Ideally, a trust deed provider will have a management team that is highly experienced in the real estate development industry, as well as in finance. This experience will help them understand some of the less traditional, but still lucrative deals that are brought to them. 

A broad portfolio of real estate investment opportunities that allow an investor to find the right deal for his or her needs is extremely important. It also demonstrates that they are able to attract the best borrowers and the best deals. A wide range of relationships with insurance, inspection and other real estate related companies is highly desirable as it allows all trust deed investing deals to be completed in an expeditious and affordable manner.

6 Reasons Borrowers Should use Hard Money to Fund Deals

Tuesday, May 08

Private money lending or “private hard money loans” are an excellent investment choice for established and experienced real estate investors.  The process offers a far better platform for the explanation of complicated but lucrative deals to accredited investors. Finding investors willing to make these types of loans may seem daunting but using a reputable, third party private money lender actually makes the process far easier than a traditional bank loan.

Availability

There are thousands of accredited investors willing to invest in real-estate secured deals that ordinary banks will not or cannot back. Not having access to traditional bank funds is not an end for a complicated but otherwise sound deal. In other words, there is a significant amount of capital in active search of excellent, real-estate secured deals.

Versatility

Institutional or government requirements are often the reason that many traditional banks decline to fund an otherwise excellent real estate deal. Individual investors do not have to adhere to the same protocols and can make informed decisions based solely on the merits of the deal.

Affordability

Interest rates are comparable to many traditional bank loans when all the fees and points are considered. In addition, terms are not set in stone and the details can be customized to meet the needs of either the borrower or the investor.

Responsiveness

Accredited investors have usually been involved in their own business or in a firm at an executive level. As such, they understand the need for making decisions in a timely manner. Borrowers can trust that they will have a response in the shortest possible time without the need for the investor to confer with committees or oversight boards.

Security

Borrowers know that they are obtaining funds from legal, reliable sources. Contracts are binding and the borrower can rely on the fact that the requirements of the deal will be honored. All traditional safeguards in a real estate deal are observed so that both the investor and the borrower can make informed decisions and act accordingly.

Ease of Use

There are highly reputable third party brokers who bring interested parties and private hard money loans together. These firms vet the deals, the investors and the borrowers. In addition, they can add value to your business part by providing access to a broad range of borrowers, brokers, realtors, and investors.

10 Must-Knows About Hard Money Loans

Thursday, May 03

Hard money loans made by private investors are one of the best sources of financing for investors looking to take advantage of the great prices in California's residential housing market. With attractive terms and rates on one to four unit homes, they make it possible for you to purchase great opportunities even in today's constrained lending market. Here are 10 things that you should know about these exciting financing products:

1. Hard money loans make tough transactions possible. When you have a slam-dunk transaction that will not pass muster with a bank, they are your best option.

2. They are less expensive than you think. While hard money typically costs more than a bank loan, most borrowers can get loans at very favorable rates and terms. Given the returns that most real estate investors expect to make from properties bought with hard money, the loan is quite inexpensive.

3. Cash reserves matter. Most private lenders want to ensure that you have enough money to service their loan, no matter what. 

4. Private loans can be used for construction and rehab financing as well as for straight purchases. 

5. Hard money loans are fast. You can expect your loan to close in days or weeks instead of months. While loans usually take two to three weeks to close, three day closes are possible.

6. Hard money lenders are flexible. Since they are private individuals, they can frequently structure loans creatively to meet your specific needs.

7. Flips, rehabs and other distressed property transactions are not a problem. If they will make you money as an investor, they are a perfect opportunity for a private lender.

8. Access to private mortgage loans makes it easier for you to get the best deals. Being able to buy with no loan contingency or with a very short loan contingency makes you a much more attractive buyer to the sellers of distressed property with a great deal of upside.

9. Hard money loans are available with 30-year amortization periods or, in the case of short term loans, on an interest only basis. This frees up more cash flow for you to use to make other investments.

10. Private mortgagers are usually more worried about your character than your credit score. While you must be creditworthy, most private lenders will not immediately dismiss you on the basis of your FICO score alone.

                      

10 Best Practices for Trust Deed Investing

Thursday, May 03

[Note: This is an excerpt from the whitepaper “10 Ways to Invest in Trust Deeds”. Please download the guide to learn more about each of the ways to invest”.]

1 Know Your Broker

It’s important to know your broker. Make sure to take the time to verify the broker’s track record, professional standing, and setting. Be leery of the promised “guarantee” that some might proclaim.

2. Know Your Borrower

Finding a borrower who consistently delivers outstanding results on fix and flip projects is imperative. Investing with experienced borrowers will increase your chances of success. Here are a few questions we ask when lending to potential borrowers: Does the borrower have a reasonable plan to make profit, make the payments, and pay off the loan? What is the borrowers’ source for repayment? Does the borrower show a positive history of stability?

3. Maximum Protection

Make sure to give yourself maximum protection. Things like a full-extended A.L.T.A will help you do just that. Staying away from the cheaper C.L.T.A will help you protect yourself against issues like defects of title, mechanics liens, etc.

