CALCAP Financial can help you earn 8,10% or more by learning how to invest in private loans.
You may have heard a friend or neighbor talk about the high interest rate returns they receive from investing in private, or “hard money” loans. They are in fact lenders to real estate borrowers. They are investing in loans that often earn 8% to 12% monthly interest income. They do this in California through a special provision of the California Business and Professions Code, which is regulated by the California Department of Real Estate.
People who are unfamiliar with lending on real estate property, or on this special provision of the California code, need to understand the advantages and disadvantages of this type of lending. If undertaken with care, and in concert with an overall financial plan, can become a lucrative part of your overall investment portfolio. Please see a financial planner for a better understanding of what your overall investment portfolio might look like.
CALCAP Financial is a California broker specializing in arranging borrowers who are seeking hard money financing with investors who understand the risks and rewards of these loans. We have included several items in this section to help you become better informed. At a minimum, you should read the sample lender loan documents and “Trust Deed Investing”, which is prepared by the California Department of Real Estate. Also, we have provided examples of previous loans, how to invest in through your Individual Retirement Account and a list of Frequently Asked Questions. At any time, please call us for more information.
We hope you have become better acquainted with this type of investing, and if you would like to participate, you will use CALCAP Financial in those plans.
How to invest
Investing in hard money loans is not difficult once you understand the risks, rewards and the process. We are going to discuss the process here.
If you are signed up with us and qualify to make trust deed investments, you will receive an announcement from us presenting any new investment opportunity. This announcement will present a summary of the loan, including the property address, a link to a website to give you more details about the property and the term and rate for the loan. There will also be some information about the borrower, including liquid assets and FICO score. Finally, the summary will specify the minimum investment amount and the timing for your wiring of funds to the title company and the expected closing date.
Once you have indicated a positive interest and the amount you would like to invest, we will send you a summary loan application package of the loan request along with a lender commitment and wiring instructions. The lender commitment will detail your intended investment and requires your completion and signature to proceed.
Next, as we get closer to the loan closing, you will receive the lender loan documents. This includes required Department of Real Estate disclosures and information needed by our loan servicer to adequately document the borrower loan documents. You will complete, sign and return those documents as well. Just after these are signed, you will proceed to wire your loan funds to the title company per the specified wire instructions. It is important that the funds are wired directly from your financial institution rather than transmitted by check or cashier’s check so there will not be any delay in closing. We will notify you when the loan is funded and recorded by the county. Within a month after closing, you will receive your first statement and monthly interest check from the loan servicing company.
Basics of Investing
There are seven essential elements of Trust Deed Investments:
Knowledge, experience and integrity of the Mortgage Loan Broker through whom the transaction may be made or arranged. CALCAP Financial, Inc is a DRE licensed mortgage broker and experienced in trust deed investments. Check your broker on the DRE website to ensure their license is in good standing.
2) Knowledge, Experience, and Integrity from the Mortgage Company
Market value and equity in the Property and the security for your loan. We perform appraisals of the property so you know the value of the property, “as-is”, and in the case of rehabiliation loans, the “after rehab” value also. It is important to know how much equity the borrower has to increase the safety of your investment.
3) Borrower's financial standing and creditworthiness. Hard money loans typically are made to borrowers with less than excellent credit or steady income.
The higher interest rate relative to conventional residential loans recognizes this. Even so, we do obtain information on the borrower’s business and FICO credit score so you can make a more informed decision.
4) Escrow process involving the funding of the loan or the purchase of the note.
All of our loans require Department of Corporation licensed escrow companies that will handle the documents and funds between buyers, sellers, borrowers and lenders. They are required to be a fiduciary for all parties. As an additional layer of safety, we instruct our investors to send their loan wires to the title company, which in turn will pay the seller, previous lender being paid off or the borrower, as specified. Title companies have a much higher threshold of regulation by the Insurance Department and errors and omissions and liability insurance requirements.
5) Documents and instruments describing, evidencing, and securing the loan.
You will be presented with disclosure and servicing documents that you will complete and sign before your investment. Your investment will be evidenced by the Promissory Notes, Deed of Trust and other Riders as one of the beneficiaries (in the case of multiple lender loans) of the loan. (Sample lender documents are included in this section.)
6) Loan servicing provisions, authority and compensation. We utilize a recognized hard money loan servicer to manage the servicing of the loan once it is made.
You will sign a loan servicing agreement to show the responsibilities of the servicer. The servicer will also transmit your monthly payments and ultimate loan payoff and statements. The servicer is paid on a per lender or % basis on the loan. This is the difference between the borrower note rate and the rate you will earn on your investment.
7) Recovering your investment when the borower fails to pay.
Since you are the lender on this loan, you risk the loss of principal and unpaid interest payments should the loan go into foreclosure. Our loan servicer is experienced in managing the default, foreclosure and resale of the property should you choose to use them. There is also an out of pocket expense from you after the decision is made to file a Notice of Default and proceed through foreclosure and resale. The expense is potentially recoverable from the resale of the property.