Arizona Trust Deed Investing: How to Invest in Deeds of Trust

A lesser-known option for investing in is trust deeds. They have high returns, a low entry point, and more security than many investments.  

Investing in trust deeds gives you an opportunity to invest with lower risk and a higher chance of great returns, often in double digits. When people invest in real estate, they are generally experts in the industry. However, with trust deed investing, you do not need experience because this is not a hands-on investment. 

Exceptionally High Returns

The stock market is completely unpredictable. You can have the best portfolio but there are zero guarantees it will perform well. However, when it comes to investing in trust deeds, you are guaranteed a specific return over a specified period of time. Generally, these returns are much higher than other investments produce. 

Low Entry Point

You do not need a huge amount of money in trust deed investing. Typically, you can begin with as little as $20,000. When you invest in your own property it costs much more. Flipping a house, for example, will cost you much more than $20,000. Trust deed investing will give you just as good of a return as flipping a house if not better, which is why this investment is so lucrative. Less money up front and just the same high returns as other investments. 

Security

Another great part of trust deed investing is the security investors will experience. Investment, high returns, and security generally don’t go together. However, trust deed investments carry a fixed rate of return so you are aware of exactly how much money you will make. This type of investment is not affected by the market. If the market goes up or goes down, you will still receive the same amount of return. You will know from the beginning what you are investing in and what your return will be. Peace of mind comes with trust deed investing.

 

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

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
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 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2019 Level 4 Funding LLC. All Rights Reserved.

Copyright | Privacy Policy | *Terms & Conditions

Best Rental Property Calculator & 7 Other Helpful Equations

The ability to evaluate deals is crucial to the success of any real estate investor. Whether you are deciding if you should move forward with a deal or simply evaluating an existing property, a thorough rental property analysis is key. Luckily, with the right rental property calculator, making those choices becomes easier. So if you want to find the best investment properties with the most attractive profit margins, try using the following calculations to analyze your next deal; you might be surprised by what they can help you predict.

Getting Income From Rental Properties

Rental properties have become synonymous with today’s greatest wealth-building vehicles. Few (if any) exit strategies have proven to be more lucrative over long periods of time than investing in rental properties. If for nothing else, the wealth generated from rental properties can be extrapolated over a lifetime, and even generations. If a rental property is placed in service, it has the potential to generate cash flow. It is entirely possible, in fact, for the cash flow generated from a rental property to pay off monthly mortgage operations, and then some. Therefore, landlords may simultaneously pay their mortgage with someone else’s money and pocket a little profit each month. Additionally, each payment made on the mortgage will increase the owner’s equity in the property.

It is worth noting, however, that income is not limited to cash flow and equity. Owners may increase their profit margins by using rental properties as a tax shelter. Thanks, in larger part, to several tax benefits awarded to rental property owners, qualifying investors can be able to lower their taxable income each year; that means the government will take less out of their pocket each year. While not technically income, a penny saved is a penny earned. Something like rental property depreciation can save investors thousands of dollars over the life of a property; money that can make or break n investment.

Investment Property Analysis: 8 Factors To Consider

A thorough rental property analysis will provide insights on the potential profitability of a given deal; that is why it is crucial to know which indicators to look for and consider. Here are eight crucial factors for your next rental property cash flow analysis:

1.    Location: You can change a lot about a property, but you cannot move it to another neighborhood. The location of a rental property will influence its desirability and your ability to keep vacancy rates low. Pay attention to market factors when deciding on an area, and do not be afraid to shop around.

2.    Income And Cash Flow: Income refers to the amount of rental income generated, while cash flow represents the net amount of cash being transferred into and out of a property. These indicators can help investors determine whether a property will be profitable.

3.    Property Type: Property type refers to the number of units and type of house you are looking at. Examples include single-family homes, multi-family homes, duplexes, apartments, townhouses, condos, and more. Each type of property will come with unique advantages and disadvantages, so be sure to weigh the pros and cons of each property in your area.

