Barely two months ago, the California Association of Realtors (CAR) predicted that California’s housing market will continue to grow in 2016 – but that growth will be limited by a lack of inventory and persistent high prices.
According to CAR’s California Housing Market Forecast, home sales will see a 6.3% increase in 2016, but at the same time, there’s going to be a housing shortage for various reasons that include the fact that fewer current home owners are willing to trade their properties for newer ones. And for good reason. Median home price in 1970 was $10,000. Today it is $247,000. And this price is projected to flutter to $491,300 in 2016.
CAR reports that certain regions will be more troubled than others. San Francisco, for instance, will have huge housing shortages that will result in gasp-inducing high prices and feuding competition. On the other hand, other places such as Solano County, the Central Valley, and Riverside/San Bernardino areas will remain less expensive thanks to solid job growth in warehousing, transportation, logistics, and manufacturing. But, on the whole, CAR worries about how you’ll be able to afford investing.
Says Leslie Appleton-Young, CAR’s association’s vice president and chief economist:
“People want real estate, but nobody wants to overpay for it. The feeling right now is that things have gotten a little out of hand” – which is why people who have been unable to land loans from the banks may have no alternative but to flock to trust deed investors.
What Are Trust Deed Investors?
Trust deed investors are those who ignore credit rating and credit worthiness and transact property loans in terms of assets. In other words, the amount the investor lends is primarily based on the value of the subject property. Put another way, the investor is mostly concerned with the amount of equity that you have invested (or may invest) in the property that will be used as collateral. He or she is less concerned with your credit rating – which doesn’t mean that he may ignore it altogether. But there are enough investors who will overlook issues on your record such as a foreclosure or short sale as long as you have the capital to pay the interest on the loan.
The trust deed transaction also moves faster than standard procedures do in bank or credit union. Lender-borrower loan-petition to loan-consummation typically occurs as fast as 7-12 days (rather than the standard 30+ periods of banks or credit unions) and is performed in an environment of high trust. Lender and borrower file a document with a county recorder’s office – the document is called a deed of trust – where details of the lien are described. The borrower then signs a promissory note where he promises to repay the specified loan on the specified day.
The investor must also consider the borrower’s plan for the property. The borrower must present a reasonable plan that shows how he or she intends to ultimately pay off the loan. Usually this means improving the property and selling it or obtaining long-term financing later on.
What Are The Benefits Of Trust Deed Investing?
Trust deed investing offers a combination of high returns and monthly cash flow with a secured investment. Investors receive monthly interest payments on their invested capital as they would with a fixed income investment or money market fund, but the yields are typically higher.
Such deeds are also a vehicle for investing in real estate without the need to manage property. They’re an excellent way to diversify a portfolio. Plus, unlike publicly traded real estate related securities such as CMOs, MBSs, REITs, and so forth, trust deed investments are simple and easy to understand.
What Are The Disadvantages Of Trust Deed Investing?
For the lender, such investing comes equipped with four main sources of risk. These are: property devaluation, borrower fails to repay, legal action, and, in the case of Second Position deeds, loss in the event of a foreclosure and/or sale of the senior lien. Trust deed investors, usually, join an agency that helps them manage these risks.
As regards the investing process, investors may choose to invest on only one project – namely, focus on only one deed – since to expand to more than one (called Second Deed investments) could be expensive and is certainly risky. Other investors prefer to diversify their portfolios. Either way, licensed companies guide these investors through the process and help them mediate the transaction.
The Short Of It Is This…
Trust deed investors are an excellent alternative for people who may have let down by the banks. Borrowers may like them for various reasons that include speed, service and flexibility. In a Californian 2016 market that may turn out to be crimped, such investors can get you the finance that you may be unable to land elsewhere.
If you are a trust deed investor living in or servicing California, your prospects are rosy. Borrowers want loans. Banks are unwilling. Many borrowers may have no choice but to seek an alternative. And that’s where you come in. The price seems scary. But many borrowers may be willing to pay it.