FAQ: Trust Deed Investing
The following are frequently asked questions relating primarily to Trust Deed Investing, Private and Hard Money Lending techniques. Just ask “How Does this work” in front of each statement below:
We only entertain lending opportunities on properties that we can secure with a First Trust Deed
All properties are secured by a Note, a Deed of Trust, Title Insurance, Escrow and an Appraisal (if necessary). This is the easiest way of investing in real estate without the hassles of maintaining a real estate portfolio and having to deal with tenants, repairs, vacancies, finding properties, financing, etc.
The primary benefits are:
- Higher rate of return
- Investment secured by real estate
- Monthly interest income
- Return of capital
What Do We Do?
Actually, it is rather simple. TripleNet Investors connect borrowers who seek funding with investors, such as yourself, who seek a higher than average rate of return on a secure investment backed by real estate.
TripleNet Investors does the marketing to get these borrowers in the door so you can make a loan. Additionally, we also pre-screen potential clients for you through a loan application and a credit report. Although the credit score is not the most important factor, since we are lending on equity, we believe the more information we have the better decisions we make on your behalf in order to protect you and your investment.
TripleNet Investors also researches properties through recent sales, listings, public records and title reports in order to evaluate all the factors that may affect a property’s value. Whenever possible, we like to personally inspect the property. For out of town loans, we can order an appraisal as well as utilize our in-house appraisal reviews to ensure you have the most accurate valuation.
In addition to that, we also process the loan, open escrow, order title, appraisals and loan payoffs as well as setting up the payment processing and automatic payment system so that you can receive your monthly interest payments by direct deposit into your account. Our accounting firm also provides you with year-end accounting information for tax purposes.
Along the way, we communicate with the borrower throughout the whole process so that you never have to.
What You Do
Provide funding for loans and sit back and collect your monthly interest payments.
Well, maybe not that simple, but hopefully we can make it as simple as possible for you so that we can continue to fund more loans together in the future.
Your security is the equity that is purchased in each property, which insures the safe loan to value ratios for our private lenders and the profit for our real estate investors. This creates one of the safest, high-yielding investment opportunities available.
TripleNet Investors will notify you as to what loans are available. Thereafter you shall have 48 hours in which to accept or reject the loan. Should you have funds on deposit with either our attorney or accountants, you will authorize their release within the 48 hours.
We offer conservative loan to values with a maximum at 60%. For example, if a property is appraised today for $1,000,000 then we will not lend more than $600,000. That way if you are the investor on this property you will not only look forward to collecting high interest returns on your money, but also in the case the borrower can’t pay back you acquire a property worth $1,000,000 for $600,000. Either way you Win!
Can the real estate investor run off with my money?
Keep in mind this is our business and credibility is extremely important to us. The real estate investor doesn’t need to be in possession of your money. Simply wire funds (or mail your check) directly to the closing agent for the gross amount of the loan. The closing agent will then handle the closing. You should have no expenses.
Is this a mortgage pool?
No! We never pool more than one person’s or company’s money to create a mortgage. You make the loan yourself. You get a lien against the property as if you were a bank and remain in total control of your money. This is the epitome of Direct Ownership.
Investment-Private Mortgage Lending is becoming a commonplace solution for consistently obtaining very high rates of return without being subjected to uncertain and volatile stock or fund markets. It is an incredible way to build wealth rapidly, and especially safely, that most people aren’t aware exists. Private lenders for all intents and purposes are the “bank” for the professional real estate investor.
All the work is done for you at no cost. Our local real estate attorney handles both the funds and the documents for completing the investment. You will get a recorded Deed or Trust, a Promissory Note, and a hazard insurance endorsement.
High Rate of Return
Compared to what the banks are paying depositors today, we think you’ll agree it’s very difficult to get such great rate of return and security all in one. This is what we provide. Our investors typically earn from 10% to 13% interest on loans secured by California real estate. We lend conservatively and will lend up to 60% LTV or up to 60% of the value of the property.
Peace of Mind
Now you can enjoy life without having to check daily financial pages to see if your investment has changed for the worse. Our safeguards and reports back to you as the investor plus our transparent modus operandi, allow you peace of mind which is priceless.
