Tag Archives: brian davison equialt

Property Valuations, Loan to Value
In private lending where loan to own underwriting is very prevalent this category has the greatest pressure on it for manipulation to get the loan closed.  Proper valuation of a property to base the Deed of Trust on is a basic aspect of underwriting, however this seemingly easy item can be very murky for investors, especially if Real Estate is not your fulltime occupation with a few hundred transactions in experience.  Any estimate, valuation or appraisal of Real Property is only an estimate.  One does not need to hold any particular license to hold a different opinion of a property at any given time. Value is difficult in slow moving markets as there is limited (market) data to review in closings to estimate value and in rapidly changing markets some will lean toward on the side of where the market came from (past) and some will...
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 Interest Revenue
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...
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...