We want to make sure our investors feel comfortable with every part of the investing process. When you invest with us, we will keep you informed regularly so you feel good about your investment. And, of course, we’re happy to answer any questions you may have. Here are some of the more common questions from investors:
1. Isn’t it a bad time to invest in Real Estate?
This is an excellent question to be asking and it deserves a detailed answer. Please click here to see our thoughts on this topic.
2. What kind of return can I expect to make on money?
The rate of return varies with each individual investment opportunity. Factors that can affect the return on investment include the amount of the loan, the expected duration of the investment, or whether there are special considerations requested by the investor. In general, it is reasonable to see annual returns far greater than what is obtained with savings accounts or bank Certificates of Deposit (CDs). An annualized return of 10% is possible with Trust Deed investments.
3. What does “annualized return of 10%” mean?
Annualized return means the percentage return on your investment in a one year time period. So, if you invested $100,000 and we agreed to an annualized return of 10%, you would make $10,000 if we held your money for one year. Of course, our goal is to complete the property renovation and resell the house as quickly as possible, so we typically return your investment prior to one year. So, if your money was returned in 6 months instead of a year, this means we had your investment for half of the time, so your actual return would be half of the 10%, or 5%; in this case that would amount to $5,000. Not bad for a 6 month investment, right?
4. What is the typical turnaround time for the investment?
The goal of rehabbers such as ourselves is to renovate and resell the property as quickly as possible. The quickest this would be done is about one and a half months, but that is not likely. A more realistic expectation is that the whole process (renovation, listing, and resale) will take 5 to 9 months.
5. How is my investment money handled? Do I just give it over to you and hope it goes toward the purchase of a home and its associated renovation?
Your money is NOT sent to Grayford & Mack Property Investments. You send it directly to the escrow company, where it is used for the purchase of the house. If some of your funds are also going toward the renovation of the property, then the money remaining after the purchase will be sent to us from escrow to be used only on this property. You will get a Note from us indicating the amount we’ve borrowed from you, specifying the interest rate and terms, and documenting that the funds are for use on only the specified property. When escrow closes the purchase of the house, you will also get a Deed of Trust on the property.
When the home is sold, we instruct the escrow company how to divide the funds, and your money (principal and accrued interest) is sent to you directly from escrow.
6. What is a Note?
When you loan us money, we give you a Note, also called a Promissory Note. This Note documents that we are borrowing money from you and specifies the terms of that loan – in particular the interest rate, how and when the principal and interest will be repaid, and that the money will be used solely for the purchase and renovation of the specified property.
7. What is a Deed of Trust and what does it have to do with me?
A Deed of Trust, also called a Trust Deed, is a document that serves as security to ensure repayment of your loan. This document gets filed with the County Recorder. Once the county records the document, a copy is sent directly from the county to you. The Deed of Trust ensures that we repay you. If we don’t repay our debt to you as specified in the Promissory Note (mentioned above), the Deed of Trust gives you the right to foreclose on the property, much like the right a bank has when lending money to the buyer of a house.
8. What happens after escrow is closed for the purchase of the home?
Once the home is purchased, we keep you updated as to the progress of the renovation, and you can even meet us occasionally at the home to see how it’s coming along. We will inform you when the rehab is finished, when we list the property, when we have an accepted offer, and also as things progress during the escrow for the sale of the property.
When we close escrow on the sale, we detail to the escrow company how the funds are to be delivered, and your money (principal and accrued interest) is delivered to you directly from escrow.
9. What types of properties do you buy?
We buy single family residences, also known as houses or homes. We generally look for homes that have at least 3 bedrooms and 2 bathrooms, though we consider smaller homes if we believe there will be a good resale value. Most of the properties we buy are considered distressed, which means they have been neglected for a while. Sometimes they are just old and need to be updated with a modern look and materials, and sometimes they need more maintenance and repair. This is why we are able to purchase them below the normal market value.
10. Do I have a say in which properties my money is invested in?
Absolutely. When we find a house that meets our criteria, we place an offer on the property and open escrow. At this point, we present the opportunity to our investors to see who would like to loan on that house. If you are not interested in that property for whatever reason, you can simply pass on the opportunity.
11. How is the future value of the home estimated (that is, after repairs and renovations)?
We know the property will be in good shape when we finish the rehab, so we look at recent sales of homes in the immediate area that are comparable to how our property will be when it’s fixed up. We use the exact same technique as real estate agents do in calculating a price when they list a house, and we have access to the same data. Our estimates are conservative, so we do not take the price of the most expensive recent sale and use that as our estimated post-rehab value. We take a mid-range estimate; that way, if the market drops a little by the time we are finished rehabbing, we will still likely be in our estimated price range.
12. What steps do you take to protect the property once it is purchased?
Prior to close of escrow on the purchase of the home, we have insurance lined up, so that on the day escrow closes, we have homeowner’s insurance (which includes liability insurance up to $1million) and earthquake insurance already in effect on the property.
When work begins on the house, we use contractors that are licensed, bonded, and insured. We instruct our contractors to keep unauthorized people from entering the home (and even the premises if possible) to help prevent people getting injured while construction is taking place.
13. Will I be on the title for the home?
No, you will not be on the title when the house is purchased. You will get a Note and a Deed of Trust, much the same way as a bank does when it lends money to someone to buy a house. With the Deed of Trust, your debt is secured against the home, but you do not have the responsibilities associated with owning the home (property taxes, HOA fees and regulations, insurance, etc.). See the questions on the “Note” and “Deed of Trust” for more information.
This is not a Security. The information provided herein is not intended to be for the purpose of soliciting a Security under State or Federal regulations. The information is intended to give the private investor alternatives to stock market investments, but is not intended to be a solicitation of a Security under SEC rules and definitions. This is intended to be a private borrowing transaction with the individual investments secured by real estate title to benefit an individual. For more information, please see our Disclosure Statement.