Trust Deed Investingrefers to an individual making a loan to another individual using real estate as collateral. The collateral is typically real estate and can be any type of land of property that has equity.
In essence, a trust deed is literally a deed to the property, which is given to a third party, not familiar with either individual parties, who has instructions on how to handle the situation in the case of a default in the loan. The trustor is typically a corporate trustee who is “trusted” with the actual deed.
Once the loan is paid back, the trustee records a reconveyance. A reconveyance, reconveys the deed back to the borrowers hands. If there is a default in the loan, the trustee would then convey the title to the lender.
Why Use Trust Deed Investing?
There are several benefits of trust deed investing. They are very safe and low-risk. As long as the property holds value, the investment is secure. Typically, people don’t invest more than 60% of the value of the property being used as collateral in case of default. Trust deeds are secured by tangible property; which means you can look and touch the property and have a chance to decide whether this property is something you want to own or be involved in selling in case of default. Generally, there are fantastic returns on deed trust investments. Depending upon the deal, the individuals involved and the property, it’s common to make a 10%-20% returns.
Of course, as with any type of investment, there are risks of trust deed investing. Make sure you know the value of the property. In today’s market, property values decrease in the blink of an eye, and it can be hard to be confident of the property’s value. It’s smart to stay in neighborhoods and areas where you are familiar with the property prices or can quickly get an honest appraisal. Be sure that you have extra cash at hand. Only invest a part of your available assets in trust deeds and the balance of your available assets should be as liquid as possible.
The bottom line is, with trust deeds, you have to know how to profile and identify properties.
Trust deeds will typically tie up the cash for one to two years. This shouldn’t be a problem because you should not be investing anything you will need to draw money out of for at least two years. These are not good investments for individuals expecting to have a cash flow issue for living expenses.
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.