In Deeds, We Trust
Funding turned down? Try private investors and trust-deed investments
By Joel Barth, officer, Northwest Capital Advisors Ltd.
Many commercial mortgage brokers and their borrowers are left with nowhere to turn
for funding as lenders have raised their
underwriting standards considerably —
or have left the business altogether — and
as the credit crunch continues.
as the saying goes, though, there is a
silver lining in every cloud. Mortgage brokers looking for that silver lining in today’s
market may find it by turning to private
investors to fund their clients’ deals when
banks or other traditional lenders refuse.
One way private investors can help is
via a trust-deed investment, which is a
promissory note secured with a deed of
trust against a piece of real estate. Corporations and developers often use these
trust-deed investments, which typically
are hard-money loans.
These loans also are popular among
borrowers because as short-term loans,
they often can close more quickly than traditional forms of financing. indeed, time is
often of the essence in closing on a lucrative real estate investment opportunity.
Further, the traditional rules and restrictions of bank loans often do not limit
private trust-deed investors. This means
greater flexibility for commercial borrowers. To mortgage brokers, this means
closing a deal without all the red tape of
From the investors’ perspective, trust-deed investments can make sense for those
looking for security and a fixed rate of return. This is because hard-money trust-deed investments are typically short-term
and are placed at a low loan-to-value (LTv)
ratio; typically, they’re at a maximum
65-percent LTv. Plus, interest rates can be
around 12 percent.
in case of default, investors also usually can recoup most of their investment by
selling the underlying property. in addition,
with a trust-deed investment, investors often can receive a greater-than-average rate
can serve as
valuable liaisons in
facilitating the flow
of capital between
and clients who
Joel Barth is an officer of Northwest Capital Advisors Ltd., a real estate investment fund focused on distressed foreclosure and short-sale properties. He also is
a licensed real estate broker and notary public in Washington state. Previously, he
served as a mortgage broker, investment adviser and investment banker. Barth has
a bachelor’s degree in business administration. Reach him at (866) 928-4003,
ext. 106, or visit reobpo.blogspot.com or www.northwestcapitaladvisors.com.
of return because borrowers can be willing
to pay a greater interest rate in exchange for
these loans’ flexibility and speed.
as with any investment, there is some
risk of which borrowers and investors
must be aware. There also are regulations,
which brokers must follow to help mitigate
that risk and to ensure the success of all
parties involved with the transaction. it
is also important to note that these loans
may be subject to and should be treated
with the same care and diligence as traditional loans.
Brokers would benefit from working
with a competent real estate attorney to
develop the loan documents and with a
reputable title and escrow company to
close the transaction. These moves can
provide investors and borrowers with the
necessary protection to ensure a smooth,
in sum, mortgage brokers can serve as
valuable liaisons in facilitating the flow
of capital between private investors and
clients who need funding. They also can
serve as a valuable resource by educating
themselves, as well as their clients and financial advisers, about available real estate
and lending opportunities.
Once you establish these relationships
with your clients, you are no longer at the
mercy of banks and other institutional
lenders. Being able to close transactions
that do not fit the mold will help you stand
out from your peers and earn repeat and
don’t have to be that ugly.
• Full Doc and Stated Loan
• Loan Amounts From
$100K to $5M
• Broker Rebate
• LTVs up to 80%
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Helping brokers one commercial loan at a time.
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