Trust Deed Questions & Answers

  1. Why would people want to invest in trust deeds?

All trust deed investors investing for their retirement agree that if their retirement plan dollars are stuck in a low yielding mutual fund, a bad stock that might be going down in value, or a savings account which is paying 2-3-4% when a trust deed can earn 10%, the trust deed can offer that investor as much as 5 times more retirement income. Secondly: All trust deed investors still planning for their future retirement (IRA, KEOGH, 401K etc.) know that through the effects of annually compounding that 10% interest trust deed investments can earn a retirement planner 5 times more retirement nest egg. Or even slice years off the time necessary to reach ones current goal or target date for retirement. Anything wrong with retiring richer or even reaching retirement sooner.

  1. Show me the math

John puts $1,000 in his IRA at 2.5% compounded annually. At the end of 20 years that $1,000 becomes $1,638.61 and would pay approx. $41.00 per yr. retirement income to John at 2.5%. (using any calculator multiply 1.025 times $1,000 and punch the equals button 20 times to compound annually for 20 tears. 1.025 represents 1 your initial $1,000 plus .025 your 2.5% yield)

Fred on the other hand puts his $1,000 in 1 year trust deed investments paying 10% for the very same 20 years which would become $6,727.50 and would @ 10% then pay $672.75/yr. income for the same $1,000 invested. (using any calculator multiply 1.1 times $1,000 and punch the equals button 20 times to compound annually for 20 years. 1.1 represents 1 your initial $1,000 plus .1 your 10% annual yield). 
That is 15 times more retirement income people!

  1. How can I invest in trust deeds with my IRA

Ask your accountant and your present IRA or pension plan administrator/custodian if you can invest in well secured trust deed investments with the particular plan you currently have. If they say ok, we'll add you to our data base, if they say no, write to us for a list of pension plan administrators that will. Always check with your cpa however because although our 100 investors are funding their trust deed investments with everything from their family trusts to their IRA's I can't guarantee that your current particular plan that you are using now can.

  1. Overview

It doesn't take a rocket scientist to understand that people everywhere coast to coast need to live in houses. All houses in existence today were financed (or are currently still being financed) by someone (or some entity like someone's cash, a bank or a savings and loan) because most people can't afford to pay cash up front on the barrel head for something as expensive as a home. If this confuses you substitute the words "new car" in place of the word house as the theory is the same. For many years the document used to secure most house financing was something called a mortgage. A mortgage is nothing more than a great big IOU. Mortgages still exist in many states but over the years (now in more than 1/2 the states coast to coast) another document called the trust deed developed and is now more and more widely accepted because of the simpler steps required (as compared to a mortgage)  to foreclose. Although mortgages are still in use in some states today they have become less popular than trust deeds; in that a mortgage holder/investor/lender will have to face something equivalent to a law suite in order to foreclose on a mortgage as mortgages don't contain a power of sale clause. Trust Deeds accomplish the same end as a legal instrument used to secure debt against real estate but do it way better by a trust deeds unique ability to assign certain rights or powers on the lenders behalf to a neutral 3rd party trustee (normally your title company). The need for an attorney and any lengthy legal battle or process necessary in order to foreclose has been streamlined or eliminated. A trust deed in simple terms sets out that if after a loan against real property has been funded & the borrower subsequently does not pay his payments on time as agreed you the lender won't need an act of god, a judge,  jury and an attorney. The trustee (your title company) exercising your rights under the power of sale clause contained in all trust deeds allows you to offer the property for sale at a foreclosure sale in approx.. 90 days (plus approx.. 20 business days of publication) from when payments stopped. Instead of being tied up for years in court, either someone shows up at that above described sale to cash you out or the property is automatically sold and title passes to you the investor/lender.

If one can learn and remember to follow 37 simple rules (similar to rules that we all must follow in order to keep you and I alive on the highways each day) even if one trust deed does then go awry you'll find that for example in simple terms foreclosing on a $100K house and receiving full title to the house under the terms of your $50K or $60k first trust deed may not be the end of the world. Today about half of all debt secured against all real estate in these United States is secured through the use of a trust deed. Some of our 100 private investors think that trust deeds are easier to understand than for example learning to invest in the stock market. After all, if trust deeds secured by houses are good enough throughout the ages for all banks and savings and loans to invest in they should be good enough for you and I. 
 

  1. What if I only have $50K and not $500K to invest

Many of our 100 investors started out asking this very question and the answer is simple. If 5 people have the same problem wishing to fund a $250K loan but only have $50K each no problem as we have developed a safe way to put those people together. At 20% ownership each in that $250K new First trust deed the problem is solved. This is called a fractionalization. 
 

