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California trust deed investing offers an easy alternative to earn bigger returns through real estate investments, but without the hassle or cost of owning the property and having to maintain it. The deal here is that the investor just gives financing to other investors who plan on buying properties. Put another way, this is mortgage lending for non-institutional lenders.
It sounds like a sure thing, but there's a lot to be learned before signing off on any investment. Investors typically go through a mortgage loan broker or MLB who arranges financing for individual homebuyers and professional real estate investors. Those using the funds may be REITs, developers or simply other investors who are open to owning properties.
Several factors need to be considered in detail while making such an investment. The property valuation and a title search provide a good place to start the research. Compare the value against the loan required to calculate the loan-to value, margin of safety, and the equity. Most important of all is a background check into the borrower's credit history, trustworthiness and chances of the loan being repaid on time.
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.
As per the rules and regulations set forth by the California Department of Real Estate, investors may not commit more than 10 percent of their net worth or their annual income on such a transaction. Also, it's standard practice to maintain a loan-to-value ratio of around 65 percent. This means there's a 35 percent margin of safety, which is the difference between the property value and the loan amount.
It's important to maintain this margin at a sufficiently high level to mitigate risk. If the borrower defaults and is unable to repay the loan, then the property has to be foreclosed on and liquidated to recover the loan balance. In such cases, a big margin is essential to cover the principal amount and interest due, along with all the legal costs.
Sometimes, the property has claims and liens placed on it by multiple creditors. The protective equity in these cases will not be the same as the borrower's equity. A junior lender may be forced to clear the delinquency, and then initiate foreclosure to recover the original loan and the additional payment to the senior lender. There are many such complications and issues that regular real estate investors are aware of.
New investors are advised not to give their hard earned money directly to borrowers or unknown investors. Do some research and get in touch with the Department of Real Estate to find out all the applicable regulations and compliance issues before doing anything else. After that, go through an MLB or REIT with a good reputation in California trust deed investing to ensure solid returns without having to take on too much risk.
It sounds like a sure thing, but there's a lot to be learned before signing off on any investment. Investors typically go through a mortgage loan broker or MLB who arranges financing for individual homebuyers and professional real estate investors. Those using the funds may be REITs, developers or simply other investors who are open to owning properties.
Several factors need to be considered in detail while making such an investment. The property valuation and a title search provide a good place to start the research. Compare the value against the loan required to calculate the loan-to value, margin of safety, and the equity. Most important of all is a background check into the borrower's credit history, trustworthiness and chances of the loan being repaid on time.
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.
As per the rules and regulations set forth by the California Department of Real Estate, investors may not commit more than 10 percent of their net worth or their annual income on such a transaction. Also, it's standard practice to maintain a loan-to-value ratio of around 65 percent. This means there's a 35 percent margin of safety, which is the difference between the property value and the loan amount.
It's important to maintain this margin at a sufficiently high level to mitigate risk. If the borrower defaults and is unable to repay the loan, then the property has to be foreclosed on and liquidated to recover the loan balance. In such cases, a big margin is essential to cover the principal amount and interest due, along with all the legal costs.
Sometimes, the property has claims and liens placed on it by multiple creditors. The protective equity in these cases will not be the same as the borrower's equity. A junior lender may be forced to clear the delinquency, and then initiate foreclosure to recover the original loan and the additional payment to the senior lender. There are many such complications and issues that regular real estate investors are aware of.
New investors are advised not to give their hard earned money directly to borrowers or unknown investors. Do some research and get in touch with the Department of Real Estate to find out all the applicable regulations and compliance issues before doing anything else. After that, go through an MLB or REIT with a good reputation in California trust deed investing to ensure solid returns without having to take on too much risk.
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