4.    Ideal Tenants: Tenants are where most of your income is generated when investing in rental properties, which is why the right tenants are crucial to your success as a real estate investor. Meet with the current owners of a property and ask if they have any problems with the existing tenants. It will also benefit you to tailor your marketing techniques and prepare appropriate rental applications to attract reliable tenants.

5.    Vacancy Rates: Vacancy rates are determined by looking at what portion of the year a property does not have tenants. A perfect vacancy rate would be zero percent, meaning the property is generating rental income through the entire year. While it is not impossible to have a nonexistent vacancy rate, factor in the possibility of vacancies when calculating possible rental expenses.

6.    Rental Strategy: Decide whether you are focusing on short- or long-term rental properties, which will influence the types of homes and areas you should invest in. A long-term rental property is a more traditional rental property involving leases, and long-term tenants. Short-term rentals are typically thought of as vacation homes or Airbnb rentals. Both can yield attractive results, depending on your target real estate market.

7.    Operating Expenditures: Operating expenditures are any ongoing costs of running a rental property. They include maintenance costs, equipment, insurance, utilities, and any other operational costs. To determine operating expenditures, add up maintenance costs, property management fees and and other costs of running the property.

8.    Capital Expenditures: Capital expenditures refer to issues that need to be taken care of periodically, but not as frequently as operating costs. Physical assets such as property, industrial buildings, or equipment could be counted as capital expenditures. To better understand the differences between capital and operating expenditures, check out this in-depth analysis.

How To Calculate Rental Income?

A rental property calculator works by relying on certain variables to determine the potential performance of the investment property. For example, investors should gather as much information as they can about the property (like the purchase price and property value). Investors should also be ready to estimate a few numbers based on the information they do have, such as the vacancy rate and rental price. Read through the following list of variables to help you get started calculating rental income today:

·         Current Property Value: The current property value is how much the property in question is currently worth. Investors should not take the purchase price at face value and should instead hire a professional appraiser to complete a report. The property value will help you determine a number of calculations and can even help with your purchase negotiations.

·         Total Cash Investment: This refers to the amount of cash investors put towards the property, including the down payment and any renovation costs. Investors who purchase a property in all cash could therefore include the entire purchase price.

·         Closing Costs: Lender, notary and attorney fees are all included in the total closing costs. These also refer to costs incurred during the title search, property transfer and loan origination. Closing costs typically range from two to five percent of the total purchase price.

·         Mortgage Rate: A mortgage rate is simply the interest rate for the loan used to finance the property. If you have not yet purchased the property, this information should still be available by consulting your lender with the necessary information.

·         Loan Term: Loan term refers to the length of a given loan. On average a rental property loan term could range from 10 to 25 years. The loan term will help when calculating operating costs and more.

·         Rental Yield: Rental yield is the anticipated monthly rent from an investment property. Include any income generated from monthly rent payments, parking permits, laundry services, or other cash flow from the property. If you are unsure of the current rental yield (per the seller) use market research to help, make an accurate estimate for the property.

Once you have some basic information on the rental property, you can rely on a rental property analysis calculator to estimate the profitability automatically. There is a wide array of rental property analysis software that can assist you during this process. Depending on which calculation you are trying to determine first, you can search online for different rental property calculators. This rental ROI calculator provided by SparkRental is a great place to start, as well as this annual cash flow calculator by Calculator.net.

If you do opt to act as your own rental income calculator, there are several formulas you can rely on to help. Create a rental property analysis spreadsheet using Microsoft Excel or Google Sheets—depending on what you are comfortable with—and prepare to start your calculations. Whether you choose an online rental calculator or pen and paper, be careful as you determine the above variables to ensure your deal analysis is as accurate as possible.

When To Use A Rental Calculator

A rental property calculator should be used by investors analyzing potential deals or evaluating existing rental properties. While a rental property calculator is not required for making sound investment decisions, it can provide insights to the potential or current profits of a property. Investors who employ a rental property calculator when deciding whether to invest in each property can avoid making costly mistakes. On the other hand, investors who rely on a rental property calculator to evaluate existing properties can determine if it is time to sell or reorganize.

