Why Buy California Trust Deeds?
To get better
returns. Far more than the so-called “interest” that the banks
hope you’ll accept.
The extra return you get from investing in trust deeds,
compounded over time, can add up to a small fortune.
Why Read This?
To invest in GOOD
trust deeds. (California only)
Even if you’re an experienced investor – you
need to be careful not to make mistakes. Warren Buffet talks
about the importance of not LOSING MONEY. You reduce the chances
of investment losses by putting good precautions into practice.
What’s Important?
There are five main categories you need to know:
- Property (Collateral) / Appraisal
- Title Insurance / Condition of Title
Here are some basics on the categories (there’s always more to know – but this will give you some of the key concepts):
Property (Collateral) / Appraisal
The collateral, the
real estate, usually has to be worth at least twice as much as your loan
balance, if your loan is a California first trust deed. We don’t
recommend trust deed investment in second trust deeds or other junior trust deeds.
What is the value? Check both the comparable sales and the comparable listings
in the area. You’ll need to obtain a list of ALL recent sales in
the area and ALL recent listings. Be careful of sellers of trust
deed investments or appraisers who provide only selected comparables that indicate
a higher value.
Sources for lists of sales can be a title insurance company, the county recorder, and real estate brokers.
Helpful tip: Get the actual
printout of comparable sales from the provider, like the title
company. That way you’re seeing an inclusive list, not just
selected comparables.
Is the collateral saleable? One
bedroom condominiums, houses in far away areas and properties with a
lot of land may be hard to sell in any market, particularly in the
challenging times we’ll be in for a while. Always get some
independent opinions about property, other than from the person offering the trust deeds.
California Title Insurance / Condition of Title
Your trust deed investment is
only as good as what is recorded against the property. Title
insurance can give you protection against liens you’re unaware of,
incorrect ownership and a host of other problems. When considering trust deed investments, will an actual assignment of the trust deed be recorded in your name at the county recorder?
This can affect your security. There are many important details with title insurance, so always obtain and read the actual title insurance policy. (Note a “preliminary title report” is NOT a title insurance policy – be sure and read the ACTUAL policy of title insurance.)
Borrower
It’s
common to hear the question, “why would someone with so much
equity pay a higher rate, when bank rates are so much lower?"
Good question. Answer: Banks
don’t make loans just because there’s lots of equity. Banks,
mortgage bankers, credit unions and all the other “institutional
lenders” require credit, documented income with likelihood of
continuance, verification of assets, and compliance with a host of
banking rules and laws.
There are many good borrowers who don’t meet all those requirements. They’re the customer we look for.
But we can’t base our trust deed investments on equity alone.
Credit: It doesn’t have to be
perfect, but the credit report and related credit information has to
show that it’s likely the borrower will pay.
Income: Even if the income can’t
be verified by traditional tax returns or pay stubs, there are a number
of ways to be sure the borrower has funds available to pay. Bank
statements, proof of gross income and leases, invoices or contracts can
help confirm the cash flow necessary to make payments.
Purpose/Plans/Projections: It's important to find out and analyze what the purpose of the loan is; what the borrower's future plans are (to the extent you can find out); and what projections they have for their finances and the property. Getting and analyzing this information requires a higher level of work and skill, but pays off through improved lending/investment decisions.
The Transaction
When analyzing first trust deed investments, there are questions relating to how the loan transaction was set up or originated that are important.
If it was a purchase, can you verify that the down payment was actually paid?
If it was a refinance or equity loan and not part of a purchase transaction, there are more questions to ask:
Was the loan “owner occupied?” If
so, then there are a host of laws to investigate. Unless you’re
dealing with someone extremely knowledgeable, there are plenty of
non-owner occupied loans, and you can avoid the extreme risks involved in
loaning to occupant/owners.
Non-owner occupied loans are subject to
far fewer laws. Even then, if the loan was for consumer purposes, there are some laws relating to consumer lending that must be followed.
Whatever type of loan transaction, you
will have to be sure that the right disclosures and documents were used
and that applicable laws were followed.
Exit Strategy
“As with many things in life, getting in is easier than getting out.”
Aside from the
borrower simply paying off the loan, how will you (or your heirs)
eventually get out of this loan? If the borrower is unable to
make the final payment, what will happen?
Could the borrower (or you) sell the
property? Back to appraisal/collateral, you could look at the
market and potential market for the property in the future.
When investing in trust deeds, California
has many active, highly developed markets – so you don’t have to invest
in strange property, way out of any area you would ever visit.
Could the property be leased out?
Sometimes, if a property can’t be sold, it can be leased out until
better times. Find out: what’s the local lease market for
similar properties? Is the type of tenant occupancy increasing or
declining? What improvements are necessary and how much “down
time” is there in leasing vacancies out?
All of these questions should be
answered. Even though some of them only really matter when there’s a problem, it’s important to make
this analysis.
The last part of the exit strategy to
consider is the servicing agent. Who is servicing the loan,
collecting payments, handling delinquencies or foreclosing?
It's easier when payments are coming
in on time, property taxes and insurance are paid current, and the
property is being well maintained, but what happens when you hit a bump in
the road? At this point, the skill and quality of the “loan servicing manager” makes a significant difference.
There are many loans that would have been OK, were it not for the
errors of a loan servicer who lacked the experience, qualifications or interest in resolving loan problems.
Take advantage of trust deed investments. California offers you a great opportunity to earn higher interest rates, increase retirement income, and build financial security. Call us. Let’s discuss your questions and requirements.
You can get started with as little as $15,000.
Get information about trust deeds for sale:
Call us at (818) 366-5200. Ask for Joffrey Long.
Or, e-mail us at info@asksw.com
(Available to California residents only. All loans secured by first trust deeds on California properties.)
Southwest Bancorp (dba Southwestern Mortgage)
Joffrey Long (818) 366-5200 info@asksw.com
17045 Chatsworth Street, Suite 101, Granada Hills, CA 91344-5845
Calif. Dept. of Real Estate Licenses:
00898122 (Southwest Bancorp) and 00525142 (Joffrey Long)
National Mortgage Licensing System (NMLS) Endorsements:
285731 (Southwest Bancorp) and 207272 (Joffrey Long)
Reverse Mortgages / Trust Deed Investments /
Mortgage Expert Witness
Hard Money Expert Witness
Usury Expert Witness
Information contained
here is not presented as all or part of a standard of care,
an accepted practice in the industry, or as all or part of a
representation of the duties of any broker, lender or other originator
of loans. It is presented so that investors, lenders,
practitioners and other parties interested in trust deed investments
can better understand trust deed investing concepts in discussing them with their qualified
attorneys and advisers. No party should attempt to use or in any
way rely on information provided here, or in any way
interpret the meaning of any document, writing,
communication or other information, based on any information provided
here, without thorough
review and discussion with qualified counsel and other advisers, as to
the application of the information to their particular question, investment, decision or
circumstance.
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