What do I need to know about Investing in Trust deeds?November 24, 2014
Why Borrowers Take Advantage and Benefits of Trust Deed Investing?December 2, 2014
Many experts believe that investing in trust deedsis one of the best investments out there. You will need to have a thorough understanding of how it all works, but if you learn all you can you can certainly turn a profit with the right property and good research. If you take the time to learn the correct jargon and a good knowledge of the how it works you can make the right decisions regarding our investment and make some money.
To begin with, you will need to know what a deed of trust is. A trust deed is a real estate transaction that that is used instead of a mortgage in some states. Investing in trust deeds is a transaction that is made up of three different parties. There is a lender, a borrower, ad a trustee. The lender will lend the money to the borrower and the borrower will give the lender a promissory note, or a signed document that contains all the crucial information that is necessary for the transaction. This will include how much they are borrowing, what the payment plan will look like, the amount of interest that will be charged, etc. They also need to transfer property deeds to a third party trustee. In case of a non-payment and the loan defaults, the trustee will then take over the property.
In most cases the trustee will be a title company. Often, there will be a transfer of the legal title to the trustee. Sometimes the title company will only have lien on the property. Whatever one that will be used is dependent on the state that you live in. There will be a power of sale clause in the signed documents. This means that the trustee and sell the property without having to get a court order. By having the deed of trust, those who are investing in trust deeds can insure that they will get a return on their investment.
Who looks for loaning from people interested in investing in trust deeds?
Most experts think that investing in trust deedsis a great choice, and with the current market now it an especially good time to do so. Because the market is struggling, it is hard for most people to get loans, even if they are reasonably good candidates. The banks just are not giving out many loans. Because of the limited amount of loans available from the banks, there are more people looking for lenders from someone else to loan to them. So, you are able to loan to people who are willing to pay a little higher interest rates. They are also not as much a risk because of the limited amounts of loans.
Many of the people looking for loans from those investing in trust deeds instead of banks are “flippers.” These are people that purchase properties, usually at foreclosure prices, and then decide to fix them up with the intent to resell them as quickly as possible. These flippers need to buy low and sell high, and they need to do all of this as fast as possible. Most borrowers will hope to pay back the loan within a very short time, from six months to a few years. The faster they sell the more they make.
It is because the banks do not want to lend to these business people that they are looking for other options. Most banks do not want to take the risk of lending money to buy a home that is already foreclosed, because they do not have the ability to protect themselves. Those who are investing in trust deeds will have the deed to the property so they will have to take over the property if there is a default on the loan. It is important that the lender is willing to take responsibility of the house if that happens.
Another advantage in going to trust deed investors is the speed they get their money. Moving quick is key in making a profit, and most loans can be processed in a matter of days rather than 45-90 days that it will take a bank.
What do I need to do to begin investing in deeds of trust?
Find out as much as you can about the people and properties you may be working with. In trust deed investing you will usually go through a trustee. They will have different available properties with details on each one. Read all the necessary forms, then sign and return them. If you need advice, be sure to ask for help in understanding what you are getting into. Request a due diligence package containing an appraisal so that you can inspect your trust deed investment. Then you will need to sign the right forms and send wire funds to escrow. The borrower will then begin to pay the amount that was put into the promissory notes and you will being to make a return on your investment.
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