What Potential Investors Should Know About Trust Deed Investing
Trust deed investing is all about investment diversification and opportunity. Anyone can get involved in trust deed investing but investors should seek expert advice before they start. Before getting involved, there is a lot of information that investors should know such as real estate valuation, project management, law, and financing. Partnering with competent professionals will reduce the risk and makes trust deed investing less time consuming. Here are some things any investor should know and consider before beginning to explore trust deed investing.
The margin of safety in a trust deed investment is the difference between the loan amount and the property value. Unlike conventional financing, asset-based lending does not rely on the borrower credit history. It relies, instead on, the actual property itself. Generally, trust deed investors look for a loan-value ratio of 70 percent or less.
Potential investors should research the current value of the property and the title status. They should see if there a significant difference between the appraised value of the property and the assessed value. Investors should also know about any possible legal issues the current owner might be involved in over the property.
Property documentation is key for protecting the security of your trust deed investment. All loan and security documents must be both accurate and complete. Also, the trust deed investor must ensure the title of the property is clear of any prior liens that could impair their interest in the property. What is great about trust deed investing is that since trust deeds cover a turn-key real estate investment, there isn’t much to analyze. It is should be a relief for any potential investors to know that they will not have to suffer through bureaucracy and red tape, or sign too many documents.
Trust deed investor should be concerned with the maturity date for the loan. Most trust deed investments are relatively short term loans. The main advantage of short term loans is the liquidity of the investor. The shorter term insulates trust deed investors from changes in the ever-changing real estate market. Many investors are more comfortable extending funds for a short-term investments instead of 15- or 10-year investments.
Before an investor gets involved with trust deed investing, they should ask themselves whether the borrower will occupy the home or whether they are acquiring the real estate for an investment. Lending to owner-occupant borrowers may give way to regulatory compliance issues with respect to the loans. However, real estate investors are in the business of acquiring and selling real estate so they require private-money loans that allow them to complete transactions efficiently and successfully.
Trust deed investing can yield annual returns in the high single-digits paid in monthly installments. Anyone can get involved in trust deed investments but investors should seek expert advice in trust deed investments. There is a lot of information that you’ll need to get started such as real estate valuation, project management, law, and financing. Potential investors should focus on investments that with a high property value relative to the amount of the loan.