If you are want to get involved with trust deed investments but you don’t know how to get started, this guide will help you start investing.
- First, determine how much money you want to invest.
- Find a reputable hard money lender with whom to invest. What you want to look for when choosing a hard money lender is experience, communication, fast processing, adequate capital, and flexibility. Find out more here.
- You should look for a strong borrower that has significant funds for both a down payment and for other expenses such as repairs. You should also consider looking at the borrower’s ability to repay your loan. I is ultimately the buyer’s payments that make your trust deed investments profitable. Remember to be sure that they have the strength and the funds to pay you back.
- Personally review the property appraisal. You should know the market value because that will help you ensure that the property will be worth the amount of the loan or more in the event of default. This is very important because the bank will get paid back before you do so you want to be sure there is enough money to at least recover your investment.
- Close the loan. After you review and accept the application package, the purchase transaction can close. The funds are delivered to escrow where your funds are secured until all dues are collected and the loan is paid. The first trust deed is recorded by the county in your name and the original is mailed back to you.
- Cash your checks. 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 the principal investment and any remaining interest owed.
- Reinvest your capital.
When structured properly, the risks of trust deed investing are fairly limited. Returns on investment are generally high because trust deeds rely on property as collateral. Essentially, this means that issues like borrowers’ personal finances and credit scores are not important to the collateral value of the property. In order to mitigate risk for investors, trust deeds are always attached to a note with a set interest rate. Loans are short term and interest-only and you get a big payment in your hand at the end of the term which makes it a great alternative investment option. If structured properly, trust deed investments can mean high yield returns in a short amount of time which makes this investment strategy a smart choice for investors.