options to choose from. While conventional options like stocks or bonds can be
lucrative, trust deed investments
are a lesser known type of investment that can yield high interest rates and
When you buy a property in Arizona and finance
through a bank like Wells Fargo or Bank of America, most people think the bank
holds the deed to the property. This is not the case. Usually someone’s grandma
in Oklahoma or an investment banker in New York purchases a promissory note,
funds your loan, and retains the legal title to the property. Sounds
complicated, but really it is not, it is all part of trust deed investments.
a promissory note. The investor can purchase the full mortgage or a part of it.
If the investor purchases the full deed, he/she must have enough capital to
fund the whole mortgage. If a fraction is purchased then the investor puts up a
fraction or percentage of the value of the mortgage or promissory note. In this
case the investor has the option to purchase a first or second deed of trust. A
first deed of trust means that the investor is first in line to be paid back in
the event of default while a second deed investor is more at risk for losing
mortgage. You also hold the legal title to the property on behalf of the bank
(the borrower retains possession of the physical property). Each time the
borrower makes on time payments, you earn interest from the bank. The interest
rates on trust deed investments are
often higher than the interest rates on stocks and bonds. Once the loan is paid
in full either by sale or after the mortgage term, you get your initial
investment back. Basically, the bank pays you to hold onto a piece of paper for
many people back from trust deed
investing. Why would the bank pay you interest to hold a paper for them?
The reason has to do with foreclosure procedures in the event of default. The
bank cannot hold the title to a property so if there is no trustee, the
borrower retains both the legal and physical tittle to the property. If the
borrower defaults, this makes it very difficult to foreclose. If the legal
title is held by a third party, a trustee, the trustee can foreclose on behalf
of the bank, making the process much quicker for the lender.
What Happens to the
In the event of a foreclosure, the investor is at
a greater risk for loss than if the borrower pays off the loan in full.
However, trust deed investments are
at least backed by actual real estate. Once the lender’s investment is repaid,
the investor also gets their money back, assuming there is enough left from the
foreclosure sale. This makes trust deed investing a bit safer than stocks because it is backed by something with
there are ways to make it safer. If you are considering trust deed investments, make sure that you are the first note
holder. This will make you a higher priority when it comes to recouping your
initial investment. Also, do your research. Make sure the deed you are
investing in does not have any title issues or claims against it. Finally, make
sure you know the market value of the property that the deed backs. Knowing the
market value will help you decide if you are making a smart investment. Always
assume that the property could go to foreclosure and you may need to be able to
sell it quickly to earn back your money.
trust lending and other types of alternative investment and funding options.
You won’t find trust deed investing
by walking into your local bank so you need a private lender like Level 4
Funding. We know that trust deeds are not an investment that many people take
advantage of and we know how much money you can make by doing so. We will be
here every step of the way to answer your questions and help grow your money.
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027