Investment property calculators are helpful in evaluating almost any type of property, ranging from single-unit homes to multi-unit apartment buildings. These calculators are not exclusive to first-time investors either! Any investor, regardless of experience, can use the calculations to help make accurate predictions on potential rental yield and so much more. In addition, investors who are selling a property can pass on the findings from their rental property calculations to the buyer to speed up and improve the sale. Remember, the right rental property calculator can effectively guide you through both buying and selling an investment property.

What Is A Good ROI For A Rental Property?

ROI in real estate stands for “return on investment”, otherwise known as the amount of profits investors, can expect to receive from a rental property. While a good ROI will vary from investor to investor, there are some ranges that can be used as general guidelines. An ROI between five and 10 percent is reasonable for most rental properties. On the opposite end of the spectrum, an ROI of over 10 percent typically represents a great investment opportunity.

As you consider the ROI on rental property, remember to pay careful attention to each variable you consider, such as the vacancy rate, operating costs and more. Keep in mind it is better to err on the side of caution when estimating the potential ROI. By identifying accurate numbers, and leaving yourself some wiggle room, you can help ensure your estimates are as close to reality as possible.

Responsibilities Of A Rental Property Owner

Running a profitable and tenant-acclaimed property will coincide with at least a few universal responsibilities. To be perfectly clear, there are many responsibilities levied on today’s rental property owners, but the following are never left out of the equation:

·         Property Maintenance: Rental property owners are responsible for keeping the property in living condition. That means they will need to contact the appropriate businesses to keep up with maintenance, repairs, renovations, and anything else.

·         Filling Vacancies: The worst thing that can happen to a rental property owner is a vacancy. Therefore, finding tenants is one of the biggest responsibilities of an investor.

·         Paperwork: Administrative paperwork is tedious, but it must be done. Everything from filing taxes to signing leases needs to not only be done but done accurately.

It is important to note, however, that owning a rental property can be entirely passive. Enlisting the services of a genuinely great property manager can alleviate rental property owners from most responsibilities associated with leasing a property. A Third-party property manager can do just about everything for an investor, from finding and screening tenants to keeping up with maintenance requests and rent collection. In fact, it’s the services provided by third-party property managers that make rental property investing so enticing. With their help, investors may not only collect cash flow passively, but they may also increase the holdings in their portfolio without adding additional work to their schedule.

What Is The 2% Rule?

The 2% rule is essentially a justification for whether a rental property is worth investing in. More specifically, however, it is this rule that “sets the bar” for the investment. The 2% rule will tell prospective investors if a property’s cash flow potential warrants its impending acquisition costs. As its name suggests, investors want to see the investment to generate at least 2.0% of the asset’s purchase price each month in cash flow.

7 Cash Flow Equations For The Passive Income Investor

To calculate cash flow for a given property, there are several formulas investors will want to be familiar with. While these calculations may seem overwhelming at first, understanding how to calculate rental income and more is crucial for any deal analysis. Here are seven cash flow equations investors can use when evaluating a property:

1.    Net Operating Income

2.    Cash On Cash Returns

3.    Return On Investment

4.    Rental Yield

5.    Internal Rate Of Return

6.    Capitalization Rate

7.    Cash Flow

Net Operating Income

Net operating income is the amount of income generated, after operating costs have been considered. The formula is simple: take the generated income and subtract the total operating costs. Remember to take time to accurately assess the expected operating costs, which include anything it takes to maintain regular operations. This will help provide a better idea of the potential profitability of a given deal.

Cash On Cash Returns

Cash on cash returns help contextualize the overall potential of an investment by taking the annual cash flow and dividing it by the total cash investment. Essentially, this formula looks at the profits generated in one year in relation to the total loan payments made during that same year. Calculating cash on cash returns are helpful when looking at the return on investment of a given property.

