If you’re researching trust deed investments or looking to fund or buy existing Notes from new mortgage brokers, you’ll want to know if the rate of return matches your investment goals. The last thing you want is to be a low-leverage, lower return investor repeatedly offered high-leverage, higher yielding paper that could lead to problems and headaches down the road.
This blog post will cover the range of yields for trust deed investments on first, second, and third mortgages that FCTD has originated in states in which we operate, including:
Let’s discuss the details below.
Trust deed investment yields in California are lower than in other states, with healthy competition between lenders and brokers driving down returns. When I attend industry conferences like Geraci Law Firm’s Captivate and Innovate, there always seems to be mention of the relatively lower California yields. Geraci should know — they provide a loan document platform that numerous private money lenders and brokers (including FCTD) use to draft thousands of loan docs each month in all 50 states. They have robust data and share it in presentations and panel discussions at their conferences.
The majority of private money bridge loans FCTD originates through trust deed investors, or private beneficiaries, are around 9.00% yield. This has been the market reality the past four to five years for experienced borrowers who use funds for fix and flips up to 75% loan-to-value (LTV), and other types of loans — bridge, blanket/cross-collateral, commercial properties, and rental.
We've gone outside the range of 8.00% to 10.00% — as low at 5.50% and as high as 12.00% — on bridge loans placed with private beneficiaries.
$450,000 Loan (25% LTV)
$1.75 Million Purchase Price | 1031 Exchange
The investor used a self-directed retirement account to fund the loan. When using a retirement plan, an investor is looking for lower yields with a longer duration, which in this case was 36 months.
$2.15 Million Loan (71% LTV)
$3 Million Appraised Value
The borrower needed funds to acquire a new business prior to listing their Coronado vacation rental for sale.
The yields on first trust deed investments are higher in states like Washington, Oregon, Florida, and Idaho, where FCTD holds mortgage broker licenses. There’s less competition in these states than in California.
$800,000 Loan Amount (60% LTV)
$1.35 Million Purchase Price
The investor needed to close with private money due to <50% occupancy rate at the time of purchase.
The developer needed a 12-month bridge loan to complete plans and permits before breaking ground on a new six-unit condo project.
Second and third trust deed investments will have higher yields due to their junior lien positions and higher risk profiles. FCTD works with several sophisticated investors who prefer funding second and third trust deeds for the higher yield. One investor only does seconds, since the target yield on his retirement fund investments is 11.00% to 12.00%. If a loan defaults, he has a real estate attorney who handles loss mitigation strategies with the loan servicer.
Recently, an experienced investor inquired about second and third trust deed investments with us. He’d been funding smaller second and third mortgages for the past decade, ranging from $25,000 to $50,000, with a targeted yield of 18.00%. FCTD prefers a $100,000 minimum loan amount with 10.00% to 13.00% interest rates on second trust deeds, so it’s unlikely we’d have loans for this investor.
$125,000 Loan Amount (44% Combined Loan-To-Value | CLTV)
$1.5 Million Appraised Value
The owner was selling a property, recently vacated by the tenants, to gain additional down payment funds to acquire another property. The loan stayed on the books for four months.
$225,000 Loan Amount (75% CLTV)
$3 Million Appraised Value
Borrowers used a second trust deed to complete renovations prior to listing for sale. This loan paid off within six months.
If these trust deed investment yields are within the range of your targeted returns, please reach out to us to discuss the loan characteristics that you would be comfortable funding.
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