Investing in California real estate these days is becoming a question mark. We have just had tremendous appreciation the last four years and people wonder whether it’s going to continue.
If not real estate, where do you put your money? The stock market? Yesterday, the stock market dropped 1000 points within one hour of the open. It later closed dropping 588 points for the 9th largest drop in US history. People all over the news were crying out that this could be the end to one of the great bull stock markets in history.
Buy Real Estate?
Most of my investors stay away from the stock market and also stay from buying California real estate. Although people who bought real estate the last 4 years have been rewarded with nice appreciation and profits, some feel it is too late to get back in the game. They feel if they start purchasing now, they missed the boat and will bear the losses in a declining market.
It is hard to find any investor who hasn’t at one time or another lost money on stocks. They have made money and lost money. Some feel that the high speed electronic trading people have the advantage over the small retail investor. Personally, when I buy stocks, it always seem to go down and when I sell, it always seems to go back up.
Stock market investors also have been rewarded the last few years and again with record highs which result in record profits for investors but is it too late to buy when it is so high? Many say yes and that’s why certain people invest in hard money loans in California.
Investing in hard money loans is not going to make one wealthy overnight. Investors consistently receive anywhere from 8% to 11% interest day in day out over the course of years. When you calculate the miracle of compound interest, eventually you see that at 10% interest, your money will double every 7 years. And another 7 years, it will double again. Those of us who are older, will realize that 7 years goes by in the blink of an eye and that’s the beauty of slow consistent growth.
Many of my investors do not like to deal with Termites, Toilets, Tenants and taxes. That’s what you deal with when you invest in the actual property itself. With hard money loan mortgages as an investment, the borrower who bought the property deals with all of those items.
Many people looking in from the outside at these mortgages think that the investor hopes the person doesn’t pay the mortgage so he or she can take the property back. That couldn’t be further from the truth.
First, in the case of a mortgage default and the investor has to file a notice of default to foreclose, if there is a lot of equity in the property, some other investor will bid higher than it owed on the mortgage and the original hard money loan investor will just be paid back his or her principle, interest and penalties. The hard money loan investor has a slim chance of getting the property back when there is equity left.
Second, the reason our investors invest in these mortgages or “trust deeds” as they are called in California, is that they don’t want the hassles of real estate. If you have to foreclose to get your money, that is a hassle. Our trust deed investors would rather just get paid in a timely manner.
Invest in what you know
All in all, there are investors for every asset class, whether it is diamonds, art, stocks, gold, real estate or hard money loans. Usually people stay in the thing that they know and are familiar with. If you invest in something you don’t know and don’t understand, you have a greater chance of losing. If you don’t know much about an investment and want to learn, start small and build up slowly.
For more information on investing in these hard money loan trust deeds, call George at 619-987-8639.