Return On Investment

The return on investment, or ROI, is one of the most common terms used in real estate. ROI shows the expected profits of a given deal as a percentage and is relatively simple to calculate. This makes it an easy point of reference for investors analyzing deals. To calculate the ROI of a property, take the estimate annual rate of return, divide it by the property price and then convert into a percentage. Rental properties are known to yield anywhere from five to 10 percent, with some investments even going above ten.

Rental Yield

Rental yield is the gross rental income a property generates in relation to the investment’s total purchase price. It can be determined by dividing the annual rental income by the total purchase price and is always converted to a percentage. The rental yield can help determine the long-term viability of a given investment. For example, if the rental yield is negative or even then the investment will either cause investors to lose money or break even. A good rule of thumb for rental yield is to look for properties at or above seven percent.

Internal Rate Of Return

This is where many investors get lost, so just remember there are resources online that can help with this calculation. The internal rate of return (IRR) is used to determine the value of an investment during the time of ownership. It is yet another method used to decide whether an investment is desirable. The formula requires several variables including the purchase price, cash flow of the current period, length of current period, and the net present value. In most cases, a higher IRR signals the potential for greater cash flow from an investment.

Capitalization Rate

The cap rate of a property is used to calculate the expected returns of an investment. While it is most used in commercial real estate, residential investors may find it useful as well particularly when evaluating risk. A high cap rate typically correlates with a higher level or risk, while a low cap rate can signify lower levels. To determine the capitalization rate, investors need to divide the net operating income by the total property price. The final value will be expressed as a percentage.

Cash Flow

Cash flow is the amount of money an investment generates each month through rent, after the expenses of the property are taken into consideration. The formula is a relatively easy one to get down: simply subtract the operation costs and mortgage payment from the total rental income value. Most investors look at this metric monthly, so consider that as you determine your income and expenses. The higher the estimated cash flow, the more an investor stands to make from a given property.

Summary

No matter where you are in your career as a real estate investor, the right rental property calculator can help guide your investment decisions. If you are evaluating an existing property, place an emphasis on finding accurate numbers. By calculating your property’s performance, you can determine how to move forward. When used correctly, a reliable rental property calculator can enable investors to choose profitable real estate deals and—in turn—boost their portfolios.

 

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

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
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 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2019 Level 4 Funding LLC. All Rights Reserved.

Copyright | Privacy Policy | *Terms & Conditions

 

A Guide For Private Money Lenders How To Attract Investors

 

While each individual investor may have their own agenda when it comes to a particular exit strategy, the returns provided by an investment are of the utmost importance.

For all intents and purposes, the ROI is the motivation behind any investor. After all, money means security. Who would not want to maximize their ROI? Having said that, private lending is perhaps one of the best ways to increase returns. Private mortgage lending has typically provided an annual return of 8-10%, based on the historical interest rates charged to borrowers.

 

The Pros of Private Lending

Assuming you have decided to pursue becoming a private money lender, it is important to familiarize yourself with the benefits it provides borrowers. However, it is equally important to know the drawbacks as well. As with any new business venture, you will face both positive and negative circumstances. The decision of whether to proceed with this moneymaking strategy lies in the balance. Do the pros outweigh the cons for you? The following illustrates some of the biggest pros involved in private investing:

 

The Pros:

•          Reliable Cash Flow: While there are no guarantees, private money lenders can typically expect an annual return somewhere between 8% and 10%. Depending on the loan structure, there may be other ways in which profits are realized, like interest.
•          Capital Preservation: In loaning your own money, your investment will be secured by a first position “priority” lean on the property in question. Additionally, the loan-to-value (LTV) ratios are typically 60-70%, allowing the invested capital to be preserved in the event of foreclosure. Structured correctly, and your investments is very safe.
•          Diversification: As a private money lender, you are encouraged to diversify your portfolio.
•          Minimal Volatility: Loans are typically short in their length (usually nor more than 12 months).
•          Passive: Private money lenders earn relatively passive income, in that their money is working on their behalf. The return on investment is not correlated to the amount of time they put in.

