For Immediate Investment Opportunities Contact

Brandon@TheEquityExperts.com
Direct Line: 505-350-6945

Or

Wingo@TheEquityExperts.com
Direct Line:602-684-0158

What is a Private Mortgage/Deed of Trust?

Depending on the state where a property is located, a private mortgage or trust deed instrument may be used to secure an investor’s money. In simple terms each of these instruments is a type of mortgage loan against real property.

How am I Protected as a Private Mortgage/Deed of Trust Investor?

Even in the rare event that a private mortgage or trust deed goes awry, you’ll find that foreclosing on a property that has 25-75% equity cushion isn’t necessarily the end of the world. We are very proactive about protecting your investment and will use every legal means possible to not only protect your principal investment, but all late fees, earned interest and other applicable costs related to a project “gone sour”.

How Many Investments go “Sour”?

Our corporate statistics show that an average of 38% of all private mortgages/deeds of trust have occasional late pays, creating additional income for our investors through late payment fees. However only 7% reach the default stage (because we put a property that is 20 days late on a payment into automatic default) and only 2% reach the foreclosure stage. This means that although a borrower may have difficulties making a payment, they usually remedy the past due payment, plus late fees, plus interest before a foreclosure stage is reached. Those 2% that do reach foreclosure stage will typically go to auction, or be kept by the investor for a personal real estate portfolio. Remember, we have strong equity cushions in these properties, so it is typically easy to discount the property and get them sold at auction.

How Popular are Private Mortgage/Trust Deed Transactions?

Strangely enough, although only about 5% of investors know about the safety and profitability of this type of investment vehicle, about half of all mortgage transactions are private mortgage/trust deed transactions. In fact, we have numerous investors who have completely changed their investment strategies after learning about the ease, safety and comfort of private mortgage/trust deed investing. Why earn 3-6% in a CD, or even a potential 15% in a volatile market when you can earn a 10%, 15%, 20%+ fixed return secured by real property (which is a limited commodity)?

Why would a borrower pay me 10-20%+ when banks offer loans so much cheaper?

When comparing private lending with institutional lending, you must remember that banks are federally regulated to best protect the assets of their depositors. As a result, they are very stringent in regards to whom, and for what, they will lend.

Contrastingly, you, as an individual can make the decision to be as conservative or risky as you want.

Too often borrowers do not qualify for conventional financing because of unfortunate life events such as divorce, spousal death, business losses, or identity victimization. These life events can easily affect the volatility of a borrower’s FICo score – the primary indicator of a bank’s willingness to fund a borrower’s request. Therefore, it’s easier to approach a private lender who will look at much more than just how a person looks on paper.

Another reason and perhaps the primary reason for the majority of our private loans is TIME. Conventional lenders can take literally months to qualify some types of borrowers for a loan. Many people just simply don’t have the time to waste waiting for months without any assurance of being funded. It’s quicker and easier to go through private funding – even if the costs are higher.

Lastly, some borrowers don’t want to show the loans on their debt-to-income ratios listed on their FICo reports. They would prefer to pay a higher price for the privilege of keeping their DTR’s lower in the event they need to qualify for traditional financing for something else in the future.

What are the primary qualifiers that you look at in an investment opportunity?

There are five primary things that we evaluate when looking at an opportunity:

1. Equitable Value. Does this property have verifiable equity? We look at a property’s actual value compared to what it would take to liquidate that property in a reasonable amount of time (usually 30-60 days) in the event of foreclosure.
2. Borrower’s credibility. Can the borrower pay the debt?
3. Borrower’s participation. Does the borrower have money invested?
4. Borrower’s history. Does the borrower have a history of this type of borrowing? Does he have a history of failed projects? Etc.
5. Is this deal good for our investors? Sometimes a project meets the entire previous criterion, but ultimately is not a proper fit for our investors – we won’t do a deal just because we get paid to do it. It’s got to work for everyone.
   

What does it cost to get involved?

The only cost is the value of the note funded. All fees, expenses, closing costs, title costs, etc. are covered by the borrower. The only exception is in the event of a foreclosure, in which any costs not covered by the sale of a property will be the responsibility of the investor – however, this only happens when an investor chooses o either keep a property for their own portfolio, or if the investor chooses to “short” the sale amount of a property so that it’s sale doesn’t cover all costs related to foreclosure and auction.

What are the risks involved?

The Equity Expert Team does our best to evaluate a potential investment transaction very thoroughly. Yet, life does bring surprises. As such, there is risk involved with private mortgage/trust deed investing, just as there is with any investment. For instance, 2006 showed the real estate market the highest level of foreclosures for many years. During 2006, we transacted 34 trust deed investments. Of these new investments, and all others already under management by us, we had only 2 foreclosures during a record foreclosure year industry-wide. This was our highest foreclosure year to date, and hopefully forever. As of 2007, we had no foreclosures, inspite of rising foreclosure rates nationwide.

Sounds too good to be true; what is the down side?

All investments carry risk. As a rule, borrowers of private funds are not cash liquid – and in the case of some developers, may actually have huge debt loads. The biggest downside is that if you are depending on the income from your investment to be your living income, then you could be hurt by a bad loan. If this is the case, and a borrower fails to pay, or goes bankrupt, you could endure months without a return. That’s why we don’t suggest that anyone put more than 25% of their investment egg into any single deal.

Another possible issue is in the event that you choose to take a position in a second mortgage. If a borrower fails to pay the first, even if they are current with your second, you will be responsible to take over the first and then technically default the borrower’s second – if you don’t do it this way, then you could lose all of your investment when the first forecloses and auctions the property.

Do you care if I do my own due diligence?

No. In fact, we request it. And, if you need help learning how to execute proper due diligence on a potential investment, let us know and we’ll give you third party referrals and basic information about how to be as thorough as possible. But, understand, we feel it necessary to do our own due diligence in addition to anything you discover. This holistic approach to investigating a property has helped us to maintain such a low occurrence of bad loans.

Can I invest with my IRA?

Absolutely. There are many IRA investment firms that will allow you to do self-directed investment of your IRA funds. Contact your IRA manager and ask if they allow it. If they don’t, we’ve got a list of companies that would be glad to have your IRA business.

Do you require exclusivity from your investors?

Don’t be ridiculous. We want our clients to be as successful as possible – most of our investors choose to invest with us exclusively, but that is not required.

Do I have to use an intermediary like The Equity Experts in order to do Private Equity Lending?

No. However, why would you want to take out your own appendix if you had a doctor offering to do it for free? As a private lender, you are still liable for federal and state lending laws, including Reg Z, Section 32, HOEPA, TILA and state usury laws. In fact, with the recent subprime mortgage crises, there are several bills passing through legislation on both state and federal levels that could greatly effect a private investor’s legality. If you choose to use another group, or choose to do your own loans, make sure you’ve got the support system necessary to keep your loan(s) compliant.

How does TEE’s Special Financing Team differ from other private funding groups?

We’re a boutique agency who focuses on the specialized investment interests of each investor client. This more personable, flexible business model creates a much more friendly, safe investing climate compared to huge money mills that simply collect investors to be part of huge projects. Our average loans range from $50,000 to $4,000,000, and can be funded by 1:1 or fractionalized involvement. However, we are always interested in entertaining much larger funding requests.