There are quite a few advantages to using this particular type of funding. If designed carefully and correctly, this loan can bring up a positive current yield with the risk shown at a low average.
The loss involved in trust deed investments can be bordered by a safety margin—the difference here being the amount between the property’s actual value and the total amount of the loan. In the event of the borrower failing to repay the money for any reason, the lender can then take possession of the house, land, etc. and recoup their funds along with any attached interest. An investment can have a possible LtV of 65%, making the sometimes inevitable foreclosure a much less negative experience for the borrower.
Single digit returns up to 10 percent can be earned on a monthly basis.
However, you think to yourself, there must be disadvantages to this type funding—what are they?
These investments will produce income for you, yes, but there is no value appreciation such as is found in common real estate property investments.
Other things that can cause problems in this area include property whose actual value is less than the appraisal shows, litigation involving the property title, errors occurring when the property is accessed and the market value of real estate quickly taking a sharp plunge.
A bank will rarely do this type of investment for you since they want to make money off their loans – a six or 12 month payoff period doesn’t interest them. Their loans tend to stretch out up
to and including 30 years.
What should you do if you have decided that trust deed investing is the type of funding you want?
A Arizona hard money lender, one that works out of the traditional area with clients who are self-employed, have credit with a few holes in it, are not ‘established’ in the general sense. The interest rates and origination fees charged by these lenders are higher than the conventional ones.
A bridge lender—one who makes loans on properties in too much disrepair for regular funding– might be the answer for that since their rates are designed to be lower than Arizona hard money loans are.
This field requires research into all the details, fine print and just plain ‘What if . . .’ before taking this type loan. You need to be confident that all areas are covered and in order. Study the property assessment carefully and make certain it is correct and that any legal attachments have been completely cleared. Know the overall picture from every angle since these investments cannot be changed back into liquid cash as is possible in a blue chip investment if you change your mind later on.
Find an attorney or certified public accountant and have them give you their opinion on trust deed investing. Only after you have the facts, positive and negative, and have studied them carefully, then make a decision on the matter. This type investing may be for you but be certain you are a match for it.
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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