All Forum Posts by: Aaron Norris

After living in NYC and Los Angeles, I really don't have a good answer for this one because in both areas, one block away was always something better or worse. Condition, traffic noise, school district, etc. Are you involved with the Apartment Owners Association? I wonder if the have any good resources for that? They have a great presence in california.

@Dennis Webershe raised her hand and said she had money to lend. I don't think that will go unnoticed. :)

@Rick Pozos I'm only familiar with California law but to collect points and to charge higher interest rates, you have to be a licensed broker. Usury laws apply in California limiting what a non-licensed person can get in interest. You also want to make certain the laws are followed, documentation is appropriate to your state, but most importantly, you have to make sure things are being recorded.  

I see far too many investors doing loans where they get no monthly payments. They are trusting of a family member or fellow investor and haven't done the things necessary to see if in fact their deed was recorded. Too many horror stories about investors being promised a first trust deed, only to find out that there were multiple promises but no deed was ever recorded so you've got a situation where you're not in first, not in second, but third and forth on a deal already underwater. 

Trust deed investments are supposed to be passive. Most of our network interested in trust deeds do them because they've come from the land of tenants and toilets and just want checks. They don't want to deal with the borrower, payments, tax checks, insurance checks, annual paperwork, etc. That is what a middle man will do. 

If you plan on doing investing on your own, I just highly recommend getting educated about the investment. We belong to the California Mortgage Association to stay on top of things like Dodd-Frank (which still hasn't completed it's regulatory fun), California law changes like SB978, and other major issues affecting the lending industry. It changes every year and new things pop up. 

@John Alanistotally agree with @Rick H. here. There are still some great opportunities but I'd be going in with at least two exit strategies in Socal. I still qualify for regular financing so willing to into rentals knowing I'm going long and I'm not too concerned if prices get soft. Lots of people move to the fringe because they can't afford anywhere else. then when the market softens, those areas get hit, and painfully so.

However, another strategy is to make sure you're looking at different product type as well. hedge funds beat up a specific category in Sacramento and the Inland Empire driving the prices up quickly to where they don't make that much sense. AND, some of those areas aren't that nice. Can it go up another 10-20%. Yes, but if the market gets a little soft, are you really that excited about holding a 3/2 in a "C" neighborhood long term? What if you looked at 3,000 square foot homes built in 2005/06?  Hedge funds didn't go after larger properties but they are new built, seem to attract good renters, the new construction means less in repairs, and I like them for longer term investments. 

A class property meaning super nice area, prime condition and steady area. Or, places you'd want to live. F meaning you won't roll down your windows and that you'll probably be repurchasing your rehab materials several times during the process. There are investors that specialize in all areas, just depends on what you can handle and your strategy.

Can't wait to read it. Go go Amanda!!!

Expect to get inundated with spectacular notes available around the country today. :) Good luck @Murali P.

We made the list! :) Honestly, I'm a trust deed investor as well. Some investments I do in my ROTH IRA so I cannot invest in trust deeds here at TNG because it would be a disqualified transaction. All that to say you got me thinking about what I look for when I do trust deeds.

1. Pool vs Whole-Note Investing - This is a personal preference and one that's different for everyone. Some like pooled investments because they can get in with very little money and they feel that the investment is diversified. Just be aware pools work really well until they don't. You're getting a blended rate of return and don't have much control over the product that is being selected to back your money. And an investment's quality is location, property type, and experience/quality of the borrower. Doing whole notes, you'll get a lot more detail about those three things. In a pooled investment, depending on the company you're working with, you're not getting that detailed. In a pool, you're given rough guidelines in what is allowable and who they loan to. Some companies will give you a little more but it just depends on the company. You just want to be comfortable with the product. As my dad says, It's called hard money because it took someone a ton of work to put those funds together to lend it out.  TNG tends to attract those that like more control and they like whole notes and only first trust deeds. They want to select the properties they invest in and if anything were to happen, they have control over what to do and don't have to rely on a bunch of people they don't know to make a decision. I only do whole note investing and I much prefer getting more detail and having the ability to have more control. WARNING: if you're working with crowd-funders, absolutely make certain you are backed by a first trust deed and it is recorded!!! If you read the fine print, some companies give you claim against the cash flow, but not the property. Not sure why that is and I'm a little surprised. Also, know that in pools, you want to make sure that the way to pool is structured allows management to get paid. Some people wanted to get into the business so bad, they created offerings where they wave fees and then they don't take a management fee. The example in a waterfall structure (this can totally change for every pool), the manager takes 2% fee, lenders get 7% preferred on top of that, and they split anything over the 9% combined. Well, if they were structured to only get points on loan origination and no management fees, what happens if the market softens and loans start going bad and no new origination is taking place? They can't pay employees, they can't pay bills, and they can't pay themselves. That's not a good recipe. So just make certain you understand the product AND the structure of whatever investment you're looking at.

2. Track Record - Look for companies that have survived cycles and have worked a good amount of time in the area you'll be investing. You've got a TON of new options out there with crowd funding and so many new lenders getting into the private lending space. It's great for borrowers because it's driven down rates in states like California. Not so good trust deed investors because the return isn't as strong. BUT, that means you have to be very concerned about quality and track record. The tendency in hot markets is to throw caution to the wind and get more aggressive in favor of the borrower. You'll see really high ARVs or borrowers really maxing out using seconds and sometimes too much leverage at one time. When a lender has survived a few cycles, it shows they know the market, their trust deed investors and borrowers trust them, and all work together to adjust their strategies and funding requirements to benefit all parties. When you're working with national brands that have to create programs nationwide, I'm not certain they can really adjust quickly enough to niche markets like California. 

