Learn To Be A Fix & Flip Investor: investing in deeds of trust

Showing posts with label investing in deeds of trust. Show all posts

Monday, October 29, 2018

Trust Deed Investing: Not Always a Big Risk

Don't avoid trust deed investing just because someone else told you it’s risky. These investments can offer you great benefits, if you can get past some common misconceptions. Learn about the process, the basic benefits and some simple strategies to avoid risk. Come to your own conclusions about this type of investment so you don't miss out on this opportunity.
You may be wondering how this process works. The simplest way to explain deed of trust investments is an individual borrower approaches trust deed broker, and you as an individual investor, fund the loan. As the borrower pays down their loan, you receive regular payments in the form of interest.
In the case of Arizona trust deed investing, you receive the benefit of regular fixed interest payments from the borrower
After the promissory note a.k.a. The trust deed is filed you the investor receive monthly interest payments as the loan is paid down. When the investment comes to term, you are usually paid the full amount of the remaining principle, along with any remaining interest payments.
This type of investment allows you to earn a steady stream of contractually obligated income, with little to no effort on your part. All you need to do is fund the loan and usually your broker can take care of the rest.
However, this may seem risky, and you may be wondering 'why don't these trust deed borrowers go to regular banks?'
Frequently traditional banks refuse to underwrite the types of deals that trust deeds secure. Not because of inherent risk, but because of bank bureaucracy.
Don't just assume trust deed investing in Arizona is dangerous because these borrowers cant qualify for conventional financing.
Some borrowers need the flexibility offered by trust deed brokers. Most banks refuse to lend to midsize commercial developers, on account of their ‘checkbox mentality.’ If a borrower's project doesn't meet a traditional lender's stringent criteria, their application gets denied, no matter how strong the borrowers financial standing. So not every deed of trust investment is inherently risky.
However, as with any investment, there is some risk involved. A reputable broker should offer you the specific details of your investment. They should provide you with documents detailing the project type, the property, and the specific terms of the loan. Above all your broker should provide you with a clear outline of the borrowers exit strategy.
The main thing you want to look into when it comes to these types of deals as the borrower's exit strategy, or their plan to pay back their loan. If something doesn't sit right with you, when it comes to the borrower's exit strategy its in your best interest to avoid getting involved.
Nevertheless don't neglect the benefits of trust deeds, these investments present you with the opportunity to invest in real-estate without the inconvenience of managing the property yourself. Don’t just assume because the borrower in this case can’t qualify for conventional financing that these deals are too risky. If you can be confident that an individual borrower can pay back the loan, trust deeds can be an excellent investment.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.© 2016 Level 4 Funding LLC. All Rights Reserved.
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Trust Deed Investing: Risk Less by Going Small

When it comes to trust deed investing in Arizona don't be tempted by deals that offer the possible highest returns. You can risk less while still earning a steady return by going small, in terms of interest rate and total loan amount. Using this strategy you can avoid the main risk when it comes to this type of investment: bankruptcy and foreclosure.
While it might be tempting to invest in deeds of trust offering the highest returns (i.e., trust deeds charging borrowers the highest possible interest payments), such investments are incredibly risky. One way to mitigate the risk of borrower default is to invest in smaller loans. The larger the loan, the larger the interest payments the borrower is obligated to make and the higher the chance of default.
Therefore, investing in smaller loans is always a good risk management strategy in the case of deeds of trust.
All this talk about default might make you wonder 'why should I care if the borrower defaults? Cant I simply foreclose on the property and resell it for its fair market value?’
Not exactly.
Going small with Arizona Trust Deed Investing can help you avoid the risk of bankruptcy
Promised returns are not actual returns when it comes to investments.
So while a deed of trust may promise a greater return because it charges borrowers a higher interest rate, in most cases you may never actually achieve any return on these “high-yield” investments.
Even though trust deeds have fewer regulations, foreclosure is never a clean cut process. If a borrower defaults bankruptcy is the likely outcome. The legal complications of the bankruptcy process will hinder your ability to repossess and resell the property.
While the court sits on its hands and various lawyers argue over the details of the borrower's case, your loan is still in default. So while the bankruptcy proceedings slowly make their way through the court, you as an investor, are getting nothing. You cant foreclose, repossess or resell the property until the bankruptcy goes through and your deed of trust is essentially becomes a worthless piece of paper.
Even after borrowers bankruptcy clears the courts, and you manage to foreclose, you are not out of the woods yet.
With trust deed investing, going small helps you avoid the risk of foreclosure
In almost all cases foreclosure on deeds of trust results in a loss. Foreclosed properties are rarely sold for their full market value because buyers always expect steep discounts.
Unlike you, an individual private investor, banks (the ones who most often carry out foreclosures) are under heavy regulatory pressure to quickly offload foreclosed properties. Due to this fact there is a prevailing assumption on the part of buyers that any foreclosed property should sell at a steep discount. Therefore, it’s basically impossible to get full resale value on a foreclosed property.
So with deeds of trust, you never want your borrower to default. Bankruptcy part of the borrower means you will make no return on your investment as the bankruptcy proceedings make their way through the courts. Foreclosure in almost all cases will result in a substantial loss.
So mitigate the risks of bankruptcy and foreclosure when it comes to investing in deeds of trust. To enjoy the maximum benefits of this type of investment, invest in small trust deeds that charge borrowers reasonable interest rates. This strategy can protect you from risk and allow to enjoy the many benefits involved with these types of investments.

