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 traditional lending.

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

“Mortgage brokers
can serve as
valuable liaisons in
facilitating the flow
of capital between
private investors
and clients who
need funding.”

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, profitable transaction.

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 referral business.