Trust Deed Investing
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Trust deed investing is a highly secure alternative to the traditional menu of mutual funds, bonds, and stocks. Investing in trust deeds can provide substantial returns with minimal risk. If you are considering any kind of investment with trust deed involved you have 2 options:
- 1. Purchasing an existing promissory note or…
- 2. Making a loan directly.
A trust deed is essentially a mortgage. (You can learn about main differences at “Differences Between Deeds of Trust and Mortgages”) Investing in trust deeds means you are lending money against a piece of real estate – a mortgage in standard terms, but a private mortgage. The mortgage sponsor, set the terms of the loan, and get paid regular interest at the rate agreed upon. When the loan term is up you get your capital back and can do it all over again. Most private mortgages pay you a much higher interest rate than the rate on a traditional bank loan; generally 10% or more in today’s market.
Trust Deed Investing
In spite that all investments posses a certain level of risk, trust deed investing provides a high safety degree, especially, if you compare it with other more risky investments. Although high returns (over 10%) on trust deed investments that mortgage brokers present may appear attractive, you should still be extra careful and proceed with caution. Investors should research in detail a property’s title status and market value before investing in a potential trust deed based exclusively on the promise of a high return.
A crucial point to be successful on trust deed investing is always making sure there is significant protective equity in the collateral property so if the worst case scenario occurs there is plenty of cushion and you can stay confident that you will get your capital back.
Some things to additionally consider while doing your research previous of any trust deed investing are:
- Does the property have inexplicable encumbrances?
- Unsettled legal concerns?
- Is there a considerable variation between the appraised value and the assessed value?
Investors should also make the decison whether they want to invest in a first trust deed.
- 1.- First trust deeds take precedence over successive claims and are recorded first.
- 2.- Second trust deeds have a greater risk attached to them because the first trust deed holder’s claim must be settled first. If there isn’t enough money to satisfy both debts, it’s the second trust deed holder who will lose money.
I hope you have enjoyed this brief introduction to trust deed investing.