Trust Deed Investing: Tactics to Avoid Risk

In the case of trust deed investing you want to make money, and of course you want to risk less. Learn some basic ways to mitigate the risks when it comes to this form of investment.
A deed of trust is a three-party mortgage. You act as the investor in individual loans and receive a regular return of interest payments as the loan is paid off. Deeds of trust allow you to act as a passive partner in real-estate deals, all you need to do is fund the loan. You then earn regular income as the borrower’s loan is paid back.
However as with any investment, there is some risk involved.
Obviously, there are many different types of real estate, and there are just as many types of trust deed investments. So one way to protect yourself from risk is to understand the type of property and the individual project being financed.
When it comes to real estate, there are two broad categories: residential and commercial. Residential projects and properties usually imply a lower risk and therefore a lower return. Commercial projects, on the other hand, present the opportunity for higher returns and of course present a higher risk.
In the case of commercial projects, deals for financing the development of office, retail or industrial properties are very risky while apartment loans usually prove far more stable. However, the risk involved with each deed of trust will depend on the details of the individual, property, project, and market.
So develop a sense of the local market to get a read on whether a given trust deed is a worthwhile investment. Using your discretion in any investment is critical when it comes to avoiding risk.
With Arizona trust deed investing, if you can, you should get a your own sense of each deal before investing.
When it comes to trust deeds, don't just rely on your broker's understanding of the deal. Exercise due diligence and proceed with caution before investing in any deed. Use common sense and consider how your broker underwrites the loan. Ask whether you agree with the stated valuation of the property being mortgaged and it's income potential. If you don’t agree, you might want to avoid investing.
The fundamental way to avoid risk when it comes to investing deeds of trust is to develop confidence in the individual borrower's ability to pay back the loan. Carefully scrutinize the details of their financial history provided by your broker and see if you agree with their conclusions. As above all, you do not want your borrower to default.
When it comes to trust deed investing, you can risk less by ensuring your borrower can pay back the loan.
Borrower default, as with any loan, is the most significant risk when it comes to deeds of trust.
Yes, you can potentially sell you trust deed to another investor, but if things go south on the part of the borrower, there is little if any chance another investor will repurchase your loan from you. Yes, you can foreclose if a borrower defaults, but foreclosed properties rarely sell for their full market value.
So don’t just rely on your brokers assumptions. Develop your own understanding of the property or project secured by the deed and have confidence in the borrower's ability to repay the loan. Both of these approaches will help you avoid the worst case scenario, default and foreclosure.

Trust Deed Investing: Differences, Benefits, and Strategies to avoid risk.

