First, you probably have the question all investors have…what exactly is trust deed investing and how does it work? In simplest terms, a trust deed is a simple document recorded with the county that creates a secure lien on real estate property. That property then becomes collateral for lenders and the trust deed holder.
Basically, this is how they work: a borrower needs a loan for real estate. (This can be property they already own or property they are hoping to purchase.) The proper documentation is created for a Promissory Note which is an agreement that the borrower will repay the lender on an agreed upon amount. The trust deed itself is what makes the contract binding. Since the property is used as collateral for the loan, the trust deed investor (person who lends the money) can use the property as a form of repayment to get their money back.
Why Trust Deed Investing Is Used
Generally, trust deed investing comes at a bit higher price than traditional bank loans. The interest rates are higher, making them more difficult to pay back. So why would anyone participate in trust deed investing then? The reasons are abundant, actually.
First, a bank loan can take quite a while to process. With trust deed investing, the loan is quick and the borrower can receive the money more quickly than dealing with all the messy paperwork. Another reason people prefer these types of loans is because they are generally more short-term than bank loans, with the length of most loans ranging anywhere from 1-5 years.
One of the bigger factors people take into consideration when investigating trust deed investing is because they do not necessarily have the credit to qualify for a bank loan. When a bank turns a person down because of bad credit, they often feel they have nowhere to turn. However, with these loans, it makes their dreams of purchasing real estate with a low credit rating very possible.
Banks also consider the worth of the property when deciding to lend to a borrower. While trust deed investors also consider the property, they do not weigh it as heavily. Thus, these types of loans are easier to obtain.
Why Get Involved In Trust Deed Investing?
It seems that people only get creative with their money when times are tough. They transfer money here, shuffle some there, maybe participate in get-rich-quick schemes, etc. They’ll do anything to make ends meet. But what if you have a little extra money? Why not make that grow, too? Have you ever thought about trust deed investing? If you haven’t, it might be time to do just that.
Here’s how it works:
Basically, you decide to invest your money in someone who needs a loan for property or real estate. This person is likely looking into trust deed investing because they are looking for a shorter loan, or (beware!) cannot qualify for a bank loan. This can be a great way to watch your money grow, but do be careful of the risk involved. You provide the borrower with the money they need to purchase or refinance their property and a Promissory Note is written up so that all the legal matters are on paper and out in the open. Generally, you can charge higher interest rates than a traditional bank loan and end up helping the person while making money yourself.
Advantages of Trust Deed Investing
The advantages of trust deed investing are plentiful. Here are just a few examples:
-The investment is back by physical property that is used as collateral (rather than just a promise from the bank, etc.)
-You are in a good equity position as you can receive up to 30% of the property value
-Payments are sent directly to you and are not handled by a middleman
-The return on your investment is great—much better than a bank even
-The property is protected by Hazard Insurance
-And, most importantly, YOU are in control of your investment. No one can tell you what you can or cannot do with it. The flexibility of trust deed investing is great for investors and thousands of people have experienced great success in using their money this way.
What is Trust Deed Investing?
Sounds simple enough, right? Trust Deed Investing can get quite complicated if the borrower or lender does not understand what they are getting into. However, with a quick briefing on this practice and how it works, you can feel sure about your decision to become involved with a trust deed loan.
Basically, trust deed investing is a loan secured by real estate. A piece of property or real estate is used as collateral for the loan, ensuring that it is fair for all parties involved. The loans vary in length but are generally shorter than traditional bank loans, and most end up being anywhere from 1-5 years. Professional real estate investors choose properties/lenders to fund projects and purchases when banks deny them. Since banks are a little more wary of lending to borrowers who are looking to purchase “fixer-uppers,” trust deed investing can often come in very handy.
Since interest rates for trust deed investing can be very expensive (some even in the double digits!) you have to be wondering how anyone can afford to borrow at this rate. Usually, the borrowers for these types of loans are not your traditional borrowers. They are savvy in the real estate market and have a solid plan and understanding of their goals. Most properties purchased with these funds are fixer-uppers and the borrower plans to receive a high return on their investment when all is said and done. They are willing to pay high interest rates to avoid the hassle of the bank, get their money as quickly as possible, and pay for a shorter term on the loan. Likely, they already have a ballpark figure of what the property will go for in the end, so the interest rates don’t seem quite as daunting to them. They can enhance their return on investment by eliminating the bank and getting things done quickly. In many ways, the borrower can benefit from trust deed investing as much as the lender/investor, if not more.
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: 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.
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