With the stock market being an unpredictable and illogical roller coaster and government bonds and bank CDs paying next to nothing; Trust Deed investments are looking better than ever. They are paying high yields, monthly payments, and are secured at 60% to 65% of todays adjusted property values. However, like any investment, you should do your homework and understand who you’re working with and what you’re buying. The following are my top 10 tips for buying trust deeds:
1. Select 1st trust deeds with LTVs below 60% on single family residences.
2. Smaller Trust Deeds will give you greater safety in diversification. You should also consider geographic diversification to protect against natural disasters. (Consider fractionalized interest deals with people you may know and respect).
3. Your note will be easier to liquidate if it is for a shorter term…6 months to 3 years.
4. Always personally look at the property you are going to lend on. Come up with your own estimated value and require an appraisal from an independent appraisal management company.
5. Always try to lend on properties that are within the agency loan limits. It is easier to get a take-out loan or to find a qualified buyer.
6. Always make checks payable directly to an independent nationally recognized title company. Same with servicing, make sure your payments are received and disbursed to you by an independent, licensed, bonded and insured loan servicing company.
7. Always make sure that you obtain the original full extended lenders ALTA title policy that has been endorsed over to the investor. (Review the preliminary report).
8. You cannot lose your security or lien position to a bankruptcy. It will simply delay the time that it takes to get your principal, interest, and fees back.
9. Never modify, extend, or make any changes to your note.
10. Make sure that you are the loss payee for the property insurance and that it is always paid 12 months in advance through escrow.
There certainly are other considerations but these tips will go a long way in helping you build a portfolio of 1st trust deeds that will give you a much higher and more secure return on your money. You stay in control. To me, this is much better than handing my money over to a “Money Manager” and simply “hoping” that things turn out alright.