Clay Sparkman
We’ve been getting quite a few calls from new investors lately who are interested in investing in trust deed secured loans. This makes a certain amount of sense to me, as a number of factors are lining up to enhance the attractiveness of this type of investing. The factors I have in mind include the following:
- The stock market is highly volatile.
- Treasury securities pay almost nothing and are only rated AA+ (by–as you know–one particular rating agency).
- Most investors wish to diversify beyond commodities markets such as gold and other hard metals.
- Trust deed secured loans are backed by actual collateral to facilitate recovery in the event of a default. Very few investments, if you think of it, actually have a backstop.
- There seems to be a growing sense among economists, various experts, and those who deal in real estate markets that real estate values are not likely to fall significantly during the next few years (though they may continue to decline in certain areas).
- As I noted in an earlier post, Miami markets are fast on the mend. What is happening there? (investors from all over the world have decided that property values are at a low and are swooping in to buy excess inventory, thus driving prices up. This may be the beginning of a potentially nationwide trend. Investors tend to be bearish by nature, so when they think a market has pretty much bottomed out, it is worth paying attention to this collective information.
- The point about the market more-or-less bottoming out seems to apply most particularly to commercial real estate.
- And of course, as an investor you have a buffer against a reasonable amount of depreciation in your collateral market. For example, if you lend on a certain property for one year at 65% LTV and if values in that market fall by 8% during that year, you’re most likely going to come out whole if you have to take back the property. (The markets for rentals appear to be strong.)
Let me know if you have any additional thoughts regarding pros and/or cons of investing in trust deed secured loans at this time.
On a related note: this is a very specialized niche blog. Currently there are 123 subscribers, and I don’t have any way of knowing how many people read the blog through and RSS feed. (This compared with my private money for borrower/brokers post which has 1750 subscribers and an unknown number of RSS readers). I rarely every receive comments back from the readers of this blog–and don’t get me wrong; I understand this as I don’t often comment on the blogs that I myself read (I tend to silently enjoy them). Yet I sometimes lose steam as I begin to wonder if folks out there are actually reading this stuff.
I am going to do something now that I ordinarily only do with my wife: beg. If you are reading these posts (or at least a few posts here and there when you have the time), would you be so kind as to send a quick note back or post a message saying so (nothing fancy; just an “I read this blog” sort of thing)? I would appreciate it greatly, so please, please, oh please … <begging part>. There, that wasn’t so bad now was it.
The other thing that would be quite helpful is if readers would give me some indication of what they would like to see in future posts. With some 17 years in the business, I am capable of writing a decent post with regard to just about any aspect of the private money investing business, but I get to a point where I simply don’t know where to go next. This is your chance. Put in a request, and I’ll do my best to give you something worthwhile back. Deal?
— Clay (clay@privatemoneysource.com, 503-476-2909 or 800-971-1858)
Clay is Vice President of Fairfield Financial, a primary source for private money loans since 1964. Fairfield works with a broad range of private money investors, in a broker capacity, finding, underwriting, presenting, closing, servicing, and when necessary, assisting in the workout of difficult loans.
Tags: Florida, hard money investing, hard money lending, hard money loans, investing, private money investing, private money lending, private money loans, real estate investing, trust deed investing, trust deed lending, trust deed loans
I found your posting very interesting and was glad to hear Miami markets are on the mend.
Thank you Elaine for taking the time to say so. I am dearly hoping that the trend in Miami is just the beginning of a much larger national trend. Clay
Clay,
I have been reading and enjoying your posts since day one. I am a private hard money investor who might now be investing with your company if all my money wasn’t now tied up in being a landlord because of the collateral properties I had to foreclose on and take back because of the tight lending market preventing my borrowers from being able to re-finance, or going under for various other reasons.
I think many investors are in a similiar situation of wanting to invest now but having their money tied up in properties that were once collateral and which cannot be unloaded in this real estate market. So I bide my time (years) until I can free up cash again.
I have enjoyed posts in the past that were first person stories of other investors/borrowers such as that guy from New York you did quite a while back or your story of doing underwriting on the California property in the Malibu area.
Keep writing but not too frequently so you don’t get burned out.
Frank
Frank,
Thank you for this very encouraging and generous response. I hope that we do have the opportunity to work together at some time in the future. I have to agree with your conclusion that you are not in a unique situation. The last four years were tough on lenders. And in particular, the lenders I work with who are tight on funds in this way are the ones who had money invested when the tsunami hit (so to speak)–that is those who had had funds invested into a number of loans at the time when the sub-prime market collapsed and the banking sector virtually diapered. The good news is that I see those folks working, in most cases, successfully through the recovery process (via extensions, workouts, or foreclosures/re-sales). Not all of these folks will come out whole, but a fair number it seems will come recover quite successfully (given the patience to do so). It also seems that new investors who have entered the market in the past 2 years (or so) are doing much better, as they went in with full knowledge of the potential issues, and thus (a) had a better opportunity to assess the new price trend of the target markets, (b) made the loans at a slightly more conservative LTV, and (c) ensured to the best of their abilities that the borrower had a solid exit strategy. Thanks again Frank. Let me know when you are ready to place recovered funds, and we can explore further at such time how we might work together. Best, Clay
I think you do a super job, please do not stop.. I always read your info, very interesting. Thank You…
Thank you Alberto for your kind words of support. It means a lot to me to know that people like you are out there reading my posts. I am renewed. No danger of me stopping any time soon. Thanks again, Clay
I just stumbled across your blog but will definitely become a regular reader. This is very good stuff and appreciate you writing it. in terms of content, still digging through the archives but I would find info on currently available loans of interest as well as anything on return drivers–what’s the yield delta on the key loan metris in the current pricing environment (so is a move from 65% to 70% is worth how much–ballpark terms–in yield, etc).
Thanks for the positive feedback. I appreciate it. These are both very good suggestions and I will get to work on them. Particularly this questions about incremental LTV changes and show they relate to other metrics on the loans. I don’t think I’ve ever heard that question, but I like it very much. Clay