Trust Deeds Investing
What is a Trust Deed Investment?

Investing in Trust Deeds

When investing in Trust Deeds with us, we want you to know what it is you are investing in.

  • You are Investing in Real Estate
  • Below Market Value
  • With Experienced Investors

1

What is Trust Deed Investing?

Loans secured by real estate are known as trust deed investing. Trust Deed investments work as short term loans, reaching maturity within five years. Often times these loans are less two years. A trust deed investment is made by a professional real estate investor. In the current economy, professional real estate investors will purchase property at foreclosure sales or auctions, usually for incredibly low prices.

Once the purchase(s) have been made, the properties are remodeled and re-sold for a profit. Banks are hesitant to loan to this exchange due to faulty real estate lending practices in the recent years. Consequently, banks will not create real estate loans unless those seeking the loan meet a very specific and narrow requirement set of criteria. Unless a property is already known to be immediately livable or “move in ready” at the time the loan is taken out, it is very difficult to procure tradional bank financing.

The reason for this is that the security of the loan is something that cannot be sold immediately on Wall Street or through warehousing. Due to stricter criteria for tradional bank lending, real estate investors face difficulty in locating financing options that are not riddled with hoops to jump through and unrealistic critera.


2
What Makes Trust Deed Investing Attractive?

Properly structured trust deed investments give off an attraction for a high yield that is low risk. Earning high annual returns ranging from 7 percent to 16 percent that is often paid monthly to the Trust Deed Investor. When compared against other investing options, Trust Deeds are an extremely attractive investment due to their high yielding returns. Trust Deeds have a “margin of safety” built in that significantly lowers the risk of an investor losing money.


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What Can I do to Gain the Experience Necessary to Become an Active Trust Deed Investor?

A trustworthy expert is the best way to take advantage of the opportunities available for investing this way; employing their advice and help as proven investors is the best way. Finding a good fund structure in which professional investment managers are responsible for the sourcing and evaluation of trust deeds is one way to go about it. If you desire to ultimately gain the necessary knowledge so that you will one day be able to invest in trust deeds yourself, search for someone you can trust to teach you the ropes personally. An active investor of real estate loans will be able to show you the process, if they are willing. Once you have learned the basics, you may be able to keep them on as a mentor as you work through the process of evaluating and working deals on your own.

First Trust Deed Investments

Additional Questions and Answers

First trust deeds are the lien first listed on the subject property- no other loans have superior position if default or foreclosure occurs. Second trust deeds are therefore second in line for fulfillment if a default happens. So, if the first trust deed forecloses, a second trust deed holder can expect their investment to be empty. Conversely, it is not the same; if the second trust deed holder forecloses, the first trust deed will keep their investment, but the second trust deed holder now is the new owner of the property, subjected to the original trust deed (the first trust deed) which still holds its place.

Hard money lenders are those that are not considered typical bank lenders, meaning that the loan will be “outside the box” of standard bank lending. A higher interest rate is tacked on to a hard money loan. Origination fees are charged to the borrower when the loan is originated, hence the term “origination fee”, this is expressed as a point and each point relates to 1% of the overall amount of the loan.

This type of lender is typically quite successful in real estate, they are usually real estate investors who possess surplus cash. Preferring to loan the money than have it earn marginal interest in a market fund or bank account, they are able to loan to extra money to two (typically) types of borrowers.

Generally speaking only two varieties of borrowers exist who are willing to pay double-digit interest rates that common to hard money lenders. 1) Investors who are expecting to gain a very large return or source a particularly good deal- this type of investor is ok with paying for fast and uncomplicated capital sourced this way; or 2) homeowners who will not qualify for any other type of loan due to poor credit.

It is wise to only invest in a loan that will go to the first type of borrower as a trust deed investor.

Used interchangeably, bridge lenders and hard money lenders have similar missions. Both focus on short term real estate lending. Hard money loan can signify that a borrower’s credit is not good, while a bridge loan commonly indicated that the borrower’s credit good while the property may be in disrepair or does not meet traditional bank loan qualifications. Bridge lenders’ interest rates are close to those of permanent and traditional bank loans, while hard money loans are more expensive due to the interest rate.

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