Positive factors include: when set up correctly, these kinds of investments can produce a well-turned current yield while running only a low risk.
Hugh single-digit returns can be earned, as high as 10%, coming along monthly.
The prospect of loss in this type investment is hedged by a safety margin, that being the difference between the total loan amount and the worth of the property. If the borrower fails to repay the money, the lender involved can take possession, sell the property to recoup funds as well as any interest attached. It is possible for an investment to have an LtV of 65%, making it very advantageous to the borrower in case of foreclosure.
What are the disadvantages of this type investment?
Negative aspects include: A trust deed investment may generate income for you, but it will not appreciate in value like a basic real estate investment of property can do.
Other areas affecting the borrower in a less than positive light include real estate values dropping sharply and quickly, a lawsuit affecting the property title, mistakes made when the property is accessed and the value being less than appraised for. These are just some of the things that could possible go wrong when investing in this type of deal.
Banks are very reluctant to do this type of investment since they want to make money off a loan—a loan that pays off in six months does nothing for them. Banks want loans that can stretch out over time, up to 30 years in a lot of instances.
Seeing that traditional investors are somewhat unwilling to take this on, a hard money loan person might be your best bet—these lenders specialize in working ‘out of the box’, catering to investors who have less than perfect credit, are self-employed, etc. These lenders charge higher interest rates than the traditional ones as well as origination fees. A bridge lender who may make loans on property in too bad a condition for conventional funding might also assist here—their interest and fees are set up to be somewhat lower than a straight out hard money loan’s would be.
Great care and in depth research needs to be done when making a trust deed investment. Make certain that that everything is in order before you make this investment, particularly that the property value assessment is correct and that all the attached legalities have been cleared. There are other points to be checked as well—knowing the overall picture is important. You cannot turn your investment back into liquid cash the next week if you have a change of mind as you could with a blue chip company or municipal bonds.
What should I do since I am really interested in Trust Deeds?
Talk to friends who are in the business; find an attorney or certified public accountant and get their views on trust deed investments. When possessed of all the facts, pro and con, then study them and make up your mind—this type investment may be just the one for you. Go after it, but keep your eyes open to all the details involved.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
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 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.