If you want to make a smart investment, you’re going to want to read this trust deed investing guide. Trust deed investments have existed for a long time, yet many prospective investors do not know much about them. Trust deed investments are just like mortgages except for one difference: there are three parties involved. Apart from a borrower and a lender there is an investor.
When investing in a trust deed, the investor is buying someone else’s real estate loan, which is secured by a trust deed. When a real estate investor purchases trust deed, they are setting up a relationship as an intermediary between the original lender and the borrower. In Trust Deed investing the name/company name will be on the actual deed as the lender with and ROI of 10% to 12% and interest only payments. This rate will be decided upon by the investor and the borrower and the payments are delivered to the investor on a monthly basis.
A common question that is asked about trust deeds is “Why have I not heard of this before?” The easiest answer is that in the past financial planners did not get paid on alternatives investments as they do with securities, therefore if they were associated with large brokerage houses they were not allowed to discuss these options with you. Now some hard money lenders as well as self-directed IRA custodians provide platforms to integrate financial advisors, allowing you to truly diversify your money into any available option that meets your goals.
A property appraisal is essential in that it ascertains that you are not over-leveraging your capital for something that is not worth it. Due diligence is important with any investment. Investors should be certain of the property’s market value and also be aware of any repairs. If the borrower defaults on the loan, the property goes to the trust deed investor so that they can sell it in order to recoup their initial investment. Having a good appraisal helps make your trust deed investments safe.
Unlike traditional lenders, the credit history of the individual seeking the loan is not as important as the value of the property. However, it is important to know the borrower’s financial history borrower before approving the loan. Luckily, those you use hard money loans to flip houses or develop property are generally savvy investors who know how to make profitable, short-term investments.
It is important to know what the borrower’s plans for development are. They should have a properly structured investment plan that the trust deed investor can see so that they can accurately assess the risk you are taking with a particular property.
The bottom line is that the secured nature of these investments creates an ideal opportunity for investors with substantial capital and less-than-perfect credit scores. However, in order to make your trust deed investments safe, it is important that you make the right considerations.