Understanding Trust Deed Investing

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February 4, 2020
February 5, 2020

Understanding Trust Deed Investing

Trust Deed Investing is a great way to get into the real estate investing business, but with less of the hassles of the business. But you first must understand the process of how these Loans work.

It can be very challenging to decide where to invest your money to get a strong return. Currently, the stock market is pretty unpredictable, which is why many savvy investors are looking at Trust Deed Investing to grow their nest egg. These Loans are relatively safe as there is real collateral on the loan, and you are on the deed of trust in the first lien position. But before you dive into Trust Deed Investing, it is essential that you do your homework and understand the entire process so that you know what to expect.

The first step in the process is for a borrower to seek non-traditional lending. This could be due to the size of the loan, the time required to secure a bank loan, or many other situations where private lending is a better solution for the borrower. Next, the trust deed broker will evaluate and conduct an underwriting review of the project. This is basically the process of checking out the 5 C’s. These are collateral, capacity, character, capital, and conditions. These are all the criteria to know that the borrower is a reasonable risk; the project is stable and that the deal looks to be successful on paper.

Now the investor selects which Loans that he or she would like to fund. At this point, it is vital that as a lender, you have done your homework and due diligence to learn about the entire loan options. You should be looking at the property very carefully as this is the ultimate collateral that is protecting you if the borrower defaults on the loan payments. When you determine which Loans look good to you, then you agree to invest your money to fund the Loans.

Making It All Legal

To convert deed of trust lending to a legal agreement, some paperwork needs to be filed. The deed of trust is basically a promissory note. Still, after the loan is funded, you receive an executed promissory note, the recorded deed of trust, a title policy, and a copy of the insurance on the property. The deed of trust is also recorded as a public document listing the investors and their percentage of ownership in the property. It is essential to know that a deed of trust can be listed in a first, second or third lien position. For the most secure Trust Deed Investing, make sure that you are only in the first position.

The Life of the Deal

Now the loan continues to term with the borrower accruing interest and making payments according to the terms of the loan. At the end of the term, the borrower pays off the loan, and the investors get paid back in full and are free to reinvest that money in other projects. And the property is re-titled back to the owner. This process is far more straightforward than many types of real estate Loans. It offers benefits to both the borrower and the lender.

Dennis Dahlberg
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 the Author: 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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