Investing FAQ's
>Dear Mr. Evans,
>Thank you for spending some time with me on the phone today. Since our
>conversation, I have read just about everything posted on your web site,
>and I found answers to virtually all of my questions. Nevertheless,
>here are a few more:
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(1) You recommend physical inspection of the property by the investor.
>I live in LA while I assume most of your borrowers have property near
>Grass Valley. While I would be willing to spend a couple of days
>looking at property up there on a once a year basis (or maybe even twice
>a year), what happens when I'm ready to commit funds, you're ready to
>lend them, but it's inconvenient for me to come to your area on short
>notice?
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The rule concerning physically inspecting each property recommends that it is always better to see a property ones self first hand. If you can physically inspect a property that is always better, however a majority of our investors have unfortunately never seen property that they have funded loans against as most of the value comes with future improvement and the land value is always included as a separate figure in every appraisal we present investors with. Also if the appraised value is literally a dollar higher than the purchase price a borrower paid for his land within 18 mo. we always will use the purchase price or whichever is lower as a final "now value" land value to compute the up-to 50% close of escrow land advance draw from.
In theory it is always better to see a property. Years ago I used to inspect each myself but when we began to fund more and more loans it became physically impossible for me to go there to each and run the office at the same time. In reality most of our investors aren't concerned that the lot value is wrong, live out of state, aren't worried about it because of the certified appraisers going there for them or many even rely on the fact that we have always done the best we can to stand behind all loans we arrange (and always have) and feel confident that we are not going to risk losing a business that has taken a lifetime to build inorder to inflate a building lot value a few thousand. It wouldn't be in our best interest to do that. Many read the appraisals very closely and will look at the pictures and even call me with questions but the reality is that most rely upon the appraised value, assessed value, proof of purchase price etc. as indications of value.
Don't get too hung up on any "one" indication of value (if you do or don't see a property) because we have rules that may result in us using avalue lower than the appraisers final opinion of value. See rules #11-12 & 13
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(2) In case of construction financing involving draws etc., what
>happens if something goes wrong with the house only part constructed?
We arrange loans for "up to" 60% LTV (loan to value ratio) on property so you always have in a worst case scenario the better part of $2 in borrowers real equity as security for every $1 of your dollars that are out there. This is a fact and is part of the secret to succeeding in a complex world of real estate and investing. We have spent 25+ yrs. carrying this one step further. Not only do you have nearly 2 to 1 collateral for a house that is all done and finished and final-ed and pretty and lived in but our formula insures that you also have the same ratio at the beginning, at the foundation, at the roof sheeting and at the sheetrock draw. This is why our formula always provides that no close of escrow land advance draw ever exceed 50% of the lowest value used (appraisal Vs. purchase price etc.). No final draw will ever be less that 20% of the total loan and so on. See how we calculate draws for all construction loans we broker by clicking here.
Example: If the borrower has a $50K lot and we can only release him up to $25K today as a close of escrow / land advance draw and tomorrow he gets hit by a truck his heirs would have to find a way to pay the $25K back in full on time or risk losing a $50K parcel. This simple example holds true at each individual building stage all thru the process with our draw schedule. Your next question should be... He got hit by a truck so what about the money held for foundation, roof, etc. Our Loan agreement which becomes a part of the actual note on every loans gives you the authority without a judge or jury or without any legal obstacle to apply all funds still held as a principal payment on your loan in the event of any breach (death, late payments, stop building, building wrong, any other problem) go see 5.) a thru j of the following document if you have an internet connection by clicking on the following link to one page of the actual loan draw agreement
Now the worse case scenario even if his heirs all get hit by a truck the same day is:
Occasionally you will have to take for example a $50K lot back for $25K and after adding interest foreclosure fees etc. your $25 might even be $35 but it is still always pretty easy to sell a $50K lot for $40K on a quick sale and even after paying a realtor you may even receive profits over and above your principal interest and costs.
How good is my loan agreement? Good enough to have survived almost 1,000 loans and I've never been in court. Who drew it up? California Land title companies attorney and myself. (I have simplified this explanation for you as there are a number of other ingredients) . For example: The IRS is after the borrower. We have filed something in CA called UCC documentation which makes all investors funds held for future work unreachable to any creditor including the IRS, with the exception of a mechanics lien claimant but if you'll remember your ALTA title policy which comes with every Brad Evans Real Estate Loan investment it "ALWAYS" insures you fully against the threat of any mechanics lien. This gets a little bit complicated but it is very logical stuff when you get down to the nuts and bolts of it.
