- What is a Trust Deed investment?
A Trust Deed acts as a security instrument for the performance of a promissory note for a loan by the lender to a borrower that is secured by a recorded interest in real estate owned by the borrower.
- What are the advantages of a trust deed investment over stocks or bonds?
The security for a trust deed investment is a piece of prime California real estate that earns an investor monthly interest payments at an agreed upon interest rate for the term of the Note. This net rate of return is generally between 8% and 10% for a term of 1 to 3 years. The rate of return and term varies depending on the type of property and the priority of the Trust Deed.
- What happens if the borrower does not pay the lender back?
If a borrower defaults on his loan payments, he is ultimately subject to having the lender foreclose on the property which has been put up for collateral. There are several steps in the foreclosure process to try to avoid this final recourse, which includes the lender trying to contact the borrower to find out the current problem and status in order to see if things can be worked out cordially. If not, then a Notice of Default is filed to begin the legal foreclosure process. In the rare circumstance that a foreclosure is necessary, Private Financial, Inc. will make sure that this process is handled for our investors.
- What is a fractional mortgage interest?
Wanting the security and high rate of return provided by Trust Deed investing, but not having quite enough funds to fund any single loan, Private Financial, Inc. will arrange to group several investors into one trust deed investment. Each investor in the trust deed will receive their proportionate share of interest monthly.
- Can I sell my Trust Deed investment at any time?
You must keep your Trust Deed investment for the term of the loan. If the loan is written for three years, then you have committed your funds for those three years. If the loan pays off prior to the maturity date, your principal is returned to you plus any and all interest due at the time of the payoff of the loan.
- What does LTV mean?
LTV means “Loan-to-Value,” and is determined by dividing the total loan amount by the value of the property. The trust deed investments that Private Financial, Inc. arranges for its investors usually are up to 65% or lower loan-to-value of the property’s appraised market value.
- Why is Loan-to-Value important?
It is an indication of the amount of equity the borrower has in the property; therefore, it is VERY important for the security of the Trust Deed investment. The lower the loan-to-value in relation to the property’s market value, the better the security is for the investor.
- Do I have to worry about the collection of payments from the borrower on my Trust Deed investment? Also, what about making sure that they pay their property insurance and that all property taxes are paid on time?
Private Financial, Inc. will handle the collection of monthly payments from the borrower and then disburse those payments to the lender. We will also monitor the property insurance and property taxes on each loan to make sure that they are current.
- How will I be taxed on the income I receive from my Trust Deed investment?
The income received from Trust Deeds above your original investment are considered interest income. At the end of the each year Private Financial, Inc. will send you a 1099-INT for your income tax filing.