 

Private Lenders: The First 3 Steps To Get Started

Whether you are interested in having your money work for you now or in the future, understanding what it takes to get started is a critical step. Having said that, it is imperative to equip yourself with the right tools should you decide to become a private money lender. Before you make the transition from borrower to lender, be sure to familiarize yourself with the following:

 

Make Sure You Qualify: Prior to becoming a private money lender, you must become seasoned. Essentially, you should be actively investing and using the systems that are offered to you. Moreover, if you have already rehabbed, wholesaled or turned profits with some relative degree of success; then there is a good chance you are ready to make money with the money you have already accumulated. You really can’t know where you are going until you are familiar with where you have been. Provided you meet the qualifications, you will also need to make sure that you can afford becoming a private money lender. In other words, can you manage your monthly expenses while simultaneously working as a private money lender? If your answer is yes, becoming a private money lender may be right up your alley.

 

Pick An Angle: As a private money lender, there are multiple routs to consider. However, your choices will be entirely dependent on the amount of funding you have available, how long you want your money tied up, and the time you have to dedicate to a particular opportunity. In order to better understand the directions, you can take, consider the following criteria:

•          Residential vs. Commercial
•          Short Term vs. Long Term
•          Direct vs. Passive
•           

Each of these options will become available to you as a private money lender. It is up to you to choose the path you want to take.

 

Speak With A Professional:

 

Those set on becoming a private money lender should seek council with a professional that has already done it. Moreover, speaking with someone that has already done what you want to do can lead to some valuable in sight. However, if you choose to lend directly, you should speak with your personal team of professionals. This includes your Escrow Company, Title Company, attorney, and anyone else who may be of a concern.

It is an even better idea to speak with a team of people who have been private lending for a while. While you may want to try direct lending, finding a private lending company with a good track record is an exceptionally good place to start.

 

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

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
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 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2019 Level 4 Funding LLC. All Rights Reserved.

Copyright | Privacy Policy | *Terms & Conditions

 

What is a Deed of Trust?

Most of us are familiar with a mortgage. However, in many states, deeds of trust are used in place of mortgages and the role they play in the home buying process. But what is a deed of trust?

A deed of trust secures real estate transactions and includes three necessary parties: lender, borrower, and a trustee. The borrower receives money from the lender in exchange for a promissory note, and the trustee holds the legal property title until the loan is paid in full.

A deed of trust has many components that are similar to a mortgage and other components that work as a traditional property deed. Just like a traditional deed, a deed of trust has a detailed description of the property. This is called a property description. A property description describes what the trustor has rights to as long as they follow all terms and guidelines in the trust deed.

The agreed-upon purchase price of the home sans the down payment is the initial loan amount. The initial loan amount is what the lender is giving to the purchaser and is the exact amount that must be paid off at the end of the loan to dissolve the trust.

The trustee holds the legal title during the time the loan is being paid on. The role of the trustee is to be completely impartial when it comes to the deed of trust. As long as the loan proceeds the way it should the trustee has two possible options. If the trustor chooses to sell the property before the loan is paid off, the trustee pays the lender the proceeds of the sale that cover the remaining amount of money due on the loan. If the loan is paid off before the end of the loan, the trustee is responsible to dissolve the trust and give the trustor the legal title.

Do I have a Deed of Trust or a Mortgage?

The only major difference between a mortgage and a deed of trust that truly affect homeowners is when foreclosure is an issue. If you aren’t sure which was used to secure your loan be sure to review the documents you received at the time you closed escrow on your property. You can always contact your lender or call your local land records office. Although certain states use a deed of trust versus a mortgage, none use both. Deeds of trust are recorded in the same way mortgages are with the county clerk.

Mortgage Versus Deed of Trust

There are many similarities between these two loan assurances. In this article, we will break down some general information.

Why would you use a deed of trust? A deed of trust is used when traditional lending institutions are not being used. Certain states require homeowners to use a deed of trust instead of a mortgage. Regardless if you have a mortgage or a deed of trust their main purpose is to ensure the loan is paid in full. A mortgage involves only two parties, the lender and the borrower. A deed of trust includes a trustee who is responsible for holding the property’s title until the loan is repaid. In the case of default, the trustee will start the foreclosure process. In a mortgage, the lender is responsible for beginning foreclosure proceedings.

