Anyone who has researched solid investment opportunities has likely come across the phrase “trust deed investing”. Tied directly to hard money lending practices, trust deed investing relies on the notion that a property investor needs capital to make purchases during a period in which banks simply aren’t lending. But, instead of simply abandoning their goal of acquiring property for profit, they turn to private investors to offset the absence of banking loans, giving them the ability to acquire or “flip” properties. These low risk investments are great for those who have capital to lend, as the property purchaser puts the deed to the location up as collateral against the loan itself. Should a default occur, the property belongs to the lender. In other words, these opportunities are incredibly safe investments that can turn an incredible profit for the lender.
Have you followed the stock market over the last decade? If you’re an investor, we’ll assume that you have. The rocky road to recovery is taking much longer than anyone anticipated, which has opened up new areas of opportunity. When an investor is interested in borrowing “hard money” from a capital source, they often expect to receive only 65% of the property’s total value in exchange for the money necessary to purchase it. The lender then receives a high rate of return, often around 16%, which gives the borrower enough time to acquire the property, modify it for renting or sale, and then turn the profit. Secured by the property’s collateral deed, the lender has little risk, as any default will result in the sale of the property in which the investor only paid 65% of the actual market price. This dynamic alone makes trust deed investing some of the best high return investments available today.
It isn’t as simple as writing a check, however. Hard money lenders must have a solid team of market experts that help them protect their capital. By using an appraiser, a financial advisor, and usually an attorney, the entire process can be overseen, ensuring that the capital is always protected. After all, what makes these opportunities such low risk investments is the ability to lend 65% of a property’s market price, and then have the full price of that property up against the loan as collateral. Good luck finding opportunities like this in the stock market world!
Once a piece of property has been appraised, the lender can then assess whether or not the opportunity is worth the risk. Remember, the risk is circumvented by the reduced loan against the full market value of the property! This means that the opportunity is there to make 16-18% on your money, while nearly eliminating the risk involved. It works out perfectly for the borrower, as they often have a very sound investment plan in place – all they need is your capital! When approaching the industry from this angle, trust deed investing can be an incredibly profitable venture!