FAQ

FREQUENTLY ASKED QUESTIONS

We can answer some general questions folks have about Trust Deed Investing.  Detailed information about potential risks and how we mitigate them for potential investors are provided to Qualified Registered Users.  You can apply for qualification by clicking here.  The application is FREE. There is no obligation. It takes about two minutes.

Who is SecureYields.com and What Do You Do?

SecureYields.com seeks high-yields secured by real estate. SY invests in 1st lien, residential and commercial notes, mortgages and trust deeds. SY seeks outsized returns and high margins of safety by acquiring deeply discounted notes. Although deep discounts can sometimes be found in performing loans, SY specializes in non-performing loans that can be acquired for $.45-$.65 on the dollar from banks, private equity funds and individual lenders in distressed situations.

After acquiring the loans, SY can then employ multiple exit strategies including:

• Loan Modification and holding for high-yield, passive income

• Loan Modification and reselling loans to performing-note buyers

• Loan Modification and refinancing out

• Short Sale

• Deed-in-lieu and flip

• Deed-in-lieu, rehabbing and flip

• Deed-in-lieu, rehabbing and rent

• Foreclose and selling at Trustees Sale

• Foreclose and flip

• Foreclose, rehabbing and flip

• Foreclose, rehabbing and rent

What Makes it a “Secured Investment?”

When a lender loans money for a real estate purchase, the borrow delivers to the lender, a written promise to repay the loans under the agreed upon terms.  This “promissory note” is the lender’s first level of security.

The borrow also delivers to the lender, a lengthier document called a “Trust Deed” or “Deed of Trust” that gets recorded at the county recorder’s office, for the world to see.  The recorded Trust Deed publicly states that the borrower owes the lender money.  The delivery and recording of a “Trust Deed” is a second level of security.

The recorded Trust Deed also publicly states that the borrower has put up their property as collateral to secure the borrower’s promise.  This creates a lien against the property.  The borrower cannot sell the property without paying back the lender. This process is cross-checked,  because in nearly every real estate transaction, either an attorney or title company checks the county records to see if there are liens listed on the property.  If there are, the seller (also the borrower) is required to pay them off before receiving any funds.  The effect of this lien on a property is a third level of security.

The recorded Trust Deed further gives the lender “foreclosure rights” against the property in the event the loan is not repaid according to the terms of the note and trust deed.  Foreclosure rights give the lender the right to step in and sell the property at auction and to use sales proceeds to repay all amounts due to the lender.  This process is usually handled by an attorney and collections costs are often also required to be repaid by the seller.  The ability to foreclose is a fourth, and major, level of security.

Overall, the debt is “secured” by:

• a written promise

• a publicly recorded document for the world to see

• a lien against a real asset

• a right for the lender to step in and foreclose and take back or sell the property if the debt is not repaid according to its terms.

You simply don’t get this kind of security buying stocks, mutual funds, annuities or even most bonds.

What Can Make a Trust Deed Investment Even More “Secure?”

When lending against real estate, a lender shouldn’t lend the total property value.  Some equity should be put in by the borrower,  therefore giving the lender some funds to recover costs in the event of foreclosure.  The amount varies by lender, but the percentage of a property’s value the lender will loan against is called a “loan-to-value” (LTV) ratio.   If a property is valued at $1,000,000, and a lender lends $900,000, the lender has an LTV of 90%.   The remaining $100,000 or 10% is paid for by the borrower as a “down payment’.  This 10% is the borrower’s “equity” in the property, and acts as a cushion, or margin-of-safety to the lender.   If the lender has to step in to foreclose, this $100,000 can help the lender recoup back payments, fees and costs in addition to recovering their loan in full.

In reality, most residential lenders on  won’t consider anything with an LTV over 80% without the borrower buying mortgage insurance. Commercial property lenders seek even lower LTV ratios.   These lower LTV ratios help protect lenders in the event the market turns for the worse and a lender is forced to foreclose in a poor market.

If a third-party buys the loan from the lender, they have two ratios to consider.  The first is the LTV.  The second is the “ITV,” or investment-to-value.  If a third-party buys the loan from the lender for $800,000 in the example above, the ITV is 80%. Buying a loan at a discount from a lender can have the effect of adding more security to the note buyer as long as the ITV is below the LTV.

The SecuredYields.com model is to attempt to acquire loans for a 45% to 65% ITV ratio, providing a substantial cushion against market turns and collection costs.

