Being a trust deed lender is something that can be quite profitable if you do it right. However, you will need to educate yourself when it comes to real estate, as well as other details of these type of investments.
Today we will share with you some of the best tips when it comes to trust deed investment. This is knowledge that was shared by investors with a lot of experience, and you should find an answer for most of your questions.
Things you need to consider
If you are the lender of a Deed of Trust, you should take into account certain things. For example, the policy insurance of the homeowner is very important. You need to make sure that it covers everything, from damage and liabilities to fire.
There is another important detail that you must not overlook. Standard insurances will cover the property only for 30 days if it vacant. As the borrower will probably want to fix and repair it, this means that it will be vacant for more than 30 days. You need to make sure that there is a policy that continues to cover the property even when it is vacant.
The title policy is also something that you need. You will get it from the title company for the loan, and its name is ALTA Lender Title Policy. It is provided by the title company and it makes sure that there are no other attachment to the property. This document is important so you need to make sure that you read it very carefully. Familiarize yourself with all the items there.
Things that you should avoid
Finding a Trust Deed is not as simple as it might appear at first. If you are going to lend money, you need to make sure that the borrower has enough experience. This means that you should find a person that has a contractor license, real estate license or at least the necessary level of education.
You should also avoid risky deals. This means that you need to check the bank statements of the borrower and make sure that you are able to get all the money back. Some of the borrowers might be borrowing the money on a credit card, you should avoid them.
You must avoid bad credit people as well. In most cases, there is a valid reason why a person has a low score. Check their report and understand why is that. A good LTV ratio should protect you in this case, but you need to continue to analyze the borrower. See whether they tried to resolve their previous credit issues.
Another thing that you should avoid is lending to friends or family. While this might sound absurd at first, it is one of the best tips we can give you. When you lend to them you become personally involved and it will be harder to act as a professional.