Some people think that trust deed investing is only for the wealthy, but actually you don’t need to have a ton of money to profit from this opportunity. As Dennis Dahlberg points out, there are many lower cost options for budgets of any size. Here’s some help in trust deed investing to help you get started.
There are 5 ways that you can slice yourself a portion of the investing even if you’re on a lower income. Here they are:
- Pool your resources with a friend – You may find a friend or acquaintance who is in the same situation as yourself. Both of you may want to pool your resources. Make sure that you agree on the property and borrower that you’re investing in. Split the monthly interest payments. Read up all you can on the subject beforehand and speak to experienced investors. If you can afford it, hire a lawyer to supervise the dealings. If you can’t afford the lawyer at elast recruit two objective witnesses. Proceed slowly collecting expert guidance every step of the way. This helps you purchase a sizeable chunk of trust without risking too much money. It also helps you tiptoe and get feet slightly wet – not yet soaked – in a scaringly new field that intimidates many. Divide the profits.
The most important point on this is the following: Make sure your friend is trustworthy! You’ll be entering into fractionalized trust deeds (i.e. one where you share all investments and returns). Peter Rosenthal, president of V.I.P. Trust Deed Company, warns against this for the simple reason that they can be conflicting and prone to breakdown. You have to be on the same page and thoroughly trust one another to engage in this. You’ll want to hold regular meetings and make sure you cover every cover conceivable and inconceivable point that may be involved and that you agree and act jointly on these points. You may also want to hire a reputable attorney to supervise and help you go through with the proceedings.
- Trust deed investing pools – If you can’t find a friend or trustworthy acquaintance who agrees to share the risk, there are some brokerage firms who can hook you with others who want to combine resources to make a larger investment. So, for instance, your share may be 15% while those of collaborators are 25 percent, 4 percent or whatever percent of a trust deed that is broken up into pieces.
The benefit with this is that these firms supervise the transaction – they act as your lawyers so you can feel more confident about the situation. Some owners may also be patient and kind enough to guide you through the process and answer your concerns. Shop carefully before you make your decisions. Also be aware of the danger of fractionalized agreements as discussed above.
You’ll be entering into an environment where the trust deed is broken into fractions. If there are any problems, all investors will have to agree before you are able to solve your problem. For example, two of the fractions may have their percent to advance to a senior lien holder, but some of the other fractions may refuse. Unless you’re all on the same page and in accord with each and every detail of the investment, you’ll likely emerge with more stress than necessary (if you emerge with a profit at all!).
In the worst scenario, your broker gets into financial difficulties or closes down. Your ‘fractionalized’ company will disperse and you’ll be left to fend for yourself.
- Fractional trust deeds – This is the cautious way to go. Some states offer fractional trust deeds where you purchase the trust deed for, let’s say 6 months instead of a year, and assess it as you go. Do you want longer? Extend your term or buy more.
- Cheaper investment – No need to stretch for the costliest ventures such as a villa or condominium. Lower your sights to property like cemetery plots that can be great investments but tend to be cheaper because they are smaller and less valuable than realty is.
- Defaulted deeds of trust – You can invest in the overlooked niche of defaulted deeds of trust. Note: This is a specialized hugely risky niche. On the other hand, returns are higher and investments are relatively cheap.
The short of it is that trust deed investments appeal to people since they’re a way of earning high interest rates with little risk of losing money because your investment is backed by property.
Best of all, you don’t need to have the wallet of a Rockefeller to go into it.
I hope this article points you to some alternatives that could enrich you.