Information for Investors: Trust Deed Investment Guide
If structured properly, trust deed investments offer an attractive current yield with relatively low risk. If you are looking to invest in real estate and make a big profit, this alternative investing option may be right for you. You can learn everything you need to know from this Trust Deed Investment Guide.
First of all, borrowers seek alternative financing because they are looking for loans too large for community banks and too small for institutional banks. They need to find financing quickly so they can act on a project. Evaluations can take weeks or months with banks. Banks have strict regulations and lending standards. Someone with a less than perfect credit score would find it impossible to jump through all of their hoops.
It is precisely the banks’ reluctance to participate in this market that has created the attractive investment opportunity in short term real estate loans. The fact that banks are not lending to this market has created a supply/demand imbalance that doesn’t have anything to do with the quality of the borrowers, but instead with the condition of banks’ balance sheets.
You can find out more about investment methods on the Trust Deed Investment Guide below.
The property’s market value is the most important aspect to hard money lenders. The borrowers are savvy real estate investors who are planning to make a very large return and/or strike a very favorable deal, and are willing to pay for a quick and simple source of capital.
The evaluation process scrutinizes:
- The property value and equity
- The borrower’s ability to pay the debt
- The borrower’s actions during a downturn
- Amount the borrower puts towards the property
- Current economic and market conditions
There are several investment methods for trust deed investors:
- Individual or joint cash accounts
- Self-directed IRA accounts (Traditional, Roth, Simple and SEP IRAs)
- Corporations, partnerships and LLCs
- Pension plans
A promissory note is basically an IOU that contains the promise to repay the loan, the trust deed is the document that pledges the property as security for the loan. It is the trust deed that permits a lender to foreclosure if you fail to make the monthly payments. Investors will receive a copy of the following documents after the funding of a loan:
- Executed promissory note
- Recorded deed of trust
- Title policy
- Insurance on the property
You can find out more about payment on the Trust Deed Investment Guide below.
Trust deed investors receive monthly payments at the agreed upon interest rate. These payments can be structured in various ways. One is partially amortized monthly payments containing interest and some principal; another is with a balloon payment balance delivered at the end of the loan term. When the borrower pays off the loan or the loan term expires, the investor receives payment for your principal investment and any remaining interest owed.
Basically, investing in hard money Trust Deeds is like investing in a bond. The Trust Deed will yield you monthly payments with returns above what traditional Trust Deeds offer. In addition, the principal balance is paid back to the investor in a relatively short duration.
Loan is paid
When the loan term ends, the borrower must pay back the loan. Upon repayment of the loan by the borrower, the investor receives principal payoff in full. When the borrower pays off the loan or the loan term expires, the investor receives payment for the principal investment and any remaining interest owed.
The investor’s funds will then be available for reinvestment on another loan of the investor’s choosing, or to utilize however the investor wishes.
Change of title
When the loan is repaid, the borrower is granted the title to the property and the investor’s name is removed. The borrower can then complete the next phase of their project.
If the Trust Deed Investment Guide did not answer all of your questions, you can find more information here.