TripleNet Investors’s Unique Risk-Controlling Features
- Equity Infusion – our long-term loan program is brokered at 60% of after repaired value (ARV or LTV) where the primary goal is to have a fixed and rented home that more than covers the monthly payment.
- Money Down – All of our professional real estate investors will have either personal funds or a spread of equity in the transaction serving as their personal guarantee and commitment that the trust deed payment is a priority.
- 1st Trust Deeds Only – Our investors are the only holder of the note and in first position.
- No Pooling of Funds – TripleNet Investors does not pool funds (also called fractionalized trust deeds). This gives the trust deed investor more control of the investment and direct ownership.
- Non-Owner Occupied Properties Only – TripleNet Investors only brokers loans on non-owner occupied, single family homes and units (1-4) to a very unique client, the professional California real estate investor.
Private Mortgage Loans
Private Mortgage lending is an incredible way to build wealth rapidly that most people aren’t even aware exists. By becoming a TripleNet Investors private mortgage lender, it means that you can loan your money with confidence. Because the money is secured by a first or second mortgage, it will not only give you peace of mind, but will also give you the high yield returns that often come only with high financial risk.
Our process considers private lenders to be people who loan money to professional real estate investors for the purpose of buying, refinancing and/or repairing residential and commercial real estate. These funds are always secured by a private mortgage loan (Deed of Trust) on the real estate and Promissory Note to pay back the loan to the private lender. Private lenders, for all intents and purposes, are the “bank” for the professional real estate investor.
There are many reasons why real estate investors prefer the convenience that comes with private lending. Most banks cannot provide the funds they need to be successful because their policies are aligned against the real estate investor. The availability of your money can be very valuable to an investor looking to close a deal quickly and secure a low purchase price.
The current interest rate is fixed at 12% when you allow the interest to accrue and be paid when the loan is paid off (at the time we sell the property). This is the most rewarding and popular choice. Although you can control your investment by choosing annual, quarterly, or monthly interest payments, your interest rate will be lower for those options.
The private lending arrangement gives you confidence through a mortgage secured by real property at a great loan to value ratio to protect your investment. When you are dealing with a maximum of 60% LTV (on first position loan) there is so much equity above your loan that if for any reason you had to take the property back, it could quite often be quickly sold for much more than your investment and interest earned.
Don’t wait to begin safely earning a high rate of return on your investment dollars. You’ll be amazed at how simple and rewarding Private Mortgage Lending can be.
What kind of return can I expect?
Your rate of return varies depending on your needs. We can offer you a higher interest rate (currently 12%) if you don’t need monthly payments (and let your interest be paid when the loan is paid off).
If you are looking for annual, quarterly, or monthly interest payments, your interest rate will be lower between 8%- 10% which still beats Tax Free Bonds.
Is this a secure investment?
Yes! This arrangement gives you security through a mortgage secured by real property at a great loan to value ratio to protect your investment.
It’s obvious why this is a much safer approach than most lending institutions take. Many banks make loans at a 90, 95, or even 100% loan to value ratio for homeowners leaving no cushion in case of default. In contrast, when you are dealing with a maximum of 80% LTV (on a first position loan) there is so much equity above your loan that if for any reason you had to take the property back, it could quite often be quickly sold for much more than your investment and interest earned.
Exceptions. You LTV rations may change depending on the amount of investment and the program we design for you.
Do I need a lot of money?
Most often the loan amount will include purchase price, repair costs, and closing costs, but again the LTV will never exceed 65%
In this region it is difficult to buy homes with a first mortgage position for less than $200,000. For those who may have less capital than a first position would require, smaller loan amounts such as $25,000 or $50,000 can be used as a mortgage secured by a second position, but it will likely be at a slightly higher loan to value ratio such as 85%.
Is this a long term investment?
Usually a real estate investor wants a three-year term in order to allow time to sell the property with your mortgage on it without having to replace your investment early.
The more flexibility you have in your terms, the more likely your money will be working hard for you. We prefer no payments, with a balloon in a few years, similar to a CD. We include a pre-payment penalty of 3% within 6 months of origination.
What happens when the property I have a mortgage on is sold?
Whenever a house is sold, all liens must be paid in full. This may be well before the three-year commitment we initially asked for. At the time of the sale, your mortgage balance (including any interest earned) will be returned to you.
