In the United States, there are two types of real estate transactions, true mortgages and deeds of trust sale. In a true mortgage sale, there are two parties involved, the bank or lender, and the borrower. The borrower is given the deed to the property he/she is purchasing and the lender has very little security or collateral. A second form of real estate investing is called trust deed investing. This type of investing differs from a true mortgage in that there are always three parties involved, the bank or lender, the borrower and a third party who is investing his/her personal capital in the deed of trust. If you want an investment that pay for college, investing in deeds of trust can be an opportunity to earn high interest rates with low investment risk.
During trust deed investing, an investor acts as a third party during a home purchase transaction. The bank loans the money, the borrower purchases the property and repays the loan, and the investor, or trustee holds the deed to the property. The trustee holds the deed as security to ensure the repayment of the debt to the lending bank and the bank pays the trustee interest for this service.
Trust deed investing boasts high rates of returns on investment and can fit almost any budget. An investor typically earns anywhere between 7% and 12% on trust deed investments. This is significantly more than any savings bonds, savings accounts, and most stock options.
When investing in deeds of trust, make sure you know
your options and how to minimize your risks and maximize your rewards.
Investing in trust deeds is generally considered to be a fairly safe investment strategy because the investment is backed by actual real estate collateral. An investor can literally drive by and see his/her investment. The trustee can also help insure his/her investment in trust deeds by having property appraisals and working with a licensed broker for the transaction. Another way to secure the investment is to invest only in the first position in the deed of trust. The first position ensures that this trustee will be paid first in the event of a default.
Call your broker to add trust deed investing to your child’s college fund portfolio. Start earning higher interest rates with less risk today.
Funding Your Retirement with Trust Deed Investing
(With an ever increasing cost of living, longer life expectancies, and more medical bills, US citizens need to have more saved for retirement than ever before. One investment strategy that can help you earn high interest rates is trust deed investing. Learn more about it here and decide if it is a good method to help diversify your retirement portfolio.)
Smart investors save for retirement. They start early, diversify their funds, and manage their money carefully to ensure that they will be able to live well after they stop working. You are probably doing all the right things, but are you saving enough? According to the Social Security Administration, the average retiree needs at least 70% of their pre-retirement income during their retirement years. If you plan on travelling, eating out, shopping, golfing, and engaging in any other number of activities that are expensive, it is possible that you will need almost 90% of your pre-retirement income. Social Security accounts for about 40%, leaving you with anywhere from 30 to 50 percent to make up for.
Investing money while you are still working is the best way to prepare for retirement. Having a well-rounded and diversified portfolio is one of the best ways to make sure that your money is always working for you. One investment that most people take advantage of is a stock investment. With this type of investment an investor purchases parts, or shares, of a company. When the company makes money, so does the investor. If the company loses money, so does the investor. The risks and rewards of stock investing varies by the specific companies the investor chooses to invest in. There is not insurance against loss. To help make this investment less risky, investors can do their research. Make sure they know about the finances of the company they are investing in and choose companies that show stability over time.
Another type of investment is bonds. There are a variety of different types of bonds that can be purchased from the United States government. Depending on the bond type it takes a specified amount of time to mature. Once the bond is matured the government will purchase it back for a guaranteed interest rate. Bonds are extremely safe investments as they are backed by the U.S. Department of Treasury. The main downfalls of bonds are that they earn fairly low interest rates, usually in the single digits and often as low as 2%, and they take a significant amount of time to mature. Bonds are a safe investment but don’t offer very high or timely returns.
A third type of investment that is not as common as stocks or bonds is trust deed investing. Investing in deeds of trust is a type of real estate investment. Basically the investor acts as a third party during a mortgage transaction. He/she buys an interest in the loan that a lender is giving to a borrower. The lender then pays the trustee interest to hold the deed to the property on the lender’s behalf. Interest rates on trust deeds can be as high as 12% and are usually at least 9%.
How Trust Deed Investing Helps the Lender
In order to understand why the bank would engage in trust deed investing, it is critical to understand the two types of mortgages in the United States.
The first type of mortgage is a true mortgage wherein the only parties involved are the bank and the borrower. Either the borrower or the lender holds the legal title to the property they purchase. If the borrower defaults on mortgage payments, the bank has to take judicial action against the borrower by actually suing them in a court of law, regardless of who holds the title. Only after the court has ruled in their favor can the bank take possession of the property via foreclosure. This is a lengthy process and can get quite expensive.
In trust deed investing, the trustee holds the legal title to the property and is paid interest by the bank for doing so. In the event of a default in payments by the borrower, the trustee can take legal possession of the property via foreclosure without judicial action. The bank can then sell the home quickly to recover their investment as well as the investment of the trustee. This is a much shorter foreclosure process and saves the bank money in the event of defaulted payments. Since this makes foreclosure easier and more profitable for the lender, it is in the bank’s interest to secure their mortgage loans with a deed of trust.
With high interest rates and low risk, trust deed investing
is a great way to supplement your retirement savings to earn you that extra 50%.
As with any investment, it is best to use the assistance of a broker to help navigate the ins and outs of investing in deeds of trust. A broker will help you with the specific laws in your state related to deeds of trust and will help you maximize your return and minimize your risk.
Benefits and Downfalls of Investing in Deeds of Trust
Trust deed investing is a specific type of real estate backed investment with a high rate of return. Like any investment strategy is has a specific set of risks and benefits that are crucial to understand before investing your money.
Investing in trust deeds is a specialized type of real estate investing. Unlike doing a fix and flip, or purchasing a rental property, trust deed investing is a much less involved type of investment. In order to understand the basics of investing in deeds of trust, it is necessary to understand the types of mortgages available in the United States. There are true mortgages and trust deed sales.
The first type of mortgage is a true mortgage. This is a real estate transaction involving two parties, the borrower and the lender. The borrower chooses a property to purchase and the lender funds the purchase. The borrower then repays the lender each month including interest for a period of time, usually 30 years. The legal deed to the property goes either to the borrower or lender, depending on state laws and guidelines. If the borrower defaults on payments, the bank must begin the process of judicial foreclosure. This basically means that the lender must sue to borrower in a court of law to prove that the loan is in default. Once the lengthy legal process is over, the lender can sell the property as a foreclosure to attempt to recoup funds.
A second type of real estate loan is a deed of trust sale. In this sale there is still the borrower and the lender who have virtually the same roles. A third party is an investor called a trustee. The trustee purchases an interest in the loan and is given the deed to hold on behalf of the lender. The lender pays the trustee a relatively high interest rate (usually around 9%) to hold the deed. Payments are received each month as an additional sources of income. As long as the borrower is current on payments, there is no more work for the trustee. If the borrower defaults, the foreclosure process is much faster. The trustee holds the legal deed to the property and can sell it as a foreclosure on behalf of the lender. The lender does not have to sue the borrower, it only has to prove the borrower has defaulted to the trustee.
Level 4 Funding LLC
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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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