Trust Deed Investments
Trust Deed Investments have long been the best way to have your money earn a higher return, coupled with great security. Participating first trust deeds drive yields while preserving capital.
This is how we manage our portfolio:
- 1st Trust Deeds are preferable
- Loan to values that make sense
- Always obtain title insurance
- Real equity
- Solid exit strategies
Trust Deed Investment Best Practices
At FHLC we believe in taking a proactive approach when it comes to discussing risk. By partnering with our clients in an investment strategy based on expertise and mutual trust, we can mitigate risk and achieve our mutual goals. Trust Deeds are one of the safest high-yield investments available if you follow a few basic rules:
- Don’t invest in trust deeds if you need your money at a time certain. Even the best of borrowers can occasionally be slow or late with payments.
- Don’t invest in trust deeds if you are not willing to acquire the property for your own portfolio or cannot accept that you may have to sell in the event you acquire the property in a foreclosure. Additionally, consider the possible expenses for upkeep and maintenance of the property if you acquire it in via foreclosure.
- Confirm the appropriate documents contain your vesting and percentage of ownership interest, including the deed of trust, the note, the fire insurance policy and the title policy.
- While an appraisal was once THE major factor in determining market value, due to the current declining real estate market the purchase price becomes the most important element in identifying value. However, appraisals are very useful and provide a plethora of information. An appraisal includes pictures, the size of the lot, the type of improvements, zoning, the best use of the property, age and condition of the property, and ample amounts of other useful information. It will also tell you what the appraiser thinks the property is worth based on comparable properties, the replacement value, and the income approach.
- Be aware you may have to come up with revenue to keep your investment from deteriorating. For example, an REO property may require cash calls to pay expenses (e.g. property taxes) for an interim period until you can realize the outcome of your investment.
- Adjust with the market! The market is still in a state of flux. With our many contacts in the field we stay ahead of the curve on these changes. The commercial property and high-end home markets are being watched closely at this time.
Having provided all the pitfalls and negatives, you should not lose your money in trust deeds. Let’s recap:
- Keep your money in the bank if you want it to be available at any time.
- You may end up owning the property.
- Ensure the paperwork is in your name.
- Understand how value is determined.
- Be aware of the occasional requirement for the temporary investment of additional funds.
- Adjust with the market.
The Seven Essential Elements of Trust Deed Investing (from the California Department of Real Estate):
- Knowledge, experience and integrity of the Mortgage Loan Broker through whom the transaction may be arranged.
- Market value and equity in the property and the security for your loan.
- Borrower's financial standing and credit-worthiness.
- Escrow process involving the funding of the loan or the purchase of the promissory note.
- Documents and instruments describing, evidencing, and securing the loan or purchase of the promissory note.
- Loan servicing provisions, authority and compensation.
- Recovering your investment if the borrower fails to pay.
Click here to view the entire California Department of Real Estate's article: