Why I think First Deeds of Trust are safe investments: When you own a First Deed of Trust, you’re as the bank, lending money to the property owner and putting your name in the first position on the deed.
To begin with, never, ever loan more than 65% or so of the value of the property. That way, if the market takes a dump and your borrower walks away, you will still get all your money back. Secondly, never, ever buy securitized First Deeds sold in a bundle. Instead, put your name on the individual property deeds as a lienholder.
Only a few things can happen on a First Deed. (1) The borrower improves his credit and refinances. You get paid first. (2) The borrower sells. You get paid first. (3) The borrower defaults. You foreclose and you get paid first – all interest, late fees and back payments.
Even if the market takes a big enough dive, like in 2008, and it drops more than the amount you have lent, you’re OK. That means good people lost their homes. It makes for a hot rental market. This happened to me after the 2008 crash. I rented my home to a couple who were hell bent to repair their credit after being foreclosed out of their previous home. They were with me for 4 years before they moved out when they could purchase a home again.
One other thing… never, ever, ever, EVER lend on a Second Deed of Trust. Don’t allow the retailer of the First Deed talk you into a Second Deed. I don’t care if the loan to value is 10%. The First is in total control, and as long as they get their’s, they don’t care about you.
I purchase First Deeds like anyone else does. Just do an internet search for someone in your area who offers them. Each month, all I do is open the envelope containing the check with all my First Deed payments calculated to it. I get 10.5% net, which ain’t bad. When you do a risk/reward analysis, this one is a really good value.
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