A deed of trust, in short, is where you stake a part in someone else’s property offering to help her pay the price. You and she sign a promissory note or deed of trust which you hold onto an which is your contract. This promissory note, or IOU, states that she is going to repay your loan within a specified amount of time at a certain interest rate. (Interest rates can be as high as 9%-12%. ). If the borrower defaults, you can sell her property to recoup your loss.
You’ll find that certain times are better than others to invest in trust deeds. One of these periods is when people are interested in buying.
And people buy when interest rates are low.
Correlation between interest rates and real estate
Interest rates drive property prices. (Incidentally, they also determine whether/ not you can raise your interest prices thereby higher hiking your profit).
High interest rates worsen a housing market meaning that you may find less clients when rates are hiked since less people want to buy property. This gives you less opportunities to invest in.
Since real estate tends to be more expensive, you’ll also want to make doubly sure that the borrower can and is willing to repay.
What’s the interest rate situation now?
The Federal Reserve had bumped the interest rate from 0.25% to 0.5%. last December and intends another slight shove later this year in March.
Global distress and market turbulence may halt that decision.
This last wednesday’s, Federal Reserve Chair Janet Yellen told Congress that global economic troubles could shunt delay in the Feds rigging their interest rate as planned.
Yellen cited higher interest rates for riskier borrowers and the strengthening dollar as factors that have most harmed exports and led to fall in stocks. If allowed to continue, these could crush the labor market which would lead to the Fed reversing their decision on hiking the interest rate.
On the other hand, the nation could feel some relief from plunging oil prices and from declines in longer-term interest rates. If this occurs, the interest rate would be held static.
The global market is in turmoil with stocks falling in places like Japan, China, and parts of Eastern Europe – predominantly Greece. As a result, yields on certain Treasury notes have been pushed to historically low levels. Business confidence is low. It is this situation that most worries the Fed.
“Foreign economic developments, in particular, pose risks to US economic growth.” Yellen told Congress. She singled out China.
At home, solid job growth and faster wage gains offset stocks falling in certain sectors particularly in the tech and industrial corners. The government added 2.7 million jobs in 2015 and unemployment fell to 4.9%. On the other hand, inflation is tottering from low oil prices and a robust dollar. This makes US consumers prefer foreign to local products further pushing local unrest.
In late January, Federal policy makers had stated that the Central Bank is “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”
Yellen reiterated that statement Wednesday.
The Fed is keeping an eye on affairs and will moderate its raise accordingly.
What happens will impact your business and will determine whether or not you will want to invest in trust deeds the coming months.
The fiscal world is in turmoil, the Federal Reserve will set its interest rates accordingly and this determines whether or not people will want to buy property and how to set your own rates.