Thursday, December 16, 2010

How do I become a lender with deeds of trust?

How do I invest in deeds of trust?
One of the best investments you can make is in a trust deed. Simply put, you become the bank for someone looking to put a loan on real estate. Yields to you can range from 7-15% annually and you can even use money gathering dust in your IRA account too. Most commonly interest payments are made monthly creating a nice form of income.

What is the process?
Most investors use a local private lender/broker who already is set up to do deeds of trust or hard money loans. The company will market to borrowers and when a loan comes in, they underwrite the loan just as a bank would. However, instead of the loan being funded by a bank, the lender will use investors like you to obtain financing. What do these brokers look at before deciding to offer a deed of trust to their investors? First of all, they look at both the borrower and the property to see if the loan request makes sense. Here is a short list of items they look at:


Real Estate

Credit Score


Income/Tax returns, W-2s, rents


Assets-Cash , investments, Real Estate

Loan amount vs. value (LTV)

Experience-invested in RE before?

Title- liens currently against property?

Exit Strategy – How will loan be repaid?


Type - Commercial, residential, land, etc.

Income – what is potential rental income?

After the analysis, the broker usually will decide to do the loan and send the borrower an offer sheet outlining the terms of the loan. If the borrower accepts, the broker will then notify his investors there is a new loan to fund and send them an offering.

How do I decide if this loan (deed of trust) is for me? Unless you are making a loan yourself, you are probably putting a lot of faith in the broker who sent you the offering. A few questions to ask yourself and the broker come to mind.
  • What is the loan to value? The higher the loan to value, the riskier the loan because if something should go wrong, there is less equity in the property if you have to foreclose and sell it to get your money back. Typically, 50-65% is the maximum you want to go.
  • Can the borrower make his loan payments?
  • If the borrower cannot pay, could we rent the property?
  • Is the property in a stable market?
  • What is the exit strategy of the loan? This is by far the most overlooked but most important question. After the loan comes due in 1-5 years, how will the borrower pay us off? A few ways are refinancing with another lender or selling the property.
  • Does doing this loan make sense? Why can't the borrower do a regular bank loan? Find out!
So you have decided to make a trust deed investment. Now create your own loan criteria that you can discuss with the borrower or the broker.
Loan size preferred or amount you want to invest?
What areas will you lend within?
What is your interest rate return minimum?
What is your minimum and maximum loan term? Less than 1 year? 1,2,3 or even 5 years?
What is the maximum LTV you will go up to?

Where do I find available trust deed offerings?
We can put you on our mailing list and when new deeds of trust come available, you will receive a deal sheet with everything there is to know about the opportunity.

I still have questions.
We are at your service. Our contact information is below.

Russell Roesner
415 680 3454

Friday, December 3, 2010

Hard Money: What is it and how to get it

Hard Money is a term for a loan product offered by private companies instead of the banks. It is also referred to as Private money, Private lending, and Bridge money. Usually the capital comes from private investors that live locally to where the loans are being made. Although the loan process is similar to a bank, there are distinct differences. First let’s compare bank money with hard money:

Bank Money Drawbacks

Bank Money Benefits

Hard to get

Low interest rates: 4-6%

Takes a long time (45-60 days)

Low Closing Costs: 1-2% of loan amount

Minimum Credit Scores Imposed

Long Term: Up to 40 years

Property must be in good condition

Small down payment: As little as 3%

Only 4-6 loans per person

Available Nationwide

Personal Guarantee is required

Money is always available

Borrower cannot be a company

Hard Money Drawbacks

Hard Money Benefits

High interest rates: 9-15%

Easier to get and to qualify

High closing costs: 4-8%

Quicker to close: 15-30 days

Short Term: 12-60 months

Credit not as big of a factor

Limited Area: Only lend locally

Borrower Can be a company: LLC, Corp

High down payment: Up to 40%

Personal guarantee variable

Property can be in any condition

Why use hard money?

Most borrowers who use hard money do it for the following reasons:

  • They personally cannot qualify or the real estate does not qualify for a regular bank loan.
  • They do not have time to wait for a bank loan to be approved.
  • They want to borrow money with a business entity and/or do not want to personally guarantee a loan

Even though the rates can be high, hard money can be quite useful when an investor has an opportunity to buy a property for a low price and sell it for a profit. Simply put, hard money even with its drawbacks can be a great tool in providing the capital necessary to be a real estate investor.

How do find a private lender and get a hard money loan?

Please review the loan programs section of our website where you can learn more and inquire about a getting a hard money loan. Our contact information is below.

Russell Roesner
Equity Coalition President
San Francisco, CA 94104
415 680 3454
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