companies and big broker dealers don’t
year mortgages. Trust deed investments have
alongside of other investment opportunities:
six months to five years. But why not package
commonly offer trust deed investments
#1
NOT EASY TO SCALE Trust deed investing is not easy
to sell to investors on a mass scale like many securities and mutual funds. The primary
reason it’s not an easily scalable investment is because there are a lot of moving parts required to both underwrite, and then
manage each trust deed investment. These
moving parts include mortgage brokers, real
shorter durations, or loan terms, varying from all the investments with the same term? For example, packaging a cluster of one-year
balloons together and selling it. Because of the higher rates associated with trust deed
investments, a borrower on a one-year loan
may pay the investor off within three months. It is just this particular aspect of trust deed
investments that makes them more difficult to package and sell to Wall Street.
services, appraisers, insurance agents, home
#3
and in some cases, home remodeling experts.
factors, it becomes difficult to price each
ment for risk, the investment broker - often
but are not limited to, loan to value ratio, lo-
property value opinions from realtors or ap-
condition of collateral, income producing or
of insurance coverage, analyze title reports,
experience or track record of borrower. For
deed investment is sold, another army of
a trust deed investment may be located in a
investment including property managers,
other property may be located in an upscale
cialists. For large brokerage companies, this
the borrower in the rural community in the
hassle and difficult to scale, when compared
payment, while the borrower in Los Angeles
estate agents and/or brokers, title and escrow inspectors, property management services, In order to underwrite a trust deed invest-
DIFFICULT TO PRICE Because each trust deed in-
vestment is given such a wide range of risk investment uniformly. These factors include,
called a private money broker - must obtain
cation of collateral, credit score of borrower,
praisers and analyze them, validate adequacy
vacant property, cash position of borrower,
perform site inspections, etc. Once the trust
example, one property used to collateralize
moving parts may be required to manage the
rural community in the Midwest, while an-
contractors, and other real estate related spe-
neighborhood in Los Angeles. But what if
type of an investment could seem like a large
Midwest is bringing in a 50 percent down
to strictly paper investments.
is only bringing in 10 percent down payment?
#2
NOT EASILY PACKAGED AND SOLD DOWNSTREAM
How would someone price these different trust deeds based on these particular risk
factors? This seems like a pretty daunting
Unlike many of the securities offered by bro-
task for someone who is not experienced
trickier to package and sell to Wall Street. Un-
approach to pricing trust deed investments
Obligations (CDOs) that have been blamed
company that is used to relying on credit
recession; trust deed investments are not 30-
of the investments it sells to investors. But as
kerage companies, trust deed investments are
with trust deed investing. This complex
like the widely criticized Collateralized Debt
tends to overwhelm a traditional brokerage
for the subprime crisis leading to the great
rating services - like Moody’s - to rate the risk
MAY/JUNE 2017 33