Four Trust Deed Investing Rules You Should Follow
Here are Four Trust Deed Investing Rules You Should Follow if you want to make a successful trust deed investment. Understanding Trust Deed investments does not have to be difficult. Basically trust deed investing is simply investing in loans secured by real estate. Trust deed investments can bring a steady stream of passive income while maintaining the security of real estate. In order to make a wise investment decision, an investor must utilize market knowledge, common sense, experience and patience.
Be conservative with loan to value
Depending on your desired level of risk (and subsequent yield), loan to value (LTV) can have an impact on the outcome of your investment. When we buy for our own account, we normally don’t like to go above 60% LTV. The more equity a property has, the lower your risk will be. Since the property is being used as collateral, it is important to know the loan amount versus the value of the property. In the event of a default, the investor takes possession of the property and can sell it in order to recoup their initial investment. A low LTV will provide the investor with protection.
Stick with areas you know
Because you due diligence is important when it comes to any kind of investment, it’s best that you invest in properties that are in areas you are familiar with. A great aspect of trust deed investments is that you will be working with people who understand the real estate market.
Know the market value
Know the market value. The market value is the the sale price, the cost to build, or the value in use to a specific owner does not necessarily represent the market value of the property. According to the California Department of Real Estate, “The market value of the Property is critical to your decision to lend your funds or purchase a promissory note because there is a possibility that the only way to recover your investment is through the sale of the Property. Therefore, the market value of the Property should be correctly estimated and the total loan-to- value ratio properly analyzed as illustrated below. This information should be made available to you before you commit your money to the transaction.”
Work with a good team
Hard money lenders are experienced and can help you with your investments and work with you to find a loan that works for you. When you are investing in real estate, you’re not just looking for financing, you are looking for a lender who values open, two-way communication. Some important Trust Deed Investment Information you’ll need are the basics of finding a great MLB. Communication, integrity, and timeliness is most important. Finding an alternative lender to handle these investments doesn’t have to be difficult. Find out more about HML Investments here.