You may have never heard of trust deed investing, learn some of the basics, benefits and some simple strategies to avoid risk when it comes to this type of investment.
A deed of trust is a security agreement which is secured by real estate, I.e., it’s a mortgage. The main difference between a trust deed and a regular mortgage are the parties involved and the specific regulations. With a mortgage for only two parties the borrower and the lender are involved. With a standard mortgages, there is a lengthy judicial process when it comes to foreclosures.
With trust deeds of trust, there are three parties involved, investor (beneficiary), trustee (trust deed broker) and trustor ( the individual borrower). Little, if any, court involvement is needed to foreclose on deeds of trust.
So how can this arrangement benefit you as an investor?
Here are just a few of the benefits of Trust Deed Investing in Arizona:
With deeds of trust a borrower (trustor) goes to a broker (trustee), the broker then funds the borrower's loan with funds received from you, the investor (beneficiary). This arrangement benefits you in the following ways:
• Easy: Trust deeds allow you to appreciate the benefits of real-estate investment without the hassle of managing the property yourself.
• Variety: There are of course many types of real-estate and just as many types of trust deeds allowing you to invest in a diverse array of properties, from residential all the way to industrial.
• Flexibility: Every deed of trust deal is different. Unlike bank loans which are subject to rigid guidelines and bank bureaucracy, trust deeds are private arrangements made between an individual broker, borrower and you the investor.
• Predictable: Unlike other investments where returns are somewhat uncertain, with trust deeds the borrower is contractually obligated to make regular payments. As long as the loan remains outstanding you can expect to receive a return.
That is unless your borrower defaults.
With trust deed investing in Arizona the primary risk is that the borrower defaults, here are a few strategies that can help you risk less.
Yes, trust deeds give you the right to foreclose if your borrower defaults, without court involvement. But what if the borrower files for bankruptcy? Well then the courts are involved, and you cannot foreclose as the borrower reorganizes their debts. As the borrower's bankruptcy proceedings make their way through the court, your deed of trust is essentially a worthless piece of paper.
Even after the borrower's bankruptcy closes and foreclosure goes through, foreclosed properties never really sell for their full market value, which equals a loss for you.
To mitigate the risk of default consider the following:
• Be sure your borrower can pay back the loan: Don’t just rely on what your broker tells you. Carefully review the borrower's financial history, to be sure that the borrower can pay back the loan.
• Don't just go after the highest yield: Don’t invest in high-interest trust deeds just because they offer a higher return on paper. The higher the borrower's interest payments, the higher the risk of default
• Start small and scale: Begin with small investments as they are less risky. As you do more of these deals and develop your own understanding of the process, you can then begin investing in larger loans.
By employing these strategies, you can avoid the risk of default and enjoy the benefits of trust deed investments.

Tuesday, January 3, 2017

Trust Deed Investing - How to Invest - Risks and Rewards

By Dennis Baranowski, Esq.

Geraci Law Firm

Investing in trust deeds is nothing new. Investors have often sought investment in either fractional or entire trust deeds because of the better than average rate of return and the security that comes in the form of pledged real property.

Unlike stocks or bonds, where the investor is relying on market conditions to dictate returns, investing in a trust deed typically offers a fixed rate of return in the form of monthly payments and in most cases a return of capital at maturity. This type of investment generally provides higher yields on capital with less risk than other market offerings.

The basic components of a trust deed investment are

1) a promissory note signed by the borrower and

2) a deed of trust which secures payment of the promissory note by establishing a lien
against real property upon the recording of the deed of trust in the county where the real property is located.

The trust deed holder is the lender, just like a bank, credit union or other financial institution. Trust deed investment allows an investor to participate in a loan secured by real property by purchasing all or a portion of the note and trust deed attached to a particular property and borrower.

The investor can either purchase the entire loan or a just fractional share. An investor that has adequate capital will often finance all of a trust deed loan. An investor that is the sole holder of a trust deed loan will enjoy more control over their investment in that the investor will be the sole decision maker with respect to collection of late payments, foreclosure, modifications and forbearances. Fractional participation in a trust deed loan will result in less control over the investment than owning the entire trust deed loan, but it provides an excellent vehicle to introduce investors to investing in trust deed loans. With a fractional trust deed loan, the total investment required is often less than owning 100% of the trust deed loan and the risk of the trust deed loan is shared by two or more investors. The fractional trust deed investor trades off the decreased exposure to loss with the sharing of control over the oversight and management of the investment with the other investors.
Investors that prefer fractional trust deed investments often will participate in multiple fractional trust deed loans in order to spread the risk of loss rather than placing all of their eggs in a single basket.

Investment in trust deed loans offers an array of variables for each investment, including varying returns, property types, length of the loans, and risk profile. In most instances, a greater yield will be realized by investing in higher risk trust deed loans, such as second or third position deeds of trust and loans where the total amount of loans secured by the property represent a larger percentage of the value of the property, as opposed to investment in loans that are secured by first trust deeds with low loan to value ratios. Investing in multiple trust deed loans provides an excellent opportunity for consistent cash flow, since the chances that all borrowers will stop making payments is not likely, especially if the loans are properly underwritten.

