Trust Deed Investing Questions To Ask Before You Start Investing
You have Trust Deed Investing Questions and we have answers. First of all, what is a trust deed investment? Trust deed investing is simply investing in loans secured by real estate. Most trust deed investments are relatively short term loans (maturity under five years, with many loans two years or less) made to professional real estate investors. When it comes to trust deed investing, you essentially become the bank and that allows you to charge higher interest rates than a bank might. Trust deed investing allows you to invest in real estate (which is always a good idea) without having to deal with the hassles of being a landlord. Sounds great, doesn’t it? So how do you know if trust deed investing is right for you? Here are some answers to your trust deed investing questions:
Is it right for you?
Trust deed investing is lucrative but it is not for everyone. Whether or not you should get involved with trust deed investing is determined by your investment objectives? Do you want to make monthly passive income? Are you ready to do the research involved with trust deed investing? Are you comfortable placing your assets into an investment for at least a year? Are you willing to take the risk? Ask yourself these questions first before you continue.
What is the return potential?
When investing in a trust deed, 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. In Trust Deed investing the name/company name will be on the actual deed as the lender with and ROI of 10% to 12% and interest only payments. This rate will be decided upon by the investor and the borrower and the payments are delivered to the investor on a monthly basis.
Because trust deed investments are secured by real estate, your money works harder and smarter without the risking drops in interest rates and returns. Trust Deed Investing is a tried and true method of creating a steady stream of fully collateralized, passive income.
What are the potential risks?
The risk adjusted returns of trust deed investments are very attractive. However, there is no such thing as a risk-free investment. First of all, these investments are not liquid so they cannot be converted into cash quickly. Secondly, there is real risk involved, the most obvious of which being that the borrower defaults and the lender cannot sell the home for more than the amount of the loan. To a great extent this risk can be mitigated by properly valuing the property and structuring the deal with a high enough margin of safety.
Though real estate values may fluctuate, with Trust Deed investing there is little chance for capital appreciation. For the most part the only returns that the investor will be entitled to will come from interest income generated from the loan.