Trust deed investments are schemes where loans are provided with real estate as security. The maturity period for most of these loans is five years maximum. This is considered short term since a large portion of these loans mature in two years. The target groups for these loans are professionals in estate development.
The economic crisis gave rise to the industry because so many properties were available in the market at reduced prices. The foreclosure prices were low and attractive to investors. They only need small amounts to acquire a property, refurbish it and put it back in the market at a higher price. Their returns in these transactions were attractive and profitable. The gap was created by cautious lending exercised by conventional mortgage lenders at the wake of the economic crisis.
The cautious approach to lending by mortgage banks resulted from excess property that remained in their hands after the economic crisis. This property was not easily convertible to liquid cash which is the lifeline for banks. Providing such assets as security to loans would only be attractive to non-conventional lenders. Banks considered continued lending in this manner as dangerous and loose. It was thus abandoned and left to trust deed investment schemes.
The criteria for banks to lend to real estate have become too strict. This is driven by the argument that the estate is not ready for occupation by the time the loan installments are due. Banks now consider real estate developers opportunists and speculators. This has stifled the availability of funds for this sector and led to the emergence of another segment.
With limited funds for their activities, developers turned to money that was easily available and did not require strict rules. Lenders could negotiate better terms because they had the money. Interest rates for such schemes are tilted in favor of lenders. Borrowers in this situation target huge returns and can therefore afford the profits that are demanded by borrowers.
Professionally crafted schemes offer single digit return on investment. The money is available every month. The risks are low and lenders are bound to reap huge returns. In some cases, the profit margin will clock ten percent if the scheme is crafted in a professional manner. These are returns that cannot be obtained from similarly profiled investment plans. It is the margin of safety that offers a guarantee considering that the property is worth more than the amount borrowed.
In case a borrower defaults, the lender may foreclosure the property to recover his investment. Interest that had been paid out is not recovered. The loan is given at sixty five percent of the property. The lender faces a challenge of not liquidating the property as fast as he would desire. It is not as easy as disposing shares or bonds.
Trust deed investments offer incredible returns especially for regular borrowers. The overall gains are increased by the addition of a point over the interest rate by mortgage banks for frequent borrowers. The return is as much as nine to twelve percent for schemes that are professionally run. The lender is not allowed to surpass the value of the loan in case the borrower defaults.
The economic crisis gave rise to the industry because so many properties were available in the market at reduced prices. The foreclosure prices were low and attractive to investors. They only need small amounts to acquire a property, refurbish it and put it back in the market at a higher price. Their returns in these transactions were attractive and profitable. The gap was created by cautious lending exercised by conventional mortgage lenders at the wake of the economic crisis.
The cautious approach to lending by mortgage banks resulted from excess property that remained in their hands after the economic crisis. This property was not easily convertible to liquid cash which is the lifeline for banks. Providing such assets as security to loans would only be attractive to non-conventional lenders. Banks considered continued lending in this manner as dangerous and loose. It was thus abandoned and left to trust deed investment schemes.
The criteria for banks to lend to real estate have become too strict. This is driven by the argument that the estate is not ready for occupation by the time the loan installments are due. Banks now consider real estate developers opportunists and speculators. This has stifled the availability of funds for this sector and led to the emergence of another segment.
With limited funds for their activities, developers turned to money that was easily available and did not require strict rules. Lenders could negotiate better terms because they had the money. Interest rates for such schemes are tilted in favor of lenders. Borrowers in this situation target huge returns and can therefore afford the profits that are demanded by borrowers.
Professionally crafted schemes offer single digit return on investment. The money is available every month. The risks are low and lenders are bound to reap huge returns. In some cases, the profit margin will clock ten percent if the scheme is crafted in a professional manner. These are returns that cannot be obtained from similarly profiled investment plans. It is the margin of safety that offers a guarantee considering that the property is worth more than the amount borrowed.
In case a borrower defaults, the lender may foreclosure the property to recover his investment. Interest that had been paid out is not recovered. The loan is given at sixty five percent of the property. The lender faces a challenge of not liquidating the property as fast as he would desire. It is not as easy as disposing shares or bonds.
Trust deed investments offer incredible returns especially for regular borrowers. The overall gains are increased by the addition of a point over the interest rate by mortgage banks for frequent borrowers. The return is as much as nine to twelve percent for schemes that are professionally run. The lender is not allowed to surpass the value of the loan in case the borrower defaults.
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