  1. How long will trust deeds continue to be a secure investment

In my opinion trust deed investments well secured by single family houses will continue to hold their value so long as people continue to need to live in houses. 
 

  1. How does our trust deed investments differ from any other trust deed

In the above example of the $100K house that you had to take back when the borrower didn't make his payments as agreed on your $50K first we had a "proper trust deed investment" because we made sure that we had $2 of the borrowers equity dollars as collateral for every $1 of our dollars invested. Hence two to one collateral (also expressed as 50% LTV=loan to value ratio). Now you should already understand why smart trust deed investors rule #1 states simply always require as close to 2 to 1 collateral for each of your loan dollars on houses as you can get. There are a few more parts to the rule such as if the home is to be owner occupied we will allow up to a 60% loan to value ratio but for example if the security was instead vacant land you better keep the ratio to 3 or 4 of their equity dollars for each of yours (25 to 33% Loan to value ratio). 
 

  1. Why would I need a broker if I learn all 37 trust deed investing rules myself?

In these United States there are usury laws which regulate how much interest you can charge a borrower. California real estate law exempts real estate brokers from that law, so a broker can actually charge a borrower a fee for his services and still net you a higher interest rate than you could legally charge yourself. I charge my borrowers for my services so there is no need to charge investors anything for our service. I can't speak for you but I would never attempt to learn how to remove my own tonsils especially if a trained professional at the hospital said there would be no charge for the service! Would you?

  1. Sounds too good to be true what is the down side?

No investment is without risk or it wouldn't be considered an investment. Howeever, You are lending below market value. Worse case scanario you can take back the property and sell it back to the market at deep discount. Many local investor who buy and flip property would love to buy your property. And yes, we have that department to handle for you. We go through the foreclosure process and help you to market the property. Or you can market yourself. We are working with many network of investors. This would be great benifit for lenders. 

Further, In hard money lending as a rule borrowers don't have a million dollars in the bank and flawless credit. Smart trust deed investors know that unconventional borrowers willing to pay high interest rates sometimes don't pay on the first of the month as agreed. Although over the big picture this poses no serious threat, it can pose a delay to your income if you are trying to rely on the trust deed payments for monthly income. Smart trust deed investors who know all 37 rules never put more than 10% of their trust deed portfolio into any one trust deed. then, if a delay arises on a note the other 90% of your income stream is uninterrupted. Don't fund a loan against a piece of real estate for an amount that exceeds what you would be willing to buy the property for. Yes you would be willing to pay $60K plus back interest and fees for a home that is appraised at nearly $100K because this does happen on rare occasion if a borrower doesn't pay and you are forced to foreclose to protect your investment.

  1. Why would a borrower pay me 10% interest when the banks offer loans at a lesser rate

Many reasons of which I will touch on two. Probably the biggest reason is time. Most of our borrowers would like to build a home and be living in the new house in a few months instead of still finding themselves dealing with the aggravation, frustration, and verification a bank wields! A developer knows that time is money and a slightly higher cost private loan might be not such a bad deal after subtracting for the costs incurred for months spent waiting for bank financing. Secondly: Our analogy is that if you do have to foreclose nothing is more important than the collateral for your loan. You won't get the savings account, the wife's income, or the sail boat. As a private investor you will learn yo hang your hat on the equity in a transaction and pay a lot less attention to the irrelevant details that conventional lenders spend actually months scrutinizing. Scrutinizing the collateral or equity for each trust deed investment will shield you not verifying useless details of borrowers rags to riches to rags stories. Anyone including doctors or those with great credit can divorce, go broke, climb into a bottle, and so on. So while the bank is wasting time checking the borrowers savings account balance and wife income, we'll be instead looking at the only really relevant things concerning the actual collateral for our loan. a flip side occurs once you adopt this philosophy. If a doctor with flawless credit wants a 70% LTV loan, it's not a trust deed investment and never will be one. If a divorcee who is changing jobs currently and has no spousal income, no sail boat, and no credit established but wants a 50% LTV loan offering us 10% and 2 dollars of equity for every loan dollar you can see where this loan request has just passed 1 of the 37 rules and may result in a trust deed investment if it can meet the rest of the criteria.

  1. How can I invest in trust deed investments with my IRA

Ask your accountant and your pension plan administrator if you can invest in well secured trust deed investments with the particular plan you currently have. If they say ok, we'll add you to our data base, if they say no, write to us for a list of pension plan administrator that will. Always check with your CPA however because although our 100 investors do so with everything from their family trusts to their IRA always be sure that the current pension plan custodian or administrator that you are using can. NOTE: The following information may contain errors. Some of the following companies may or may not allow you to take title to real property in the event you have a foreclosure, so always be sure to check with your attorney and accountant before choosing a custodian.

 

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