How Can SecureYields.com Buy Notes For Such a Discount?

SecureYields.com purchases mostly “non-performing loans” from banks and private funds.  These institutional sellers are bound by federal and state laws and corporate policy and are allowed to only hold a certain number of “bad loans”. The rest are often sold quickly, at a substantial discount.  During the 2008 crises, many loans sold for less than 20-30% ITV ratios.

What Exactly Is a “Nonperforming Loan?”

A non-performing loan is one that isn’t performing according to the terms agreed upon between the borrower and lender. Often, a loan becomes non-performing because the borrower has stopped making regular payments. When economic and financial pressures mount, borrowers are more likely to encounter difficulty remaining current on mortgage payments.

After 90 days of non-payment, banks and institutions are required to separate these loans into a category called “non-accrual loans” and are required to put up additional capital reserves. This has the effect of reducing the amount of funds a bank can lend which in turn, effects their profits.  This puts a financial institution in the position of being “highly motivated” to get these loans performing or off their balance sheets.  Institutions will attempt workouts with the struggling borrower, foreclose and sell the property, or simply sell off the bad loan.

Why Would a Bank or Fund Sell a Nonperforming Loan Instead of Foreclosing?

A bank or fund’s objective is to get their money back as quickly as possible.   For every dollar in equity, it can loan 10 times more.  Generally speaking, a $200,000 bad loan has the effect of preventing a bank from making $2,000,000 in loans and collecting interest and upfront fees in doing so.  Because it can take over a year in some states to foreclose, a bad loan held this long can hurt a bank’s profits.  Sometimes, selling the loan quickly, at a steep discount, is the best solution for them.

Also when banks became overwhelmed during the financial crises, they simply did not have the time or resources to manage the wave of bad loans.  So, billions of dollars of non-performing loans were sold and continue to be sold.

Isn’t a “Nonperforming Loan” Risky?

Although we sometimes use the term “bad loan” interchangeably with “non-performing loan,” the latter is not necessarily “bad”.  A non-performing loan secured by real estate is still “secured,” even if payments have stopped. Even then, missed payments continue to accrue and are owed to the lender.

The “non-performing” aspect of a loan has the effect of a loan buyer purchasing something with no immediate cash flow. To the extent the lender does nothing about the situation, the risk is likely a continuance of non-payment. The lender would likely have to pay taxes and insurance.  The property could deteriorate in value and become worth less than the loan payoff amount.  This would indeed put the lender at risk.

They key is action.  If action is taken immediately to workout new arrangements with the borrower or foreclose on the property, then most risk is mitigated.   Again, a deep ITV and LTV also help cushion potential risks.

Detailed information about potential risks and how we mitigate them for potential investors are provided to Qualified Registered Users.  You can apply for qualification by clicking here.  The application is FREE. There is no obligation. It takes about two minutes.

How Much Can I Make On a Trust Deed Investment?

Generally speaking, trust deeds come in all shapes and sizes and pay anything the borrow and lender agree to. SecureYields.com generally purchase trust deeds that were originated at rates between 4% to 10%. However, because we almost always buy trust deed notes for a discount, this can bump yields significantly.   And, if the note is paid off quickly, the overall return on investment can be even greater.  Without leverage, yields can be in 12% to 20% range.  Higher with leverage.  Of course this comes with the disclaimer of no guarantees.

What Happens If The Borrower Stops Paying?

Because SecureYields.com generally purchases non-performing loans, the borrower has already stopped paying.  That’s how we are able to attempt to negotiate a steep discount on the loans we purchase.  Once the loan is purchased, we have nearly a dozen exit options (see above) including full power to foreclose and sell the property.  We then have the right to use the sale proceeds to pay back our investment, arrears, legal fees and costs.

What Happens If SecureYields.com Stops Paying?

One of our investment programs for qualified investors includes the ability for an investor to loan to SecureYields.com to make purchases of non-performing loans.  The benefit to the investor is a loan with a deep LTV ratio which can provide a solid yield secured by real estate.  This can provide a great deal of security and cushion.

Detailed information about potential risks and how we mitigate them for potential investors are provided to Qualified Registered Users.  You can apply for qualification by clicking here.  The application is FREE. There is no obligation. It takes about two minutes.

What Makes Trust Deed Investing So Appealing?

