Buying my first trust deed note.

[Account Closed]

After doing some search and research I'm investing in my first trust deed note. 50% LTV and it pays 9% monthly for 60 months. Approx. investment 50k. The bad thing is that the home owner can pay me off before the sixty months and I will have to look for another investment. Does anyone have any investments in trust deed notes, and what returns are you getting? Thanks Hugo.

[Doug Smith]

Hugo, welcome to the world of investing in debt rather than investing directly in the real estate. It is, indeed, a different animal. There are many ways to invest in notes, therefore, the returns you will see will be dramatically different. You can buy notes and collect the interest. You can investing in non-performing notes and work to get the property back and return a tidy sum. Overall, it depends on what you are focusing on as to the returns you can achieve. Our firm currently only buys non-performing notes, we work through the issues and normally get the property back through a deed in lieu of foreclosure or a foreclosure. Our returns are significantly North of the one you are getting on the note, but there it is a different investment that is focused more on a capital gain rather than cash flow. There are tons of ways to invest in this world. Welcome! Let me know if you ever have questions. I'm happy to answer them.

[Dion DePaoli]

Hugo,

There is a ratio between risk and return. The investment you have made caries risk in default and risk in prepayment amongst some other concepts. Usually with less risk comes less return. An investor can decide on a less risky investment such as a Treasury where loss of principal is not high at all but the return (through yield) will also not be that high. In your investment, your chance of loss is not that high due to the amount of equity you have in the property. At 50% you have some pretty good insulation in equity to recover your principal and costs of enforcing the remedies provided in the instrument, usually through foreclosure in the event of default.

The general private money market or hard money loan market flirts around the 9.0% interest mark. Distressed cash flowing loan investments come out around the same number in most cases as well. Some of this is also capped on usury limits per state.

Can you find assets to invest in which deliver a higher yield and perhaps total return? Yes. But you will have to take on risk. An example would be purchasing a defaulted loan, which carries the highest discount usually and work to reinstate the loan with the borrower. In some cases that yield can easy enter double digits. The risk is you don't get to reinstate the loan and your costs to enforce the remedies provided can quickly 'use' the equity received through purchase price or discount or through the actual loan to value ratio on the real property.

In a financial planning sort of idea. If your investment can maintain at least 7.2% in yield, than in 10 years you will have doubled your money. Adversely, at 10% yield you will double your money in 7.2 years. (Rule of 72) Those have always been pretty decent return numbers to pursue.

It is always important to remember, pigs get fat and hogs get slaughtered.

[Wayne Brooks]

Hugo, make sure you do a title search, and maybe require title insurance. Code violations, property taxes, etc. can become a problem, let alone the more serious issues like judgments against the borrower. I assume you mean you're loaning money to the owner, not actually buying an existing note.

[Account Closed]

Are you buying an existing note? Or lending purchase money? Is the property an investment property or will the borrower be living in it? Unless you are certain that the loan is for a business purpose, I'd stay away from it. Most private lenders where I am won't go near a consumer loan. First off, you have to be licensed to originate it. But more importantly, the regs you have to follow to collect or foreclose post Safe Act are onerous.