3. Automation - The goal of trust deed investing is ease. I don't want to deal with late payments, I don't want to deal with tenants or toilets, and I don't even care that much if I hear from the company I invest through (that was weird for me to type).  Most of our trust deed investors are actually landlord converts that are tired of that game but they understand real estate so love notes and funding other people running that race. they just don't want to face-to-face with them. Their entire goal is to be hands off because they have a life to enjoy. If you do 1. and 2. wrong above, the experience might not be the automated, hands-off experience you're expecting. Bonus points if the company can direct deposit and I definitely want to work with someone who does tax property checks and makes certain that real estate investors have the CORRECT insurance on the property. Um, those last two pieces are very important, don't screw that up.  

Hope that helps. Just some of the things that are important to me. 

Such a great thread! Some thoughts on so many great comments.

1. Grandpa's money - my Dad has a saying, it's called "hard money" because it took someone a lot of work to get that amount of cash together (after taxes) to lend it out. Just be careful. He has to be comfortable with it. The vast majority of my trust deed investors have a background in real estate. Diversification for them includes notes and rentals. It's not for everyone and it can be work, especially if something goes wrong. And if something does, I'd hate for him to cut you out of the will because you suggested it. :)

2. 10% and different lenders. The hard money space has had a HUGE disruption. the biggest thing I've seen is a change in the rates due to competition from hedge funds, commercial lenders, and crowd funding. There are always trade offs to consider and hard money lenders, crowd funding sites, and the hedge fund lenders offer different things. So I do agree we will see some lenders disappear as the market shifts. However, I think there's room for all. Local hard money lenders offer local expertise (market, borrower and lending experience), fast funding, whole FIRST notes (or minimal fractionalization), and have long track records with borrowers. Here, you're adopting a team. That is especially important when there's a snag in a deal. The large hedge funds offer some really interesting products, often aimed at landlords with portfolios but they are expanding. Remember, however, they have to target a nationwide product so often times will have to be more conservative. They've changed the program's a ton, but their ultimate goal is packaging the loans up and selling on Wall Street. I can't tell if the space is working enough for them or if they will switch gears and target consumer loans as it's such a big market. Local commercial lenders are stepping up in a big way and I see them as major competitor to hedges funds. At last in long-term business loans. Finally, crowd funding is great for those who have very little money to Lend or want to in smaller pieces. Read the fine print! Some of these investments don't involve the first trust deeds, you actually have a claim to the cash flows, nothing more.  It is such a new product, we don't exactly know what it looks like if the market turns south.  Many of these companies are set up differently so you really have to read the fine print. No single entity is exactly the same. 

3. Becoming a lender. Depending on where you are at and how you are structured, you will be regulated by a different entity.  For instance, we are a threshold broker and we are regulated by the Bureau of real estate in California. We don't pool money or else we would be regulated by the Department of Corporations. Both of those structures involve some planning and involve different levels of expense and experience (brokers license, annual reporting, audits, etc.). We belong to the California Mortgage Association because honestly, this business changes every year, and they help us stay up-to-date on regulation changes like SB978. Not only do we have to watch things like Dodd Frank, we have to look at the state of California and what they require.  We get audited quarterly by someone that reports back to the BRE.  I realize that this is our business so we're probably dealing with a lot more volume than you are talking about, but a comment was made that it's no work and I would disagree.  For longer-term loans you also have to make sure that the borrower has the correct type of insurance on the property and also that the taxes are being paid. 

If you're only doing a loan here or there, I think you can do it on your own but if nothing else, I would work with an attorney with experience to do the correct paperwork and make sure you're not committing usury. I also like the idea of using a servicing company. I've watched people go off on their own and lose money. They make mistakes on loan to value, chose the wrong borrower, invest in weird inventory, not use an appraiser, doing what they think is a non owner occupied loan, etc. and I can almost guarantee they don't know some of the things to ask or check. it's especially ugly when a loss happens in those IRAs! 

Local lenders have boots on the ground and provide a tremendous service. Yes, OK, obviously I'm a Hard money lender and I'm speaking from my own perspective. Shop local! Can you do it on your own? Yes, of course? Same with property management. But, adopting a team of experts has its benefits. Tried and true, through booms and busts, these pros have a track record working with both borrowers and private money through thick and thin. 

Happy New Year all. 

If you have time, look up "I Survived Real Estate." These are some of the folks making industry decisions in different real estate sectors. It's a really great listen over the break. Perspectives from the mortgage, builder, and investor perspectives. 

Real estate is so local. Even in California, you can have some areas soften while others continue to do well because of different circumstances. We don't see a big crash coming, yet. And has anyone else been watching the really cool projects sprouting up in California. Shoot, Palm Springs alone! Downtown is going crazy.  5 new hotels I think? Riverside has lots of new construction on the horizon as well. 

Want to get really nervous?!  Check out Point.com. Pretty interesting concept, I'm just concerned they are rolling out in the wrong areas at the wrong time. And how do equity investments like that show on a credit report?