I’m a native to Northern California and have been exposed to real estate investment and development my entire life. My father is a retired builder and my uncle still builds homes in El Dorado Hills. For 25 years I ran the office of a development company. I remember the first real estate appreciation boom in the 1970’s.
In the last 30+ years of California real estate I have not seen a market like we have today. In my lifetime, you could not buy or refinance residential income property with a hard money loan and have positive cash flow. That has all changed, thanks to the correction.
In cities all over Northern California and the Bay Area, I am making first-position deed of trust loans in amounts of 60-65% of today’s market value to buyers and owners of short sale and REO properties. In virtually every case, those properties have a debt service coverage ratio of anywhere from 1.3 to 2.0 with a 12% loan! A debt service coverage ratio is the relationship between the net rental income (rent minus property taxes & insurance) and the loan payment. A 1.3 debt service coverage ratio (DCSR) means that the net rents are 1.3 times larger than the loan payment. This is absolutely amazing and unprecedented in California history! And the time for jumping on deeds of trust loans in California is now.
The reason for this is that rents have remained strong in the most popular Bay Area rental markets while property values in those markets have fallen as much as 80% from their 2006 high. This market dynamic has allowed California deed of trust investors to capitalize on lending opportunities with key safety factors previously unavailable to the private lender.
Where are these markets? These are working class neighborhoods (and up) in cities such as Vallejo, Fairfield, Vacaville, Pittsburg, Antioch, Brentwood, Oakland and many (if not most) areas of Sacramento. We’re careful to stay out of the rougher neighborhoods. We don’t like bars on windows. The neighborhoods we make deed of trust loans in, while you may not wish to live there, are neighborhoods that you’ll feel quite safe driving through.
If you’re waiting for lending opportunities in areas such as San Francisco, Marin or Silicon Valley, you may find your money sitting around earning nearly zero while others are pulling in 11% returns secured by solid residential income property.
What is the Purpose of a California Trust Deed?
A trust deed, or a deed of trust, in California, is a document that is sometimes used in real estate transactions, and it becomes important when one party has taken out a loan from another to purchase a property. The California trust deed is the agreement between the lender and the borrower that the property will be held “in trust” by someone else–a third party–until the loan is paid in full.
Trust deeds are less common than they used to be, but are still used in California as well as 19 other states in the USA.
The benefit of investing in trust deeds is that there is a high-yield stream of income. The downside is lack of liquidity and the possibility of no capital appreciation. Deeds of trust investors often expect high-interest rates of return, and it’s a passive investment.
What makes a deed of trust invalid in California?
There is one trick to deeds of trust in California that makes them the subject of extra scrutiny. Courts have, in the past, wiped out deeds of trust liens because of small errors in the documentation, such as the wrong address listed, or the wrong debt payback amount. If caught, these can be easy to fix, but they’re something to be wary of when entering into these deeds of trust deals in California.
I invite you to learn more about the many opportunities to put your money to work in the markets I mentioned above. You owe it to your retirement plan! Visit our trust deed marketplace at privatemoneyloans.com.