If you want to keep the money, it’s yours to keep. If you have enjoyed the rewards of doing business with us, and we’re sure you will, we can use your money to purchase a new property, and you will get a new mortgage with the same great yield. You can loan your funds indefinitely.
What if I want to liquidate before the sale?
You really shouldn’t make mortgage loans if you feel you will liquidate shortly, but the option is always available. Most likely we will replace your loan with another private mortgage lender.
Keep in mind mortgages are not as liquid as a checking account and it will usually take four to six weeks to replace your financing, and a small fee will apply to cover our transaction expenses. This is typically 2% of the loan amount. A bank is much less forgiving when releasing a CD before maturing.
Who handles all of the details?
We, along with our local real estate attorneys and settlement agencies will handle all of the details at no cost to you. We rely on our settlement agencies to create the proper documentation to protect your interests and ours.
What kind of documents will I receive?
Your closing package will contain the following: – An original promissory note – A copy of the Deed of Trust (mortgage). The original will be recorded and then sent to you. – A hazardous insurance endorsement naming you as mortgagee – A quarterly earnings statement
Why would a real estate investor borrow at high rates?
Red-tape, slow response rates, “seasoning” issues, arbitrary caps on the amount one can borrow, inexperienced and inflexible bankers are just some of the reasons why many investors prefer the convenience that comes with private lending.
Our real estate investors typically buy about 30 to 50 deals per year. They search for great opportunities everyday and are looking to buy houses for pennies on the dollar of the actual market value. Most sellers of these types of properties need cash and they need it quickly. In order for the investor to get the very best price, they need to close the deal quickly. The investor needs readily available cash, which of course banks cannot do.
First, banks often require substantial down payments from real estate investors (unlike homeowners), reasoning correctly that the more money a person has in a home the less likely they are to default on the loan. They figure that the 5%-30% down will give them enough cushion should they need to liquidate the house to recoup their money. What they fail to take into consideration is that the professional real estate investor is buying houses as much as 50% off of what we would call the retail price of the home. These houses have substantial equity built into the deal. Always having to come up with down payments drains most investors of the cash they need to repair and market their properties. It’s a legitimate problem.
Secondly, banks are obsessed with credit reports and credit scores. This number is based on a number of factors including the total amount of debt someone has (most professional real estate investors have millions of dollars of mortgage debt) and how many times borrowers have applied for credit in a 24-month period (the more times, the lower the score). If someone buys 25 homes a year, they’ll have 25 credit inquires and their score drops sharply. In truth, the more successful they are the less is their ability to borrow.
Third, banks are very hesitant to make loans to entities, even when the borrower is willing to sign personally. This is a huge problem in that astute real estate professionals always own properties in entities (LLCs, corporations, land trusts, etc.) The rules of banks are aligned against the legal intelligent and wise protection of ones assets.
Fourth, every lender in the world has a maximum number of loans they’ll make to any one individual, no matter how good a customer you are. They also have limits on the amounts of mortgages they’ll give to single investors. These limits aren’t very high, particularly if you wish to build a vibrant business. Limits of four loans per person, or $150,00-$350,000 are common. A cap at that amount doesn’t go far in this region and the laws are becoming more restrictive over time!
Professional real estate investors are coming more and more to rely on private sources of capital to fund their deals.
Lastly, paperwork! Mountains of it, with every single loan!
Can you see why private lenders are so much more attractive to professional real estate investors? Even with the higher rates of return to borrow your money, you’re a great option over the inconveniences of banks. For us, it’s not the cost of money that counts but the availability.
What are my options if my borrower doesn’t pay?
There are several options in the event of default by your borrower. Foreclosure is only one of them and is usually last on the list. Should you so choose, You can negotiate a payment plan with the borrower or the borrower may elect to simply deed the house to you, thus avoiding a foreclosure process.
Remember that you are protected by a low loan to value (LTV) ratio.
Is my investment really as safe as it sounds?
Yes! Our property investors follow the LTV guidelines we’ve discussed to protect their profit margin, which protects your loan. And unlike mutual funds, stocks, or CDs, your principal is backed up by real property. Your money will grow two, three, or even four times faster than your current investments and in addition, you maintain control of it. Your portfolio can still be hassle free and produce amazing yields!