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(3) I am willing to accept the risks and sometimes irregularity of the
>income stream; indeed, as you point out late fees etc. can provide a
>bonanza for the patient investor. But I need to know what you mean by a
>99.5% safety ratio: does this mean that 0.5% of your investments were a
>total loss of both principal and interest, or only loss of interest? If
>the latter, was all of the interest lost, or only a portion of it?
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I am not aware of any investors who have ever lost any of their principal. 99.5% means that over the course of brokering approximately. 1,000 loans about 5 times we encountered what I call a bad flight (as I don't fly well and would up in 2 situations in my lifetime that I hope to never repeat) The definition of a bad flight would be where you had to foreclose and many things went wrong and instead of getting all your principal plus 10.5% interest for the life of the loan you came out with something like "all your principal back plus 5%" interest on your money for the life of your loan. All forms of investment carries risk and when you do fund loans with us you will have certain responsibilities as outlined in Protocol 111 (which can be seen online by clicking here)
the most serious risk in my opinion that trust deed investors face is fire. If you receive a cancellation notice that your loan on XYZ property is no longer insured against fire it is your responsibility to buy a policy and add it to what the borrower owes you. If you let coverage expire and don't tell me and the house burns to the ground I won't pay for that. See Protocol items number 3 & 6 and the THE BRAD EVANS' PROMISE regarding fire insurance and your responsibility. Boots and I are here to help with everything from expired fire insurance policies to
>
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(4) I gather from your web posting that you may be a little reluctant
>to accept new investors. Are you in fact still accepting new investors,
>or are you totally swamped with your present customer base?
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This may be the hardest question to answer. Our rates were at 13.5% for 7 years and we became so busy that the off building season winter and lowest interest rates in 30 years is a welcome pace to me these days. We had attained something called "Threshold" status brokering beyond $10 mil in a year and even had the dept. of real estate here in their little white cars and dark blue suits looking thru every file. Without wanting to appear sounding like a vacuum cleaner salesman I honestly have to answer yes and no to all. Yes it seems that we have had more than our share of things to do around here in trying to offer our free service to private investors but no we are "never" reluctant to accept new investors because even if I don't have enough loans available today to fulfill every investor I still have the ability to give him my 37 pointers, offer him what investments I do have available , answer questions, and offer my experience if investors have questions concerning their trust deed investments whether I originated them or not. This internet is a really new thing and if I don't put new loans on my investor web page sometimes it is because things are real slow but other times it is because everything is already snapped up by investors who have called and asked to be placed on the funds available board. I'm not sure what you mean by web posting in your above sentence but I am always accepting new investors.
Lastly I must mention that trust deed investing is a very slow moving thing. Slow to get in a loan, borrowers pay slow, the bank that services the loans has a delay, and borrowers always pay back a little (30 days) late, then it starts all over again cause it's slow getting those funds into the next loan. Trust deed investing is just a very slow moving thing but I still believe that next to "owning" real estate investing in well secured trust deeds secured against real estate is and always will be the best most secure investment so long as people need to live in houses.
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Dear Brad Evans:
Thanks for the info. Sounds somewhat liquid, but only if you're willing
to
give up some rate-of-return.
Brad, can you estimate the % of defaults and/or foreclosures that have
occurred on your "safer" trust-deed investments to date?
-Brian
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Hello Brian;
Brian stated; Sounds somewhat liquid, but only if you're willing to
give up some rate-of-return.
Investors have never been asked to give up any interest on any note that
we have liquidated for an investor that we brokered. Please refer to
Protocol 111 item #20 where we will liquidate any note for you that we
brokered (so long as you have not modified it in any way) at no interest
rate reduction.
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Brian asked: "can you estimate the % of defaults and/or foreclosures
that have occurred on your "safer" trust-deed investments to date?"
Although hard money equity borrowers may posess a higher rate of late
payments on the first of each month well secured first trust deed loans can be very safe if the 37 rules are followed when all is
said and done. Some of our investors depending on monthly payment
income from well secured hard money loans to be there on the first of
each month (to buy food for example) pay themselves from their own
reserves and then replace the funds when sporatic payments arrive.
Investors funding loans with pension plans etc. arent concerned with
this and enjoy higher yields from late payments because of late charges
and interest on back interest charges.
Because we arrange loans at lower loan to value ratios than banks, S & L's, Mortgage Companies and othe rinstitutional lenders (ours never exceeding
60% LTV even on the best of loans) we feel that the need for flawless credit, lots of cash money in the
bank, a borrowers sail boat, cars or wifes income etc. are not nearly as
important a factor in approving a loan request as the "bottom line" "equity or collateral" securing the loan. This translates into a
slightly higher default rate (apx. 10%) but it also translates into more equity
a borrower faces losing if he doesn't pay up so more hard money loans are eventually cured or paid off. After brokering close to 1,000 loans totaling over $70 mil. investors
have earned apx. $10 mil. in interest for a
success rate of 99.5% apx. with our program.
