All Forum Posts by: Rob Cee

Thanks for the info. I'm doing something very similar to you and funding loans though hard money brokers in CA. Do you have any type of checklist to make sure the HML originating the loan and the escrow company handling the closing are dotting all their i's and cross all their t's with the paperwork? That everything is correct with the note, deed of trust, title insurance, title check,hazard insurance, etc...? The HML sends me the borrowers signed documents and I review, but I haven't really been formally trained in what to look out for. The loans are going through nationally known escrow/title company name brands so I'm relying on the fact they know what they are doing.

Rick, thanks for your input. I'm sure some trust deed investors got whacked pretty bad in the CA price crash from 2008-2012. Especially those doing 2nds. What are some of your recommendations for trust deed investors in CA to lend safely right now? I'm primarily funding loans bought to me by CA HML's right now, I don't originate my own. I've been lending on SFR fix and flips and 1-4 rental property. I'm out of state (formerly lived in CA for 26 years), so I do not go see the properties, I rely on the appraisals supplied by the HML originating the loan.

Hi Terrance, so you found your own borrower & set up all the documents yourself on this loan you just foreclosed on? Were you having it serviced by a servicer? Was this a fix and flip loan...I'm curious why the borrower defaulted? Did this sell at the trustee sale or did you get it back and then sell it though a Realtor? What were your total out of pocket costs of foreclosure and the sale? What LTV or ARV did you originally lend at? Was this in CA? Sorry for all the questions, but sharing this type of information is very helpful to other trust deed investors in CA. I appreciate it!

I had a specific question for an investor knows Sacramento neighborhoods  really well.

I wonder if there is a rule of thumb note buyers or trust deed investors have for the total costs of foreclosure and reselling a property to re-coup your principle in case of default. You mention $3,000 above for foreclosure processing costs. Then you have to likely pay at least a years worth of property taxes, Realtor commission when you sell it, fix up costs to get it ready for sale, home insurance costs, possible eviction costs if you lent money on a rental property, etc.... So it seems maybe a good rule of thumb is costs of about 15% of your loan amount in total costs to re-coup your principle via foreclosure process and resale of the property? So if you are lending at 65% LTV you are really at about 80% LTV. And if prices were to decline in a down market you could easily lose principle in a foreclosure process even at 65% LTV.

I should probably get out there to the investor groups and look at finding my own borrowers and creating my own hard money deals.  I would make a better return and cherry pick deals a little better.  

 I think if you can find a experienced old pro mortgage broker it is the best.  They can shop your loan to 20-30 or more lender contacts they have built up over the years.  Where as the bank you are talking to only has their rates and their products.  Also a experienced broker will give you much better customer service and help you prepare your package.  They will also be better at analyzing your deal up front for you.  If the broker is experienced, they have deep connections with a lot of lenders that aren't well known on a retail basis, and they may know of some great niche products (lower down, longer fixed periods).

Thanks Jeff for the good info. I don't meet any of the borrowers or know them at all. I'm relying on the HML's to do this vetting. That's why I try to go with HML's with track records for decades and solid reputations. If they have been in the business that long, they have seen cycles and market crashes and lend accordingly. I'm more of a passive investor. I would make more money but networking in investor clubs and finding my own borrowers but I kind of just want to invest passively and not have to do all that. There is one HML I like that does not lend on flips. They lend on existing rental property where borrowers have issues and can't get a conventional loan. I kind of like this because you know the value right now and you are at 60% or less of the current appraised value (vs. flips you are ARV). These are established rentals and you know the borrower is getting rental income to pay your trust deed. I find flips a little more risky as they are more subject to sudden changes in the market or running into some major unforeseen fix issues, there are more moving parts. Where existing rentals with tenants are not so much affected by sudden market changes. These loans tend to be longer periods so your money could be out for 2, 3 or more years. This is good and bad. Good because you get a constant return and don't have to constantly search for the next next trust deed. Bad because your money is tied up for a long period in case you want to use it for something else.

I think it would be hard to make 15% on a 1st trust deed (unless you are getting the points too), 2nd TD maybe.  I only invest in 1st's.  I haven't made anywhere close to 15%.  So far I have been making 11% on my fix and flip loans (the hard money lender that I invest through charges 12.5% and 2 points to the borrower, they keep the points and they keep 1.5% for servicing, I get 11% return as the trust deed investor).   The lenders I work with send me deals from 8.5% to 13%, similar rates in CA, AZ, WA, OR, TX and UT where I look at loans.  Some of the loans and borrowers are really hairy so I pass on those.  One loan I looked at guy had missed several mortgage payments in 2014 on his credit, had tax liens on the prelim, a prior BK and the house was in the ghetto.  Some investors snap those up though.  

Some of these lenders have funds as well that you can put your money in where they pay 10-12%.  So instead of buying individual trust deeds you are in a fund that pays 10-12% annually.  They lend the money in the fund out to investors doing flips, etc... .  The nice thing here is that you can re-invest the interest income in the fund so you have compounding growth.  With the rule of 72 at 10% return your money doubles in 7 years.  Also you do not have to constantly look for new trust deeds when the ones you had pay off (this can be time consuming especially if you are picky, and there will be gaps where you don't have your money lent out, a fund would eliminate this issue).  I'm not sure what the extra risks are with the fund vs. individual trust deeds?  I guess if the whole company went down or got sued or something the fund could take a hit, and/or maybe you worry about getting your money back.  So maybe you have less control?  Anyone have any opinion on these hard money funds vs. individual trust deeds?

David C., how much work are the flippers doing on the flips you are lending on? Are these major gut rehabs or room additions? Or just cosmetic? Are you lending on ARV with a hold back for fix up work taken in draws? How much skin do your borrowers have in the game?

Thanks for the experiences Dave.  Sounds like you are finding the flippers who need money and setting these all up yourself.  I invest with a number of hard money lenders (some in CA) and they make the points and .5-1.9% of the yield.  I've been trying to only invest with hard money lenders that have been around a long time and have a track record.  I do review the appraisal, loan app and credit report very closely on the deals they send me.  I turn down a lot of what they send me.  I always look at every deal if I had to take the property back could I quickly sell it and recoup my principle + foreclosure costs, or worst case if the market tanks could I rent it and get a decent return.  The deals are getting a little harder then a few years ago now that hard money is more plentiful.  There is more money out there now and rates are getting pushed down a bit.  The fix and flip deals I was lending on used to be more just cosmetic flips.  Now hard money lenders are lending on more complicated rehabs, and tear downs + new construction, and development projects.  This scares me a little as I worry if the market crashes when a flipper or builder is only half done a project, they walk, and I'm left with a half done project.