Monday
Jun182012

How to invest in First Trust Deeds and Mortgage Notes with the lowest risk.

Do you like to buy when there is a "sale"? Many of us do (as a financial company President, I go to Nordstrom or Brooks Brothers "1/2 yearly sale" every couple years to update my business attire, the sale is when I shop!). 

The National housing market has just had a large mark down. It will drop more in some areas. According to the Case Shiller index, all together it is a 31% drop since 2006. 

However, the "national" market is just a lot of local markets put together...and increasing, according to a Wall St. Journal article from 2/26/11 entitled the Housing Market: Looking beyond the Statistics,  "...many markets are safer than they have been in years".

Note- Look at our Alaska or California markets for example. Some regions in each state have risen in the past year; others are still falling. 

What does this mean for investors of private loans like you and I? How can we lower our risk while enjoying our high secured returns?

  1. Take a long view. The next 6 months to few years will still be slow to no recovery in many markets. 
  2. Leverage experts. Both McKinley and Alaska Financial invest into core data of job growth, housing statistics and more. Lisa can get you to the right person for any specific questions and we just might have the answer!
  3. Use the normal "maxim" for good investing into First Trust Deeds- ask the question for every deal- "Would I be comfortable owning this realty IF I have to foreclose?" If yes, then invest. If not, ask, "At what investment level given the current market price would I be interested in?" Many times McKinley is dealing with a motivated seller and we can drop the dollar amount invested via a partial or a smaller sized hard money loan. Remember they have enough equity to cushion your investment, the difference between the principal value of the note funded and the realty market value. I suggest 30%+ as a rule of thumb.                   

All investments carry risk. Our is special since we have a valuable "plan B" IF the note payments stop, we can recover the underlying Real Estate based on the security agreement (usually the deed of trust). 

If we do recover the underlying security via a foreclosure, then the real estate can be sold or kept for other business or intrinsic reasons.

Just remember, someday 2011-2012 will be the "Good Ol' Days" for some of us. As recently as about 2006 I remember many investors paying as little as 6-10% for First Trust Deeds that today can be bought for 12%+!!!!

The economy always changes...better then worse and back again. But this time, the sale is deeper and the recovery is longer. It's the "Sale of the Decade or More"!

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