When you have nearly two equity dollars securing each of your loan
dollars in something such as homes (which will be a good investment as
long as people continue to live in them).
Higher defaults on hard money loans will mean more "delays" but does not
does not mean losses.
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Subject: Usury
X-Attachments:
At 6:54 AM -0800 5/21/97, C. Brad Evans wrote:
>The usury laws in California works as follows: If you are an "exempt
>lender"; i.e., a bank, savings bank, thrift & loan or licensed personal
>property broker, the law does not apply at all.
>
>However, if you are a private individual, you are limited to charging
>10% interest, or 5% over the discount rate (which is 5.0% today),
>whichever is higher.
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fractionalized loans (any loan funded with more than one investor)
On fractionalized loans the bank (Sierra West) holds the original note
and collects and disburses the payments to each investor. (allow a 1 mo
delay on this each mo.) Each investor also recieves a power of attorney
from each other investor enabling you to file a notice of default for
example even if one or more investors was out of the country, or
unavailable. At no point in our program does anyone ever have the power
to touch your funds in any way except for the bank recieveing and
disbursing your portion of the mo. payments as they come in
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Subject: Re: Minimum Investment?
> Mr. Evans
> While reading the web pages just now, I ran across your page.
> To save both of us time and money, could you please tell me the
minimum
>amount of investment necessary to use your program? I am impressed
with
>the "Brad Evans Promise" and believe we may be able to do business.
> Looking forward to your e-mail response.
> Sincerely
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Dear Del
Thank you very much for your feedback. My goal has always been to try
to make our program available to investors of "all" size but I have some
outside and uncontrollable restrictions as to how many investors I can
place in a single investment (Title co policies and some laws) so
normally $10K is the minimum increment however I did place $5K for
someone recently once. Although I preach diversification and suggest
investors place no more that 10% to 20% of their trust deed portfolio in
each well secured first trust deed investment; Picture my dilemma when
trying to fund a $100K loan where I am allowed no more than 4 investors,
as an example, and you will begin to appreciate the paradox. I hope
this answered your question. If you wish to be added to our data base
send your name, address, email, fax, ibm or mac, asking to be added to
our list. I will send you a "Protocol lll" for you to sign and return
and you will recieve all future snail mailings about trust deeds
available.
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To: "Brian
From: "C. Brad Evans"
At 8:58 PM -0800 11/2/97, Brianwrote:
>I hardly think of a 30-day delay as "no cost to me". Unfortunately
this
>reduces the effective interest rate by about 1/12. Is there any way
around
>this--e.g. an account at the bank? And is there also a processing
delay on
>the front end when you or the bank has received my funds but they're
"not
>yet invested"?
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Dear Brian:
Apparently I have grossly misinformed you somehow for which I will
assume responsibility and try to clear up.
-Your statement that you have lost 1/12 of your yield is way inaccurate.
Let me explain with a simple example with round numbers. If you funded
a $100,000.00 loan at 12% for 1 yr., for example, with interest only
monthly payments of $1,000.00/mo. and the bank took 30 days to send you
your $1,000.00 cashiers check each month you would have lost the
interest that the $1,000 payment could have earned in a passbook account
during the entire delay or apx. $20.00 (2% passbook rate on $1,000
payment delayed)
Your 1/12 calculation implies that on the above example you would lose
$1,000 due to loan servicing delays but it is not interest lost
calculated on your $100K loan but instead interest lost calculated on
the $1K monthly payment on the loan which is probably 1/100th of your
figure. There is never a delay or interruption in your interest clock
ticking the delay is just related to mailing the monthly check as the
borrower pays on the last day, then the bank has to clear his chec, the
us mail to your mail box.
Yes, having an account at the bank can save 4 or 5 days post office
delay mailing your check as opposed to the bank simply depositing it to
your account when it clears.
You wrote: And is there also a processing delay on
>the front end when you or the bank has received my funds but they're
"not
>yet invested"?
We NEVER! "recieve your funds" as you stated. Read our 37 rules to see
that we never touch money at "any" stage of our entire process and never
have:
37
pointchecklist
Your funds always recieve interest starting the day you deposit them
directly to the title company and continue uninterrupted at the full
notes interest rate until the day you are paid off on that trust deed
investment.
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