Deeds of Trust
As a real estate investor, one of the most secure and reliable investments is the deed of trust. This is useful for investors who want a pre-determined rate of return that meets their portfolio requirements. It is an excellent investment when the property securing the deed of trust is reliable and where the loan-to-value ratio is attractive. Deeds of trust are excellent for retirement accounts such as 401(k) or IRA accounts. Properly structured and executed, these investments afford the investor reliable income, the safety of tangible security, and the flexibility of liquidity, if desired. SPF structures deed of trust investments which are secured on high quality, AAA property. They are underwritten with meticulous scrutiny, to ensure for the investor an adequate and reliable monthly income.
There are numerous types of deed of trust investments. Depending on the loan-to-value ratio and the safety of the underlying security, the rate of return can vary considerably. In some instances, it is even possible to structure a hybrid deed of trust wherein the investor receives a monthly cash flow as well as a portion of the appreciation in the future. This is known as an equity participation note secured by a deed of trust. Please feel free to call us for a complete description of the various types of creative financing vehicles available. They can be structured to enhance your portfolio with returns that you cannot easily match with other investments.
Rehabilitation of High-Quality Real Estate
From time to time, SPF will joint venture with an investor or group of investors to rehabilitate property. A very attractive return can be realized through the rehabilitation and upgrading of carefully selected residential and commercial property. A strict set of criteria is used when selecting a property. A residential property will need to be purchased at a substantial discount to market. It must also be located in an area where the market is fluid, and the property and location have sufficient amenities to enable investors to yield a significant profit at the time of sale. Typically, upgrades are performed to kitchens, bathrooms, general surface areas, and landscape related to curb appeal. Likewise, additional square footage can be added to increase value and desirability. As a rule of thumb, we expect two to three dollars for every one dollar invested with these properties. In other words, if a new kitchen remodel costs $45,000, it is expected to increase the value of the home by a minimum of $90,000-135,000 upon completion.
Triple Net Income Property
An excellent investment for those who desire to be “hands-off” is a property with a AAA tenant under a triple net (NNN) lease. This is a special lease (primarily used with commercial property) which requires the tenant to pay property taxes, insurance, and maintenance. This affords the busy landlord the opportunity to receive substantial income without the headaches of day-to-day management.
This option can also benefit clients who already own property. We have found that many investors become weary of property management as they reach middle age. Their priorities shift, and they no longer want to spend as much of their discretionary time involved in the management of their real estate investment. On the other hand, they do not want to pay substantial capital gains taxes which would result if they sold their real estate. A unique and beneficial strategy is to take their existing real estate—which is often management intensive—and “exchange” it for a NNN-leased property. With this strategy, careful attention is paid to the requirements of Section 1031 of the IRS code such that the sale of the property does not incur capital gains taxes, and all of the equity from the former property (less expenses) is transferred into the new property to work for the client.
