Investing in California Trust Deeds is simply investing in loans secured by real estate. Most trust deed investments in California Trust Deeds are relatively short term loans made to screened borrowers with strong equity in real estate. These loans present a wonderful opportunity for investors seeking strong high yields and cash flow, secured by strong equity in a property and clear title.
The strict regulations for traditional loans have created new opportunities for hard money lenders. Strong, qualified borrowers who may have once been interested in institutional financing have now turned to hard money lending as a viable solution for financing. This has raised the bar for qualified properties and borrowers, making investments in California Trust Deeds even more desirable.
Here are the three essential elements you should know about investments in California Trust Deeds:
- Knowledge, experience, and integrity of the Hard Money lender
- Market value and equity in the property
Hard Money Lender
When you are investing in real estate, you’re not just looking for financing, you are looking for a lender who value open, two-way communication.
According to Treasury & Risk, “Borrowers can distinguish forward-thinking lenders from the old guard by looking at whether prospective lenders value open, two-way communication. Borrowers should look for a lender that truly views the lending relationship as a partnership in which both parties are responsible for maintaining transparency and clarity about their objectives.”
The property’s market value is the most important aspect to hard money lenders. The borrowers are savvy real estate investors who are planning to make a very large return and/or strike a very favorable deal, and are willing to pay for a quick and simple source of capital.
The evaluation process scrutinizes:
- The property value and equity
- The borrower’s ability to pay the debt
- The borrower’s actions during a downturn
- Amount the borrower puts towards the property
- Current economic and market conditions
Your investment is secured by a Trust Deed that is recorded against the property and a promissory note which is basically an IOU that contains the promise to repay the loan, the trust deed is the document that pledges the property as security for the loan. It is the trust deed that permits a lender to foreclosure if you fail to make the monthly payments. Investors will receive a copy of the following documents after the funding of a loan:
- Executed promissory note
- Recorded deed of trust
- Title policy
- Insurance on the property