How to Protect Yourself
Trust deed investments provide an investment opportunity that is secured by real property, generates monthly income, and
which pays risk adjusted returns. Whether you are looking to grow your savings account or supplement your retirement income, investing in trust deed investments is a great way to achieve higher than average returns on your investment dollars.
There are numerous books, tapes and seminars that give investors an understanding of trust deed investing – not of trust deed investments. They truly help you understand how you can participate in trust deed investing. Unfortunately they are typically very biased because their goal is to get you to invest with their trust deed investment company.
There are few, if any, that tell you what trust deed investors need to know to protect themselves from loss of capital. That is, what you should know about the trust deed investment company and moreover, what you should know about each trust deed investment the company is asking you to investing in.
HERE IS WHAT YOU NEED TO KNOW
About the Company:
- How long have they been in business?
- Experience of the principals and their senior underwriters.
- Performance of their current portfolio.
- Are there any compliance issues or pending litigation?
- Are the trust deed investments they offer individual trust deeds, fractionalized trust deeds, or a trust deed pool or fund?
- If a trust deed pool or fund, is it properly registered?
- Will the company provide references from satisfied investors?
- Visit web sites, blogs and Google pages to see if there is any negative publicity surrounding the company.
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About the Trust Deed Investment:
- Who are the borrowers and what is their experience?
- What is the borrowers financial position? Net worth, liquidity, credit score.
- Property description.
- Location of the property. City, state, cross streets, proximity to commerce
- How will monthly interest payments be made? By the borrower out of pocket, out of property cash flow, from interest reserve provided by the investors?
- What are the loan ratios? Loan to value and loan to cost.
- Is the investment secured by a 1st lien position or 2nd, subordinate lien position?
- How much of their own cash does the borrower have in the deal? Has there been additional cash contributed by partners, friends or family?
- Is there an independent third party appraisal that supports the
reported value?
- Is there a Phase 1 environmental site assessment on the property to insure against environmental contamination issues?
- What is the current zoning and/or proposed zoning?
- What is the repayment strategy?
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While there are companies that offer them, my suggestion is this – spend the same amount of time understanding the company and its investments
as you would in preparation for any other financial investment including the purchase of a new home, a new car, a new plasma TV and yes, even your son or daughter’s choice of colleges.
Make no mistake……investing in real estate is not risk free. Like any other financial investment trust deed investing carries some risk. Mitigate your risk by asking tough questions and spending time understanding what you are investing in. You’ve spent enough time trying to make your money….now spend some time trying to protect it. |
