California trust deed investing allows people to make investments in real estate and secure high returns while doing away with the need to actually own or maintain any properties. The investor simply has to provide funding to someone else who is buying the property. The concept is essentially the same as institutional mortgage lending, but modified to facilitate lending by individuals.
It does look like a pretty good deal, but there's a lot to learn before committing any funds. The best way to do it is by going through an MLB (mortgage loan broker) who can streamline the process of supporting homebuyers or investors who buy and sell properties on a regular basis. Such recipients may be developers, REITs or just reputed individual investors.
A number of factors need to be considered carefully when making this kind of investment. Getting hold of an accurate valuation and doing a title search are essential items on the checklist. Calculate the loan-to-value difference, equity and the margin of safety. A background check to determine the borrower's creditworthiness is required to find out if the investment is safe and has a good chance of being repaid.
The concept is pretty simple and about the same as a bank dealing with a homebuyer seeking a mortgage. In this case, the borrower signs a promissory note and a deed of trust. The note is proof of the amount owed, and the deed puts up the property as collateral against the debt.
Investors, borrowers and brokers need to be compliance with certain regulations put in place by the California Department of Real Estate. One of these rules stipulates that investors cannot shell out more than 10% of their net worth, or their annual earnings. It's also necessary to maintain the loan-to-value ratio at a healthy percentage (typically around 65%). The remaining 35% difference between the valuation and the loan amount sought is the margin of safety.
Maintaining this margin at a high level is crucial for minimizing the risk involved. In case of default, the property may have to be taken into foreclosure and liquidated for recovering the loan balance. If so, a healthy margin of safety that covers the principal amount, interest and legal costs will be required.
In some cases, there may be other loans on the property. The borrower's equity will then be different as compared to the protective equity available. Junior lenders then have to consider the costs of clearing delinquency on senior loans and foreclosure. Investors need to familiarize themselves with these and other such issues. A lot of this knowledge comes naturally to people who have a few real estate transactions under their belt.
Those who are just entering this field quickly need to learn all this. In the meantime, refrain from direct lending to borrowers and real estate companies. Understand the laws that need to be followed, and contact the State Department of Real Estate for clarifications. Work through an MLB or an REIT with a good track record and considered to be an expert in California trust deed investing.
It does look like a pretty good deal, but there's a lot to learn before committing any funds. The best way to do it is by going through an MLB (mortgage loan broker) who can streamline the process of supporting homebuyers or investors who buy and sell properties on a regular basis. Such recipients may be developers, REITs or just reputed individual investors.
A number of factors need to be considered carefully when making this kind of investment. Getting hold of an accurate valuation and doing a title search are essential items on the checklist. Calculate the loan-to-value difference, equity and the margin of safety. A background check to determine the borrower's creditworthiness is required to find out if the investment is safe and has a good chance of being repaid.
The concept is pretty simple and about the same as a bank dealing with a homebuyer seeking a mortgage. In this case, the borrower signs a promissory note and a deed of trust. The note is proof of the amount owed, and the deed puts up the property as collateral against the debt.
Investors, borrowers and brokers need to be compliance with certain regulations put in place by the California Department of Real Estate. One of these rules stipulates that investors cannot shell out more than 10% of their net worth, or their annual earnings. It's also necessary to maintain the loan-to-value ratio at a healthy percentage (typically around 65%). The remaining 35% difference between the valuation and the loan amount sought is the margin of safety.
Maintaining this margin at a high level is crucial for minimizing the risk involved. In case of default, the property may have to be taken into foreclosure and liquidated for recovering the loan balance. If so, a healthy margin of safety that covers the principal amount, interest and legal costs will be required.
In some cases, there may be other loans on the property. The borrower's equity will then be different as compared to the protective equity available. Junior lenders then have to consider the costs of clearing delinquency on senior loans and foreclosure. Investors need to familiarize themselves with these and other such issues. A lot of this knowledge comes naturally to people who have a few real estate transactions under their belt.
Those who are just entering this field quickly need to learn all this. In the meantime, refrain from direct lending to borrowers and real estate companies. Understand the laws that need to be followed, and contact the State Department of Real Estate for clarifications. Work through an MLB or an REIT with a good track record and considered to be an expert in California trust deed investing.
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