The following is an excerpt from Trust Deed Capital's popular whitepaper "10 Ways to Invest in Trust Deeds". For more expert tips on investing in trust deeds, be sure to check out the full whitepaper.
It’s no doubt that you should be diversifying your portfolio by investing in 1st Trust Deeds. The real question to ask yourself however, is will you be investing in them the right way? In this whitepaper, we will highlight 10 useful tips that every Investor should follow when investing in 1st Trust Deeds. The information and knowledge used to draft these 10 tips comes from 24 years of experience in the financial services and lending industries.
1. Know Your Broker
First and foremost, it is important to develop a professional business relationship with a reputable investment broker. Take the time to verify each and every broker’s proclaimed track record, professional standing, and experience with 1st trust deed investments. Be leery of individuals that “guarantee” they can deliver high yielding Trust Deeds “in writing.” Not only are these empty promises, but illegal and the law prohibits such claims.
2. Know Your Borrower.
Look for professional borrowers that have consistently delivered outstanding results on their fix and flip projects. These are individuals that are well versed in the processes that need to take place in order to achieve their target earnings on each and every investment property. We recommend investing with experienced borrowers like these, because chances are there is no task too large, obstacle too tall, or any unforeseen circumstance these pros have not run into before. Worst-case scenario, should you have to foreclose due to missed payments, you want to receive a beautiful property whose rental payments will exceed the borrower’s payments.
Here are 5 questions we ask when lending to potential borrowers:
• Does the borrower have a reasonable plan to make a profit, make the payments, and to pay off the loan?
• What is the borrowers experience with what he/she is trying to do?
• What will be the borrowers’ sources for repayment?
• Does the borrower show a positive history of stability and creditworthiness?
• And this is the big one, if they don’t pay, are we okay? This is why we generally do not lend over a 60% LTV and why we personally visit every property. Additionally, we require an Alta title insurance policy on every loan.
3. Maximum Protection
Offer yourself maximum protection with a full-extended A.L.T.A. lenders form one policy of title insurance with no deletions. The borrower is required to pay for it, so always make sure you have maximum coverage on your investment dollars with this policy. The cheaper C.L.T.A. or standard coverage does not protect you from issues like defects of title, mechanics liens, disputes or other items that my pop up unexpectedly.
4. Do Your Homework
Read the preliminary title report to familiarize yourself with your investment. This is an important document for the investor to both read and understand. The preliminary title report (or pre-lim) is a snapshot of the condition of the title to the subject property. It is an up-to-date document, which the investor will receive prior to the opening of escrow and discloses items that will have to be removed as a condition of funding the new trust deed loan investment to be recorded on that particular property. The report will also contain important information like properties easements, assessments, mineral rights, assessed valuation and so on, which will better arm you with the tools to make a wise investment decision.
Continue reading the full whitepaper to see the remaining 6 tips...
