Category Archives: Real Estate

What You Need to Know About Limited Exit Strategies
Exiting the investment is one of the most crucial aspects of Trust Deed investing; it determines the net or actual profitability of the investors.  An investor should never assume or accept the primary exit strategy offered by the borrower or Broker, as in many cases it is the only real one for the investors. Remember the example on PITFALL #5? Well for the borrower the exit strategy is the development of the property for a profit, taking of the principle (for other uses) and Deed in Lue the property back to the investors to stop the Foreclosure.  The investors are left with typically an over-encumbered property (that’s why the borrower defaulted) to decide to take a principle loss now or wait to see if the future offers something better in market valuations. Solution: Invest in properties that have multiple exit strategies; improved properties that are rentable for cash...
What is a Loan to Own Underwriting
A common theme and industry standard in private lending is that the largest portion of underwriting is based on the value of the asset in relation to the amount of the loan (LTV) and is touted as the ultimate insurance plan for the investors – and if anything goes wrong; the lender will take the asset and recoup all losses based on the lower LTV.  For our purposes we will call this: loan to own underwriting.  Certainly the value of the asset is of fundamental importance to the underwriting as the value of the asset is the actual security for the principle.  However; this is a significant PITFALL in the industry as it manifests itself as the projected cure for any issue.  This form of underwriting almost begs for inflated valuation of the property and may ignore threats to the transaction such as; weak due...
The Pitfalls of Commercial Real Estate
This PITFALL is more of an existing myth in the market place than an action or inaction on anyone’s part.  A common theme among Real Estate Brokers, Mortgage Brokers, Salespersons and investors is the belief that commercial properties are more consistent, predictable, less volatile and generally safer than other types of Real Estate properties.  This is based on the core assumption that the players in the transaction are more sophisticated due to the size of the transactions and the financial qualifications. In recent history; the S&L crisis of the late 1980’s early 1990’s and the unfolding commercial collapse of the late 2000’s is clear proof that this irrational belief of a greater financial stability in commercial Real Estate is largely unfounded.  Indeed, commercial exposure is a major contributing factor in the collapse of hundreds of regional banks nationwide. Commercial is just as susceptible to all market conditions...
Taking a Good Attribute and Distorting it with the Deed of Trust Originator and the Borrower
An industry standard is for a Broker to strengthen the offering (to Investors) of the Trust Deed to investors by creating an interest reserve for the borrower.  An interest reserve account is money set aside to ensure the investors interest payments on a loan over a specified term.  This can be a good feature in the correct circumstances; however often times the actual source of the interest reserve and the math is not to the benefit of the investors and this may hide the weakness in the borrower’s cash flow and qualifications. The PITFALL occurs by a taking a good attribute and distorting it with the Deed of Trust originator and the borrower.  For example: Borrower acquires a parcel of land for $100,000 with $50,000 down payment.  This land later ‘appraises’ for $500,000.00 based on that value; Borrower requests a loan of $375,000 (75% LTV) The investor is offered...
The Pitfalls of High Fractionalized Investing
A fractionalized Trust Deed is a loan that has many investors who pooled their money for the total principle balance for the borrower.  Typically the interest of the investor is based on what their dollar amount is expressed as a percentage of the total loan amount. A. The more investors and the smaller any one investors stake in a given Trust Deed the less control those investors have. B. When a Trust Deed does go back to the investors those that have more capital to commit end up carrying the cost such as foreclosure filings, attorneys, maintenance, management, taxes and insurance to name a few for those that do not have the funds or will not pay.  In many real life cases; the investors with more to lose (higher principal investments) are more compelled to contribute to keep the asset in good condition. C. Voting is often controlled...
Introduction to Equity Value Investing: EVI 2.0
Equity value investing is the acquisition of fixed assets with significant equity on acquisition that can be quickly converted to cash flowing entities. This significant market equity on acquisition will allow for an additional layer of principle security against market dips or stagnation. EVI execution historically acquires assets at 31% (YR2012) of current value. In the past (2008-2012) these assets were treated as short term transactions (flips or EVI 1.0) as the underlying market fundamentals had not stabilized enough to access if a short term dislocation was part of a longer term value bottom for a buy and hold. Why EVI? Since the financial crash a new paradigm has emerged; fewer Americans are becoming homeowners for a variety of reasons. Of the reasons there are fewer homeowners today, most notable to an asset investor today is that there is not ability for traditional sub-prime lending based on...
Four Years into the Real Estate Crisis – What is Driving the New Renter Class?
There are many factors that are driving the new renter class, but it can be broken down into forced pragmatism vs. the American dream.  Here are 5 factors that are driving rentals versus ownership: 1.  Real cost of home ownership: With no home price appreciation prospective buyers analyze all cost of ownership; property taxes, HOA dues, maintenance / repair costs. Notable: property taxes will be under pressure as municipalities look to raise rates to balance stressed budgets. Transaction costs; typically overlooked and take 10% off any arms length transaction - a price of mobility or cashing out. 2.  Demographic effects: Baby boomer households have begun the shift to empty nesters, downsizing, smaller vacation home buyers. Gen Y is growing pressing the need for entry level housing, this is an 80M- group whose job growth was 3x’s the national average in 2010 and the average house- hold size is declining...