Make Passive Real Estate Income From Trust Deed Investments
Trust deed investing is a great way to make passive real estate income. Here is everything you need to know.
When investing in trust deeds, the investor is buying someone else’s real estate loan, which is secured by a trust deed. When a real estate investor purchases trust deed, they are setting up a relationship as an intermediary between the original lender and the borrower. If you decide to start trust deed investing, you will make passive real estate income in one of two ways:
- The borrower pays back the loan in full.
- The borrower defaults on the loan and you foreclose on the property in order to recover your investment.
If a borrower fails to pay their loan, the trust deed investor is protected by the margin of safety. Since you act as the bank, you can foreclose on the property and sell it to recover the investment and past-due interest. Because hard money loans are generally short-term, real estate values are unlikely to change dramatically over the loan’s term. When structured properly, trust deed investments offer an attractive current yield with relatively low risk which makes it a safe investment.
When structured properly, the risks of trust deed investing are fairly limited. Returns on investment are generally high because trust deeds rely on property as collateral. Essentially, this means that issues like borrowers’ personal finances and credit scores are not important to the collateral value of the property. In order to mitigate risk for investors, trust deeds are always attached to a note with a set interest rate. Loans are short term and interest-only and you get a big payment in your hand at the end of the term which makes it a great alternative investment option. If structured properly, trust deed investments can mean high yield returns in a short amount of time which makes this investment strategy a smart choice for investors.
When investing in trust deeds, the outright purchase of an investment property is not required. Some investors prefer to buy a portion of the deed. When trust deed investing in expensive markets such as California, this can be a great option. Trust deed investing is flexible which makes it feasible for borrowers who use hard money loans for their real estate investments. When working with a reliable lender who values communication and flexibility, trust deed investing is a great way to maximize your investment dollars.