Real Estate Trust Deed Investing is when investors invest our money in Trust Deeds secured by real property and insured by a Title Insurance Company. Basically, the investor becomes the bank and they can earn a much higher interest rate than a conventional bank.
This is your opportunity to eliminate the middle man and for you to make money instead of the bank.
Bigger Pockets provides an example:
Borrower (me) wants to buy Property-A and it will be at about 75% of value. Now this is an OK deal for a private money lender – but it’s just not quite good enough to close the deal – especially in today’s market right? But wait there’s more! I also have another Property-B that has a lot of equity in it, let’s say 65% equity. Now what I can do is attach a Trust Deed to Property B in order to secure the loan.
The borrower signs a Promissory Note wherein the borrower promises to repay the Lender a certain amount of money. The recorded Trust Deed creates the security interest attached to the borrower’s real property.
What you need to know about Real Estate Trust Deed Investing is that returns on investment are generally high because trust deeds rely on property as collateral. Again, you become the bank where you make a profit by charging interest. Your loan is redeemed by the client who returns the loan plus an interest that falls into the double-digit rates. If he or she fails to return the loan, you can sell the property to recover your investment.
If you decide to start Real Estate 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.
Investors can enjoy a consistent stream of passive income in the form of monthly interest payments on their invested capital. Returns are considerably higher compared to other fixed income investments. Real estate collateral is often viewed as more secure than stocks and equity investments, because its value can never diminish to zero.
Here are some of the advantages of Real Estate Trust Deed Investing according to Bigger Pockets:
- Trust deeds establish a monthly income through interest payments.
b. The interest rate paid is generally higher than rates paid by banks or other institutions.
c. They are liquid and may sell relatively easy to another investor.
d. An investor may borrow against them by using them as security.
e. The lender is not responsible for the payment of property taxes, maintenance, gardening, repairs or any other expenses connected to the property.
Another advantage to Real Estate Trust Deed Investing is, because the borrowers are savvy investors, they are ready and able to repay the high interests rates that you require. Real Estate Trust Deed Investing is a win/win because the lender earns substantial interest on their money and the real estate investor has a source where they can get their money fast to close the deal without the hassles of traditional financing.
The Californian real estate market offers plenty of potential for Real Estate Trust Deed Investing. Find out more here.