One of the options for lending to people involved in real estate rentals or flipping is trust deed investing. Individuals or groups privately loan their money to people who have a plan to buy property that they will turn around and sell for a higher cost or make money from renting it out. Lending from private parties for this is usually easier to get than bank lending because of the different way it works. The property being purchased with these funds typically acts as the collateral.
What You Can Expect from Trust Deed Investments
Before you decide to go ahead with this type of investment, you should really understand what a trust deed loan will look like. When a private investor decides to give you funding, you should know that you will likely pay interest rates of at least 9%. This rate is higher than the normal bank-funded mortgage rate. These loan terms are usually much shorter as well, lasting anywhere from 3 months to 3 years. Next, expect to borrow between 60 and 65% of the loan-to-value (LTV) ratio, amounts usually between $50,000 and $2,000,000, based on the property you are considering and its current value. These loans are prepared by underwriters and you can expect them to come with a lot of the same legal obligations a normal mortgage would.
Filling out Your Investment Application
You’ll need to fill out an investment application for consideration just like you would with any other mortgage-type loan. Despite the fact that trust deed investments do not have the same exact expectations as a traditional bank loan, you still need to give several pieces of basic information. This includes your contact information, investment objectives and investment background among other things. You’ll also need to give specifics on properties you are considering including the types and sizes and how much money you are expecting to obtain from this of financing. When your request is approved, you lender will ask you to give additional information about the details of the specific property or properties you are interested in.
As you can tell, trust deed investing is different than other types of lending. It is up to an individual private lender to decide to lend out the money or deny the application. Therefore, they could deny the funding due to other factors besides whether or not they think the developer will be able to repay them. The lender could look think that the property in question isn’t worth the risk of investing. On the other side of the coin, however, individuals wanting to renovate property to sell for a higher cost have a better chance of getting this funding to complete the project. This saves the headaches involved with qualifying for a bank loan.