10 Best Practices for Trust Deed Investing

[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 1st 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.