Private Investing in Real Estate Trust Deeds, in Simple English.


Well, that question is what I have spent the last week and half – UNLEARNING.  You see, I am a real estate investor and I, like many other investors, am always working on raising private money to use to close my deals fast (or, in this hellacious market – to close them at all!)  That is the Buzz word – or rather Buzz Phrase these days…. Raising Private Money! 

Now I thought I knew a good amount about raising private money… But what I learned this past week has given my pretty little head a brain hemmorage.  (And for all the old timers and way smarter investors than me out there – you will probably be like “ah duh – we know that”, but for me – it’s a whole new world and it is very exciting to learn, so please bare with me.)  This week, I have been learning all about  Real Estate Trust Deed Investing…  Hhhhmm isn’t that the same as private lending the way I have been doing it?  Nope it isn’t. There is so much more opportunity in Investing in Real Estate Trust Deeds

In my case, Real Estate Trust Deed Investing means that instead of  “raising private money” from someone to use on a specific property that I am buying, I can raise money that will have ANY viable Trust Deed attached to it – whether it is the subject property or not!  Wowee.  I did not know that!

For Example:  Borrower (me) wants to buy Property-A and it will be at about 75% of value.   Now this is an OK deal for an private money lender – but it’s just not quite good enough to close the deal – especiallly in today’s market right?  But wait there’s more!  I also have another Property-B that has a lot of equity in it, let’s say 65% equity.  Now what I can do is attach a Trust Deed to Property B in order to secure the loan. 

The coolest thing about this is that I don’t have to pull my equity out of Propery B to use to buy Property A.  I simply use funds from a Private Lender – all the while attaching the TD to that Property.  Equity stays in the propery!  This is way cool. There are so many ways that you can use this strategy.  You can do anything you want with the money really. Hey – I can use it instead of a business line of credit! It doesn’t matter because you are using the property as the asset/collateral for the TD.  It’s real estate financing without ever using conventional banks and my equity stays in tact!

As we investors all know, This is a great oportunity for many regular folks to earn substantial interest on their money.  Private Money lenders (who for me, are all individual people), are earning 8-9-12% on their money, rather than the 1-3% they might be getting.  What I know is that there are still so many people out there who don’t understand how being a Private Money Lender works and how it can benefit them.   Here are a few points that I am including in my Private Lending Report that I will give to potential Private Lenders:

1.  What is Private Real Estate Lending?

Private Lending or rather what we are talking about now  is Investing in Real Estate Trust Deeds is when regular people like you and me can invest our money in Real Estate Trust Deeds secured by real property and insured by a Title Insurance Company. 

Basically, Private Lending is your opportunity to become the bank and earn a much higher interest rate than a conventional bank is paying you on your money when you own a CD or have funds in a Money Market account. It’s your opportunity to eliminate the “middle man” (the bank) and make more money than the conventional bank is making for you.

2. What is a Trust Deed?
A Trust Deed (sometimes referred to as a Deed of Trust) is a document recorded with a County recorder’s office creating a secured lien on real property to provide collateral for lenders and Trust Deed Holders.

3. How does it work?
A borrower who owns or who is in the process of buying real estate property usually needs a loan. The borrower signs a Promissory Note wherein the borrower promises to repay the Lender a certain amount of money. The recorded Trust Deed creates the security interest attached to the borrower’s real property.  

4. What are the benefits of Trust Deed Investing?
Investors enjoy monthly interest payments on their invested capital. Returns are considerably higher compared to other fixed income investments. Real estate collateral is often viewed as more secure than stocks and equity investments, because its value can never diminish to zero.

5. What Kind of Interest Do People Earn as Private Lenders?

At this time Private Lender/Investors are generally paid anywhere between 8% and 12% interest per annum for the money that they lend and they can receive their payments monthly, quarterly or at the end of the deal. 

6.  What is the average time frame that an investor would use the private lenders funds?

Typically the time frame is anywhere from 6 months to 1 year.  However it is strictly between the lender and the investor.  Some deals can go past a year depending on your agreement.  I’ve even seen funds needed just for “bridge financing” and those last not more than 3 months.  The interest rate can vary depending on the time frame as well.  You might pay a lender a higher interest rate if you need the funds very quickly and for just a few months.

6. What are the Advantages of owning Trust  Deeds?

     a. Trust deeds establish a monthly income through interest payments.
     b. The interest rate paid is generally higher than rates paid by banks or other institutions.
     c. They are liquid and may sell relatively easy to another investor.
     d.  An investor may borrow against them by using them as security. 
     e. The lender is not responsible for the payment of property taxes, maintenance, gardening, repairs or any other expenses connected to the property.

Real Estate Trust Deeds are one of the safest investments available because the investment is not only secured by real property: land, homes and buildings but is insured by a Title Insurance Company.   Private Lending is a win/win for all.  The Private Lender is earning substantial interest on their money and the real estate investor has a source where they can get their money fast to close the deal without the hassels of conventional financing!  Hallelujah!

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  1. Great article. Trust deed investing is indeed on the rise. Our hard money loan business is booming and we’ve opened the door for new investors (money side) for the first time in years!

    Especially with the stock market the way it is, we know plenty of people closing out of Wall Street altogether and looking at other options including, of course, trust deed investing. Unlike the stock market, having your money backed by a hard asset sure is nice!

    Bruce and Craig put together a little video on the subject of how The Norris Group approaches trust deed investment. I think one of the intersting points they bring up is about the difference between pooling and individual investmeents. If you’re working through a broker, some pool the money and some set up one money investor with one house.

    Anyway, I liked your article and thought it might be interesting for people to watch.

  2. Hi Laurie,

    I will check out your company. I have been endorsing and promoting a TDIC here in Los Angeles called Overland Financial. They have taught me a lot and I am always open to learning about additional companies that I can endorse.

  3. Look at what Ben Bernanke said: “the managers of financial institutions found that these loan portfolios, if properly underwritten and managed, could be profitable.” It was the abandonment of sound banking practices in pursuit of profits that led to the crisis.

    The banks made sub-prime loans for the same reason. If the banks did not think that these loans would be profitable, do you really think they would have made any more than the bare minimum necessary to meet CRA requirements?

  4. Not sure if this will be seen since the article is old but how would you recommend someone that has money to lend find a place or borrowers to do so? Would you recommend finding individual borrowers to lend the money to and have one specific property back the money or would you recommend lending with a company that then works with the borrowers?

    I am also in Los Angeles and would love to network with other private lenders and also rehabbers because I am currently searching for property myself.
    Adam Paxton

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