4. Do Your Homework

Reading up on documents such as preliminary reports or property details will provide you with the well-needed information every investor needs before making an important decision.  More importantly, the preliminary title report is a snapshot of the condition of the title to the subject property. The report will contain information like property easements, assessments, and more.

5. Diversify

Relying on the monthly payments of your investments can be a daunting thing. That’s why its important to keep a 1^st Trust Deed investment portfolio consisting of smaller loans in the $50K-$250K range. This will allow you to earn the same yields by spreading their funds across more secured trust deeds.

6. Don’t Change the Deed

It’s important to remember not to rewrite, extend, modify, altar, or make any changes to any note and deed of trust. A small alteration may make you liable, and can be taken to court. If absolutely necessary, you must get a written approval, in which you then must update the documents with the title document.

7. Determine a Safe Amount to Lend

Reviewing the appraisal and checking what recent sales have occurred on properties close to the property that you’re lending on will help you determine a proper amount to lend.

8. Don’t Invest Blindly

Setting aside some time to familiarize yourself with investment properties is one of the most important steps. Take the time to review the appraisal and title reports. Inspect the property yourself, and gather as much information as possible that will help you make a sound investment decision.

9. Avoid Scammers and Fast Talkers

Someone who fails to take the necessary precautionary measures when making business decisions is an important red flag. Always work cautiously with someone who insists you move quicker than your comfortable with. Always remain in control.

10. Make an Informed Decision

Follow your instincts and make conservative and rational decisions with your hard earned dollars. Seek out qualified partners, brokers, and borrowers. And always remember to do your homework.

Trust Deed Investing: Real Estate Investments That Work

Thursday, April 19

Any investor can place their money in a CD or savings account and watch while his principle remains intact but his buying power is diminished by inflation. Similarly, a speculative investor can buy junk bonds, dividend stocks or IPOs and either hit it big or watch helplessly as the investment loses value.

Alternatively, a more knowledgeable investor may recognize the potential in real estate investing but may not wish to invest the time and aggravation in managing a portfolio of properties. Trust Deed Investing offers an excellent alternative to each of these investments and provides superior security and outstanding returns in a convenient and understandable process.

First Trust Deeds - Investments that Work

The key to successful investing is having your money work for you and not the other way around. With trust deed investing, you lend money against a real estate backed loan at a discount to the actual value of the property. All the usual procedures and safeguards are included such as insurance, title searches and appraisals.

While defaults do happen, the discounted nature of the loan safeguards you to recoup your investment with a substantially discounted sales price. In addition, the capital gains accrued are actually taxed at a lower rate. In either event, your money is profitably and efficiently used to generate superior returns.

Trust deed investing is also ideal for those such as novice real estate investors, busy executives, or retirees who do not wish to actively manage a real estate property. An experienced Private Money Lender will collect payments, ensure that all insurance is up to date and facilitate all communications between the lender and the borrower.

First Trust Deed Investing 101

Investing in real estate can be a financially rewarding endeavor if one has the expertise, the resources and the time to do it properly. Less experienced or otherwise involved investors should carefully consider the advantages of trust deed investing. The benefits are many and the downside is minimal.

In short, trust deed investing offers an excellent balance between superior returns, excellent security and minimal supervision. By using an experienced and reputable Private Money Lender, you are assured of accurately portrayed deals that are secure and offer excellent yields. In short, the legwork is conducted for you and you are able to most productively deploy your investment dollars. It is, indeed, a real estate investment that truly works.

How to Produce Cash Flow From Your Real Estate Investments

Monday, April 16

Real estate investing is one of the most profitable ways to invest your money. It isone of the only asset classes that offer a mix of cash flow, appreciation and multiple levels of tax shelter. However, because it is also a hands-on investment, you can lose a great deal of money if you buy the wrong asset.

The secret to producing cash flow from real estate investing is to start with properties that produce cash flow. While there are a number of vacant properties available for extremely attractive prices, if you are unable to rent/lease them, they will quickly sap your operating capital and you will end up losing them. Although you will typically pay more for the actual real estate, look for properties which have positive cash flow in place at the time of acquisition.

Many of these assets present themselves as having positive cash flow but, in fact, do not. To find one that will perform well for you and have a margin for error, look only at its potential or actual rental income for the year and subtract a minimum five percent vacancy factor, just in case. The annual expenses should include a management fee of four to eight percent depending on the size of the asset. In states where property taxes are re-assessed on sale, adjust them up to reflect what you will actually pay. Once you have done this, subtract the expenses from the income to find the net operating income (NOI).

Since leverage is one of the secrets to real estate investing, you will not be taking home the NOI. Instead, you will be making mortgage payments and take home what is left after them. Dividing that net cash flow by your down payment should yield a return of 4 to 15 percent, depending on the type of asset and its location.

If you follow these safeguards, real estate investing can be amazingly lucrative. In many cases you can not only earn returns higher than those available in the stock or bond markets, but do it with 50 to 100 percent tax shelter.