Be sure to take careful note of the terms outlined in the Closing Disclosure. These terms are where you will find particular differences between trusts and deeds and mortgages when it comes to foreclosure. In the event of the death of the trustor, a surviving spouse or family member can continue to keep making payments on the loan and take over as the trustor as long as they qualify.

With a traditional loan, lenders can impose certain restrictions and conditions in order for borrowers to qualify. Lenders may require the borrower to occupy the property as their primary residence for a specified period of time or pay mortgage insurance on the property. Be sure to discuss prepayment penalties with your lender.

There are little things borrowers need to be aware of when working with a deed of trust instead of a traditional mortgage. When it comes to foreclosures the process works differently. A deed of trust speeds up the foreclosure process because it is a nonjudicial foreclosure which means the courts don’t get involved. Acceleration and alienation are similar. An acceleration clause goes into effect once the borrower is behind on their payments. Depending on the terms of the acceleration clause it could happen after three months or even after just one missed payment. Depending upon the lender the borrower may have ample time to bring their payment current. An alienation clause is referred to as a due-on-sale clause. If the lender doesn’t want to have anyone who buys the property to assume the loan under current terms, they get an alienation clause in the deed of trust. These are a contractual language that ensures the borrower repays the loan when a sale or transfer occurs. Alienation clauses protect the lenders.

Deed of Trust or Mortgage? Which One is Best For You?

Deciding whether to use a mortgage or a deed of trust when buying your home depends on which state the property is located. For both a deed of trust and a mortgage the property serves as collateral in the case the borrower defaults.

 

 

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

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
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 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2019 Level 4 Funding LLC. All Rights Reserved.

Copyright | Privacy Policy | *Terms & Conditions

 

 

What is a Deed of Trust?

Most of us are familiar with a mortgage. However, in many states, deeds of trust are used in place of mortgages and the role they play in the home buying process. But what is a deed of trust?

A deed of trust secures real estate transactions and includes three necessary parties: lender, borrower, and a trustee. The borrower receives money from the lender in exchange for a promissory note, and the trustee holds the legal property title until the loan is paid in full.

A deed of trust has many components that are similar to a mortgage and other components that work as a traditional property deed. Just like a traditional deed, a deed of trust has a detailed description of the property. This is called a property description. A property description describes what the trustor has rights to as long as they follow all terms and guidelines in the trust deed.

The agreed-upon purchase price of the home sans the down payment is the initial loan amount. The initial loan amount is what the lender is giving to the purchaser and is the exact amount that must be paid off at the end of the loan to dissolve the trust.

The trustee holds the legal title during the time the loan is being paid on. The role of the trustee is to be completely impartial when it comes to the deed of trust. As long as the loan proceeds the way it should the trustee has two possible options. If the trustor chooses to sell the property before the loan is paid off, the trustee pays the lender the proceeds of the sale that cover the remaining amount of money due on the loan. If the loan is paid off before the end of the loan, the trustee is responsible to dissolve the trust and give the trustor the legal title.

Do I have a Deed of Trust or a Mortgage?

The only major difference between a mortgage and a deed of trust that truly affect homeowners is when foreclosure is an issue. If you aren’t sure which was used to secure your loan be sure to review the documents you received at the time you closed escrow on your property. You can always contact your lender or call your local land records office. Although certain states use a deed of trust versus a mortgage, none use both. Deeds of trust are recorded in the same way mortgages are with the county clerk.

Mortgage Versus Deed of Trust

There are many similarities between these two loan assurances. In this article, we will break down some general information.

