Trust deed investing can
provide substantial rewards with minimal risks for investors. There are a few
different ways to get started in trust deed investing and finding the right financial professional to help you can
make all the difference.
Most investors know about stocks, bonds, and real estate investing.
Real estate investing can be a very lucrative way to build your investment
portfolio. You can invest in real estate in a number of ways like buying a
fixer-upper, or purchasing a home to rent out. While almost everyone knows
about making money on a fix and flip or as a landlord, there is another, less
common type of real estate investing called trust deed investing. Trust
deed investing involves three parties, the borrower, the bank, and the
trustee. If you are investing in deeds of trust, your role is that of the
trustee and you act as an intermediary between the borrower and the lender. You
hold the legal title to the property until the loan is paid off or unless there
is a foreclosure.
As the trustee, your job is basically to protect the lender in the
event of default. If the borrower defaults on the loan, the lender would have
to take the borrower to court and could not foreclose on the property until
after a lengthy legal process. By using a trustee, the lender has a second
option. The trustee can foreclose on the property on the lender’s behalf and
help the lender recoup its investment. In the event of a foreclosure, some of
the sale proceeds go to you as the trustee to help recoup your investment as
While you can earn back your investment in the event of a foreclosure,
the real benefit of trust deed investing
is when all is going well. The bank or lender will pay you interest rates into
the double digits to hold the title to the property. As long as the borrower is
making on time payments, you are earning interest every month. Once the loan is
paid in full, you also get your initial investment back. You can purchase deeds
of trust through a private lender or other investment professional.
Pitfalls of Trust Deed Investing and How to Risk Less
Trust deed investing is
generally considered a relatively safe investment because it is backed by real
property than can be used as collateral in the event of default. However, like
any investment there are risks. Namely, deeds of trust are not insured by the
FDIC so there is not guarantee that you will get your money back. Also, if the
borrower declares bankruptcy then the home cannot be easily foreclosed on
without a lengthy legal process. Depending on the outcome of this process, it
is possible to lose some or all of your investment.
These risks are not unique to trust deed investing
as every type of investment does have some inherent risk.
There are a few ways to minimize these risks and maximize your profits. First
and foremost, work with a private lender or equity firm that is experienced in trust deed investing
. Make sure that
your lender has loaned on deeds of trust before and can explain the process to
you, including any and all risks.
You can also help mitigate risks by doing your due diligence. Research
a property’s title status and market value. This will help you make sure there
are no issues with the title that would prevent a foreclosure. Knowing the
market value will help you ensure that the property will be worth the amount of
the loan or more in the event of default. This is especially important because
the bank will get paid back before you do so you want to be sure there is
enough money to recoup your investment.
The right lender is key to helping you navigate the world of trust deed investing. Make sure you
choose someone who is experienced and knowledgeable about deeds of trust and
how the investment process works.
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027