Select trust deeds with loan-to-values below 60%
Our beloved 16th President, Abraham Lincoln, is credited for the famous quote, “Better to remain silent and be thought a fool than to speak out and remove all doubt.”
Human nature dictates that not one of us wants to be the individual in the room who clearly isn’t up to speed on what’s going on. Just think of the guy in the movie theater who keeps whispering to his friends, “What just happened? Is that a ‘bad guy?’ What movie is this, again?”
In leveling the playing field and bringing everyone up to speed on the basics of real estate investing, let’s begin with my first rule: Select first trust deeds with LTVs below 60%.
The loan-to-value or LTV ratio of a property is the percentage of the property’s value that is mortgaged. The advantage of a 60% LTV is that it is inherently a lower risk. Barring a catastrophe (which is why nothing is risk-free), the property remains greater in value (40% greater) than the investment; providing substantial opportunity for controlling investment risk.
In movie terms, you won’t have to wonder if the double-agent is going to kill the bad guys.