That’s a complicated question to answer simply because there are a lot of moving parts to any loan or trust deed investment. If any one of those moving parts are handled incorrectly then the lender could be exposed to risk. Some of those moving parts include:

 

 

Most people consider the collateral valuation and the loan-to-value (LTV) to be the single greatest factor in determining whether a loan is safe or not. The LTV is a percentage representation of the amount of the loan as compared to the value of the collateral that is securing the loan. The amount of the loan should always be significantly less than the value of the collateral. It’s widely held that 65% loan-to-value is a safe exposure to a borrower’s collateral. The other 35% is what is called protective equity. Protective equity (or the equity cushion) is the margin of safety that the lender has in the circumstance that the borrower defaults on the loan and the lender is forced to sell the borrower’s collateral in order to recoup their investment.

 

It’s worth noting at this point that MMG Capital is far more conservative than the typical lender and would consider 65% loan-to-value in today’s marketplace to be a risky loan (trust deed investment). MMG Capital makes only the more conservative loans that completely or nearly eliminate market risk.