WHAT IS A TRUST DEED?:
• Trust Deeds (or a Deed of Trust) – are documents that indicate a loan against a property that are purchased by 1 (or more) Investors. Active Investors can choose their sector or property type.
• A “Trust Deed” or “Deed of Trust” is similar to a Mortgage in that it secures a loan made against real property (real estate), but can be foreclosed on without permission from the courts.
• Trust Deeds differ from Mortgages in that they provide a much quicker and simpler method of enforcing the terms of the loan.
• Trust Deeds can be purchased by 1 or more private (or institutional) investors and are an excellent method of generating a reliable fixed return.
• By participating in a Trust Deed investment, you are simply taking the place of a Bank or Institutional Mortgage Provider.
WHAT ARE THE BENEFITS OF A TRUST DEED TO THE INVESTOR?:
• Secured alternative investments that offer favorable yielding interest returns and consistent, monthly cash flow on invested capital.
• Are of favorable risk to the Investor, due to the loans being secured by the property.
• Offer a real estate opportunity that avoids the need to manage the property.
• Are easy to understand as compared to many other Alternative Investment Opportunities.
• Provides an excellent vehicle in which to diversify your portfolio.
WHO ARE THE PARTIES OF A TRUST DEED?:
• Lender/Beneficiary/Investor – person or organization that provides the money for a secured loan (Trust Deed) with the expectation of timely repayment of the money plus interest.
• Borrower/Trustor – person or organization that borrows the money and secures it with a Trust Deed.
• Trustee – person or organization that can take the collateral/pledged real estate of the Borrower in the event of a default by the Borrower.
• Broker - an independent agent who arranges loans by bringing Borrowers and Lenders/Investors together.
WHY SHOULD I UTILIZE A TRUST DEED BROKER?:
• They know their market and have established relationships and referral sources with prospective Borrowers.
• Utilizing a qualified broker allows Investors to be exempt from steep usury law penalties.
• Brokers provide the necessary documentation to:
- Provide proper disclosures to both Lender and Borrower.
- Ensure that hazard and/or liability insurance is in place.
- Insure that the Trust Deed has the priority represented.
- Assess the quality of the Borrower.
- Determine the Market Value of the property/collateral.
LIST OF TERMS:
Amortization - paying off of debt in regular installments over a period of time.
Deed of Reconveyance – document that shows that a loan has been paid off.
Equity Cushion – Trust Loan Amount + Equity 2nd Trust Deed Loan Amount divided by the Total Cost.
Impound – An account maintained to collect payments that protect the Investor and are necessary to keep the home, but are not part of the mortgage payment.
• Example: Property Tax, Hazard Insurance, and/or Private Mortgage Insurance.
Interest Only – payments on the loan are only being applied to the interest on it and not the principal.
Loan to Completed Value (LTCV) – Amount divided by Completed Market Value.
Loan to Cost (LTC)– Amount divided by the Total Cost.
Loan to Value (LTV) (or After Repair Value (ARV)) – Amount divided by the Appraised Property Value.
Prime Rate – interest rate that banks charge to their most credit worthy customers.
Security – cash amount that the Investor receives on the loan. It is typically comprised of the Purchase Price of the Home + Cash Collateral for Repairs + Prepaid Interest.
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