Evaluating Notes

Investing successfully in trust deed investments is relatively simple. Below are the key items you should consider when selecting an investment:

Yield, Term & Late Fees

Interest rates range from 8 to 13% determined by various factors . Loan terms are 6 months or 1-5 years based upon the needs of the borrower and the loan purpose. Late fees to investors are 5% of each investor’s payment collected after the 10th day of each month.

Property Type & Location:

Properties located in relatively metropolitan and suburban areas are recommended. A rule of thumb is no curb, no gutter, no loan. In other words, Church Capital does not offer investments in rural areas with dirt roads and few utilities. Such properties are highly susceptible to market fluctuations and typically take much longer to re-sell.

It is recommended that investors diversify their portfolio with several different property types. Standard property typesincude: muti-family, commercial, retail, mix-use, industrial, churches, land, distressed properties, and hospitality (hotel/Motel) properties.

Single user properties such as auto repair, fish farms, amusement parks are properties that may only be used by a unique user and cannot be transformed or usable by another type of user. Such properties should only be invested in by highly experienced investors because such properties are typically much more difficult to resell and often require an individual who understands the specialized industry. Church Capital rarely offers such loans to its investors.

Loan Type

Church Capital offers its borrowers purchase, refinance, construction, rehab, and bridge loans. Each loan type offers different terms such as maturities ranging from 6 months to five years and different yields.

LTV

This is perhaps the most important factor when evaluating a potential trust deed investment. The LTV (Loan-to-Value) ratio expresses a ratio between the loan amount and the appraised market value as a percentage. In other words, the LTV shows how much the loan is versus the equity in the property. The higher the LTV the greater the risk because the equity declines as LTV increases. The lower the LTV the greater the protection of the investor’s principal from market fluctuations. Church Capital typically does not offer investments with an LTV above 65%. This leaves 35% equity in the property as a cushion for investors.

For Example: A Trust Deed investment is offered on a commercial property. The property has been appraised by Church Capital’s appraiser as being worth today $400,000 and the loan amount is for $260,000. The protective equity is the difference of the appraised amount and the loan amount, which is $140,000. This is how the LTV would be calculated:

Appraisal

An independent appraisal will be conducted by one of Church Capital’s selected certified appraiser’s. Appraisals submitted by borrowers are never used to determine property value, but are sometimes considered to further evaluate the property’s value. In the case of a construction or rehab loan the appraiser will establish an ARV or After-Improved-Value for the property, determining the property’s value after completion.

The Borrower

Remember, loans originated by Church Capital are collateral focused, not credit driven. That said, the first consideration is the subject property’s protective equity and the ability of the borrower to make monthly payments. Credit is secondarily considered, but only to give further insight into a borrower’s payment history and debt obligations. Church Capital qualifies and approves all borrowers and verifies their individual income and ability to repay the loan.

Lien Priority

Church Capital makes a practice of offering only first deeds of trust, but occasionally will offer second deeds of trust to borrowers with an established relationship and proven payment history. If the loan is a second deed of trust the balance of the first loan will be provided along with a cumulative LTV (CLTV).

Exit Strategy

Upon origination of the loan, each borrower must provide an intended exit strategy, predetermined for paying off the loan by the time of maturity.

Typical strategies include:
  • Listing and sale of the subject property (or other property) and the use of sale proceeds
  • Loan re-write with Church Capital in which the loan is refinanced with new lenders.
  • Refinance with an another lender
  • Obtain other funds or cash to repay the loan

Other Considerations

These factors may also be taken into consideration when evaluating a potential investment:

  • Additional Collateral - On occasion a borrower may pledge additional collateral such as another property, a personal guarantee, a note hypothecation, an assignment of rents or other personal property. This additional collateral provides investor’s with additional security when making an investment.
  • Income Property-Some property types produce rental income. In this case monthly payments are not just being paid out of pocket by a borrower but with income produced by the property, giving investors peace of mind in knowing the borrower can better afford monthly payments.
  • Prepaid Interest- In this instance a borrower has already prepaid a certain number of monthly payments. Some investors enjoy the security that a certain number of payments are guaranteed to be received.
  • Repeat Borrowers- Many of our borrowers are real estate professionals that purchase and flip properties. These repeat borrowers have a proven record of quick payoffs and regular payments