Why would you use a deed of trust? A deed of trust is used when traditional lending institutions are not being used. Certain states require homeowners to use a deed of trust instead of a mortgage. Regardless if you have a mortgage or a deed of trust their main purpose is to ensure the loan is paid in full. A mortgage involves only two parties, the lender and the borrower. A deed of trust includes a trustee who is responsible for holding the property’s title until the loan is repaid. In the case of default, the trustee will start the foreclosure process. In a mortgage, the lender is responsible for beginning foreclosure proceedings.

Be sure to take careful note of the terms outlined in the Closing Disclosure. These terms are where you will find particular differences between trusts and deeds and mortgages when it comes to foreclosure. In the event of the death of the trustor, a surviving spouse or family member can continue to keep making payments on the loan and take over as the trustor as long as they qualify.

With a traditional loan, lenders can impose certain restrictions and conditions in order for borrowers to qualify. Lenders may require the borrower to occupy the property as their primary residence for a specified period of time or pay mortgage insurance on the property. Be sure to discuss prepayment penalties with your lender.

There are little things borrowers need to be aware of when working with a deed of trust instead of a traditional mortgage. When it comes to foreclosures the process works differently. A deed of trust speeds up the foreclosure process because it is a nonjudicial foreclosure which means the courts don’t get involved. Acceleration and alienation are similar. An acceleration clause goes into effect once the borrower is behind on their payments. Depending on the terms of the acceleration clause it could happen after three months or even after just one missed payment. Depending upon the lender the borrower may have ample time to bring their payment current. An alienation clause is referred to as a due-on-sale clause. If the lender doesn’t want to have anyone who buys the property to assume the loan under current terms, they get an alienation clause in the deed of trust. These are a contractual language that ensures the borrower repays the loan when a sale or transfer occurs. Alienation clauses protect the lenders.

Deed of Trust or Mortgage? Which One is Best For You?

Deciding whether to use a mortgage or a deed of trust when buying your home depends on which state the property is located. For both a deed of trust and a mortgage the property serves as collateral in the case the borrower defaults.

 

 

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

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
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 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2019 Level 4 Funding LLC. All Rights Reserved.

Copyright | Privacy Policy | *Terms & Conditions

 

 

What Are Private Money Loans: The Basics

The average real estate investor relies on a steady flow of private money to supplement their respective deals, often in the form of a private money loan. 

But where can one find this endless stream of money? Not only are institutional loans lengthy and cumbersome, but they can also impede the progress of a residential redeveloper.

But the big question investors have is understanding how to find private money lenders? And what is the best way to convince private money to lend you the capital you need? And how does private lender financing work?

Conversely, real estate investment capital can afford investors the ability to grow their business at a steady pace.

The following illustrates the most important aspects of a private lender loan, which will not only have you prepared for the private money process, but also boost your credibility with potential lenders.

How to Acquire a Private Lender Loan

Private lender loans are different than traditional loans from big banks, and the process of obtaining one will be different as well.

•          Speed of Purchase: On average, a private lender can underwrite and fund a loan in as little as 7-21 days. Banks can take up to 90 days to accomplish the same thing. The timeframe offered by a private money lender is, more or less, conducive to the deals a typical investor wants to finance.
•          Asset-based Lending: Private lending is primarily driven by the underlying value of the subject property. Therefore, a borrower does not need to rely on their credit to secure a loan.
•          Control & Profitability: Borrowers receiving private money have more control over their loan. Borrowers of private money do not need to take on equity partners.
•          Shorter Term Loans: Private money loans typically have a shorter loan period than those of a conventional nature, which reduces the risk of accruing late penalties.
•          Guarantee of Capital: Private money allows borrowers, independent investors, to expand their business. A predictable source of funds is necessary for such an endeavor.

Understanding Private Loans

At the risk of sounding too cliché, money and experience are the most important aspects a private money investor needs to exhibit. Essentially, when it comes down to it, the most successful private lenders have an increased propensity for the real estate industry and a proven track record of identifying powerful lending opportunities. Perhaps even more importantly, however, is their tendency to remain hyper localized, as a working knowledge of a region is critical to success. Understanding a market, and the direction it is headed, is an invaluable asset.

