Trust Deed investing has a lot of attributes which make it a great investment strategy. It adds diversity to your investment portfolio, it’s relatively secure, and, if structured properly, it can make you a good deal of money. Here’s how it works:
Trust deeds and mortgages
There are three parties in a trust deed: the borrower, the lender and the trustee. The trustee holds the deed while the loan is being paid. A trust deed investment is a promissory note secured by the deed of trust and is payable to the investors at an agreed upon interest rate, repayment amount and time frame. If the borrower defaults on the loan, the trustee starts the foreclosure process. In a mortgage, the lender has to go to court to get the foreclosure going.
Real estate as collateral
The real estate serves to protect the lender’s investment as collateral. This is a good aspect of trust deed investing but it does require the investor to do some research to make sure that they are getting a good deal.
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. But while property due diligence is very important, it is ultimately the buyer’s payments that make your investments in Real Estate Trust Deeds profitable. Remember to be sure that they have the strength and the funds to pay you back.
Because of the flexibility available to them, trust deed investors have a lot of control over their investments. Unlike a traditional lender, the interest rates can be negotiated and you can make sure that you are involved in the sort of projects you are interested in. It’s simple—you make an investment, decide what the interest rate will be and then collect your payments every month. Trust deed investments offer an attractive yield on invested capital. If the borrower defaults on the loan, the property goes to you and you can sell it to recoup your investments.