Investing in Real Estate without Becoming a Landlord

Many investors are buying real estate and holding these properties until the markets rebound. In the meantime many will rent out the homes. But not everyone wants to become a landlord. There are enough stories out there of landlords and their tenant problems. Owning rentals can be quite challenging and requires time, energy and money to keep things running smoothly. There is the screening and rent collection processes, upkeep, repairs, daily maintenance, vacancies, taxes, etc. etc. For those who want to invest in real estate but don't want to become a landlord, there is an alternative with note and trust deed investing.

Note and trust deeds are secured by real estate. They can be newly created with loans that are set up by private parties or it can involve a broker. There are also existing notes and trust deeds that are for sale. Many private money brokers set up their loans to pay the investor monthly and with interest-only payments. At the end of the term (usually 6 months to 2 years) there is a balloon payment due to the investor. An example would be a $100,000 loan at 12% would bring in $1,000 in interest payments each month and then at the end of say two years (or possibly sooner), the borrower pays back the $100,000.

Private money brokers generally try to keep loan-to-values (LTVs) low on the subject properies, Many loans are in the 50 - 65% LTV range and are in first position.

The returns are generally higher with note and trust deed investing compared to other traditional types of investment opportunities. Interest rates can vary depending on the type of property, but many private money loans are between 12% - 15%.

There are a varety of reasons a Borrowers may need a private money. Right now there are a lot of foreclosures and short sales being purchased by investors and often the properties need repairs and fix up before they can be resold, rented and/or be financable by a conventional lender. The advantage of using private money in such a transaction is that they are usually quick cash and don't entail some of the longer processes of getting a loan from a bank or other lending institution. Sometimes the Borrower may have poor credit or difficulties showing income to qualify conventionally. They might be self-employed or new in a business. But most private money loans are equity-driven and the type of property and loan-to-value are extremely important. A good compensating factors is a well planned exit strategy (like a buyer who is rehabbing a property and already has a buyer in place or maybe a Borrower who has another property in escrow and just needs a short-term or bridge loan until the other transaction closes). Each transaction is different and they are looked at on a case- by-case basis. Note and trust deed investing can involve some good properties and great opportunities for investors.