 

Your Private Lending Business: Determining Deal Viability

Private lenders are in the business of making money. Therefore, mitigating risk is a top priority. There are essentially eight factors to consider when deciding whether a potential loan opportunity is viable. They are as follows:

•          Market Value
•          Borrower Credit
•          Borrower Equity
•          Additional Collateral
•          Lien Priority
•          Pricing Strategy
•          Exit Strategy
•          Due Diligence

Each of these factors must be taken into consideration when determining whether to pursue a loan opportunity. Failure to mind due diligence and neglect either one of these could result in harsh consequences. Due yourself a favor and navigate the process with precision.

Proper Documentation

Without question, proper documentation of a private money loan is of the utmost importance. However, what many may be unaware of is the fact that the paperwork involved in a private money loan is not all that different from a conventional loan. Accordingly, the borrower in question will be required to sign a promissory note (a written promise to repay the loan under specific terms) and a mortgage (documentation that will be used as collateral for the lender). In addition, residential loans may require an appraisal from an outside party: a property inspection report, a geology inspection and the borrower’s financial record. An in-person inspection of the property is almost always part of the decision-making process, which is why most private money lenders tend to focus on a local level.

While a hard money lender’s requirements may vary, there are standard documents associated with every transaction. Typical loan documents include, but are not limited to:

•          Letter of Intent (LOI): The LOI is essentially a formal document that acknowledges all the parties involved are on the same page. It outlines an agreement between two or more parties before the agreement is finalized. While it is not legally binding, it serves as a preventative measure for miscommunication.
•          Purchase & Sale Agreement: The purchase and sale agreement, otherwise referred to as the P&S agreement, is the document received after mutual acceptance on an offer, which states the final sale price and all terms of the purchase. Some of the items covered in the P&S agreement include final sale price, earnest money details, closing date, title condition, contingencies and more. Inclusions on the P&S agreement will differ from state to state.
•          Preliminary Title Report: A title is a legal document listing the history of ownership of a home. After the buyer and seller have reached mutual acceptance, an attorney or title company will review the home’s title to look for any problems that might prevent the home from being legally sold. The results are written up for the buyer in a preliminary title report. In other words, a report of this nature will reveal if anyone other than the seller has legal claim to the property.
•          Title Insurance: Title insurance, as its name suggests, is a preventative measure that protects a buyer from anyone that challenges the ownership of a property.
•          Proof of Funds: Proof of funds represents a buyer’s intent. It is a way for borrowers to prove that they have access to sufficient funds to complete a transaction. Typically, a bank statement, retirement account statement or other legal form is acceptable.
•          Proof of Insurance: Proof of insurance is required for either a purchase or refinance to avoid a devastating loss.
•          Personal Guarantee: A personal guarantee places some skin in the game for the borrower. In other words, the borrower puts their own assets (real estate, savings, etc.) on the line. This is only in cases where the borrower cannot pay back the loan.
•          Mortgage Note: A mortgage note is a promissory note secured by the mortgage loan. The structure of the loan is agreed upon and document signed by the borrower.

Legal Documentation

A traditional one-page form notes and two-page form deed of trust no longer addresses the myriad of issues
in today’s legal environment. Environmental issues need to be addressed, along with lending issues, and enforceability of securities and protections.

Legal documentation should be at a level consistent with that employed by institutional lenders, only eliminating provisions that may not be relevant or not needed. Additionally, special consideration needs to be given to a well-drafted broker’s affidavit, especially in states that a licensed real estate broker must broker an otherwise unethical loan.

Summary

Private money is a great way for investors to supplement their income if they are unable to fully fund a deal with the help of traditional loans or available cash funds. Private lenders are willing to give loans to investors who are able to present the profitability of the deal they are investing in, but investors need to be prepared to present the proper documentation in order to display the viability of the deal. If you do your research and mind your due diligence, you will be steps away from funding your next deal with a private money loan

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

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
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 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2019 Level 4 Funding LLC. All Rights Reserved.

Copyright | Privacy Policy | *Terms & Conditions