Whether there is a single investor or multiple investors, a trust deed loan needs a loan servicer to manage the loan, including the collection of monthly payments on behalf of the investors and to disburse such payments, less fees and costs, to the investors pro rata. The loan servicer is often the broker who arranged the trust deed loan for the investors, but could also be a third party provider. The arrangement with the loan servicer is governed by a loan servicing agreement between the investors and the loan servicer. Typically the loan servicing agreement delegates authority to the servicing agent to receive payments, pay distributions to the individual investors, and communicate with and provide documentation to the borrower. The loan servicing agreement also provides instructions about the collection and deposit of funds, instructions on handling delinquent accounts, and limited power of attorney to enforce the deed of trust contract. The primary job of the servicer is to manage the trust deed investment account and protect the interests of all investors. This responsibility may include managing accounts that are not performing or are in default, and initiating collection activities. When investing in trust deed loans, emphasis should be on engaging a servicing agent who is experienced, competent, and lends confidence that he or she is looking out for your interest.

Most established servicing agents are good at what they do. They already have established systems in place to support the investors' interests actively. Part of that system is online tracking software that allows investors to view payment activity, confirm trust deed loan details, and determine the status of their investments at any given time.

By working with a broker that understands the private trust deed market, and contracting with an experienced and highly competent servicing agent, trust deed investments can be a lucrative endeavor. These types of investment typically demand an 8% to 14% annual interest rate, with loan terms ranging from 1 to 20 years. Investment returns will vary based on the type of property, the condition of the asset, location, type of loan, and qualifying factors of the borrower.

With the right team in place and a proper amount of due diligence on each deal, a qualified investor can participate in the trust deed marketplace with confidence that they will achieve positive results.

About Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true.

Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Wednesday, November 23, 2016

What makes trust deed investing appealing and scary to most people?

There are few investments that give you the feeling of uncertainty along with excitement. Trust deed investing will give you that throughout the entire process. Yes, these types of investments can be very risky, but the payoff would be very profitable if all parties were able to follow through. The article will explain why some are reluctant and some are willing to take on trust deed investing.

Over the past few years, the real estate business has made a resurgence throughout the United States. While there are many new properties and developments that are being made, one must wonder, are there any ventures that seem very risky from the outside.

You do not have to look any further, trust deed investing has taken on that risky role to many people that are in the real estate field. In fact, many banks and other financial institutions can be a little apprehensive when it comes to investing in trust deed partnerships. But, why is this? There are risks with other properties and projects, right?

Well, for many banks, the biggest thing that turns them off is the short lifespan of the loan itself. Usually, borrowers that are looking into trust deed investing want a short term loan. Often these loans, judging by the reliability of the borrower, could be paid off a year or two after being financed. Most banks want to find investments that will have longevity. Most of the loans that are lender by banks have a 30-year payment plan.

So what attracts people to trust deed investing?

Time is the main factor that attracts people to trust deed investing. Generally, banks will take an extended period of time to do a thorough check on your credit and prior investments. Most of the time when investors are looking to flip homes they want to do it fairly quickly. Most of the time the funding period only lasts one to two weeks before the property is placed back on the market. In the flipping business, the competition can be pretty steep so you must move as soon as possible when you find a potential buy.
So how do you combat this? You go to hard money lenders that are willing to cut out a lot of the time-consuming elements. You do not need to have the best credit score to get a loan from a lender for your investment.

On top of time management, you will get a nice return with trust deed investing.

That’s right most investors, when they have taken the right precautions will on average be able to get a 10% return. You will not always get that, but for the most part, you will be successful if the market is forgiving.

This type of investing is also very popular among people that have creative or unpredictable sources of income. With all these factors, trust deed investing is a great option for those who want the freedom to move from investment to investment with a degree of safety.

About the author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true.
Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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Monday, October 29, 2018

Trust Deed Investing: Not Always a Big Risk

In the case of Arizona trust deed investing, you receive the benefit of regular fixed interest payments from the borrower

Don't just assume trust deed investing in Arizona is dangerous because these borrowers cant qualify for conventional financing.

Trust Deed Investing: Risk Less by Going Small

Going small with Arizona Trust Deed Investing can help you avoid the risk of bankruptcy

With trust deed investing, going small helps you avoid the risk of foreclosure

Trust Deed Investing: Tactics to Avoid Risk

In the case of trust deed investing you want to make money, and of course you want to risk less. Learn some basic ways to mitigate the risks when it comes to this form of investment.

With Arizona trust deed investing, if you can, you should get a your own sense of each deal before investing.

When it comes to trust deed investing, you can risk less by ensuring your borrower can pay back the loan.

Trust Deed Investing: Differences, Benefits, and Strategies to avoid risk.

You may have never heard of trust deed investing, learn some of the basics, benefits and some simple strategies to avoid risk when it comes to this type of investment.

Here are just a few of the benefits of Trust Deed Investing in Arizona:

With trust deed investing in Arizona the primary risk is that the borrower defaults, here are a few strategies that can help you risk less.