Trust Deeds?

One day this week someone emailed me and asked: What is trust deed investing? And is that the same thing you do?

The short answer is yes and no.  But first, let’s define what trust deed investing is.  TD investing is simply investing in loans, typically to flippers.  Individuals and companies make these loans that last anywhere for a few months to a few years.  The funds are typically used to purchase the property and/or to rehab the property. The upside for the paper investor is 2-fold.  First, the yields on these loans regular range in the double digits. Second, the LTV (loan to value) on these loans can be a conservative number — as low as 60%.  Meaning that for a home valued at $100k, the loan made would be $60k. Therefore, even if the flipper did not make good on repaying the debt and the paper investor had to foreclose, he still should be in the black.

But let’s use SoCal numbers shall we?  Let’s suppose a flipper wanted to buy a $300,000 derelict property in Compton and you offered your funds for his or her use.  Let’s say you agree to a 12% interest only loan and it takes them 4 months to complete the project. Well, for 4 months, the interest paid will be 4% or $12,000.  So within a span of FOUR months, you netted $12k less fees and your original investment was returned. Pretty good if you ask me!!

So, because this is closer to the loan origination side and because its intended beneficiaries are investors not residential homeowners, TD investments are not really the same as non-performing note investments. It is similar to performing note investing but as I indicated earlier the timeframe can be far shorter.  But what is similar is the need to do adequate due diligence to determine the worth of a property. You must get that correct!

Ok… That’s all I had for today…