While only our opinion, we believe Trust Deed Investing is one of the most secure ways to invest and grow wealth.  It can provide a high return-on-investment, with relatively low risk,  due the secured nature of the assets purchased.

Below are just a few of the reasons we prefer investing in notes versus directly into real estate.

1. The Ability to Acquire Deeply Discounted Assets To Reduce Risk.  Because of the financial crises in 2008, there still remains a shadow inventory of millions of properties worth less than their property value. Consequently, banks and institutions continue to offer steep discounts to get these loans off their books.  Although the following is a general guideline that can vary greatly, assets taken back in foreclosure by banks and institutions are sold as real-estate-owned (REO) assets to investors for 75%-to-90% of market value.  In contrast, non-performing loans can be purchased between 45%-to-65% of market value.  This offers the potential for Trust Deed investors to have a much lower cost basis than an REO investor.

2. Notes Are Secured By Real Estate.  Unlike stocks, ETFs, mutual funds and some bonds that are purely “equity” investments with no security, a note is secured, backed and collateralized by a solid, inmoveable asset (generally speaking).  An investor has foreclosure rights and an step in with the power to sell the underlying asset and recoup it’s investment.  Stock values can drop to zero.  That’s rarely the case with real estate.

3. Transaction Simplicity.  Acquiring an existing  nonperforming loan involves a few simple documents: the loan sale agreement, an assignment of trust deed and an endorsement of the note.   A loan sale can be evaluated and closed in the same day.  This is because a nonperforming loan is a loan that was already underwritten by a mortgage lender and processed by the realtor and title company who handled the initial volumes of paperwork.    A buyer of these loans is merely “stepping into the shoes” of the original lender and has all of the same rights by virtue of assignment.

4. Multiple Exit Strategies.  Besides having all of the same exit strategies a direct investor in real estate has, a nonperforming note buyer has several more: 1) the ability for the borrower to catch up and become current in their payments; 2) a refinance of the loan; c) a short sale and payoff; d) a loan modification; e) resale of the performing note; f) resale of the nonperforming note; f) Trustee’s sale.

5. Less Hassle.  Although not all may agree, we believe there are significantly fewer hassles and headaches owning notes versus directly investing in real estate.  For instance, there are no tenants calling with problems.  Tenants are the responsibility of the borrower, not the lender.  Municipal violations for unkept landscaping or poor cleanliness are the borrowers obligation. So are potential environmental issues.

6. Scalability.  After a loan is acquired, much of the ministerial work can be handled by the servicing company and – if needed – a foreclosure attorney.  That leaves an investor more time searching for and acquiring great deals and scaling a business.  Unlike a direct real estate investor who has to manage the property, hunt for tenants, evict, make repairs, oversea rehab contractors, stage a property for sale and deal with the infinite number of unknowns, an owner of a loan merely collects the payment. Granted, loan buyers sometimes become owners of property by way of foreclosing on a loan or deed given in lieu thereof.   However, because of the potential low cost basis in a nonperforming loan, a note investor can quickly sell a property taken back REO and have a similar profit margin as a direct real estate investor, but without all of the ownership headaches.

Why Isn’t Every One Doing It If It’s So Great?

This question underlies probably every decent investment opportunity out there.  Let’s face it, there are an infinite number of ways to make money.  People gravitate to opportunities that fit their objectives, risk profile, lifestyle choices and pocketbook.  Note investing isn’t for everyone.  So folks love to rehab properties and would never change. Some folks prefer running a business. Others just want a good paying job.  It’s doubtful there is such an opportunity that “everybody should be doing”.    And even if there were, too many people would likely dilute the opportunity. Note investing has only recently gained public attention. It’s not as well-known.  Therefore, there are still currently plenty of opportunities.

How Can I Get Involved?

There are several ways an potential note investor can get started:

1. Buy Notes Directly.  After spending plenty of time learning the business, an investor can find notes to buy for their own account.  Notes can even be purchased in a retirement account and wealth can build tax-deferred and sometimes tax-free.

2. Lend Against Notes.  Lending against notes can be a great way for an investor to earn a steady income while learning more about the intricacies.

3. Joint Venture.  For those seeking higher returns and who can afford more risk, partnering up with an experienced note investor is another way to potentially “earn while you learn”.

Detailed information about potential risks and how we mitigate them for potential investors are provided to Qualified Registered Users.  You can apply for qualification by clicking here.  The application is FREE. There is no obligation. It takes about two minutes.