Trust deeds, also known as private mortgages, generally offer quite healthy returns. However, as with all investments, you are taking a risk. The biggest risk taken with trust deed investments is the risk you will be forced to resell your loan on the market. Like bonds, they are structured so you can resell in necessary. Unfortunately, the market for trust deeds is very specialized and limited. To reduce this problem is to invest in trust deeds you are sure you will be able to afford to hold on to until you are paid off by the trustor, or borrower.
As long as the trustor is making their payments, you will get your expected return which is often in the double digits. However, if anything negative occurs in the housing market there is a risk the borrower may not make payments. If this happens you will get your money back by foreclosing on the property and selling it. A way to avoid this is to require a larger down payment from the borrower. The more they put down, the less you risk losing. Requiring 40% down can soften the blow of potential loan default.
Additionally, there is a risk of credit loss when investing in trust deeds. In the chance that the borrower defaults without a decline in the housing market, you will be protected by the larger down payment. The downside to all this is you will have to go through the foreclosure process, which is lengthy and time-consuming. Because many trust deed loans are made to borrowers that don’t qualify for traditional bank financing which puts them in a category of borrowers that don’t have a history of paying their debts. However, if this is their home there is a much larger chance that they will pay the loan back. Be sure to have the house appraised to be certain there is equity beyond your loan.
That means there will be a monthly payment that always stays the same. If you buy a trust deed based on a secure loan with a borrower with moderate to good credit, you will have a regular monthly income. Also, trust deed investments are one of the safest investments with a larger than average return. However, it is always important to know exactly what your risks look like. Teaming up with a trust deed broker is a good way to make sure you are getting into a low-risk investment.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
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.
© 2019 Level 4 Funding LLC. All Rights Reserved.