Trust Deed Investing A Brief Overview

By Bonnie Contreras

Trust deed investing has the benefit of being a relatively low risk investment which offers up great returns. Most monthly payable returns are around 10% and is this makes it a great investment. When seen in context with other investments that have similar risks involved, the return on these is much higher.

The two options to consider is to buy an already existing promissory note or to make a direct loan. The process can be likened to a traditional mortgage but with a slight difference involved. In these deeds there are 3 parties involved; the lender, the trustee and the borrower. The trustee is a separate entity that holds the rights of the property by law until the person who made the loan can repay it completely.

There is however also disadvantages involved to all parties involved. The cash that is invested into these projects are not liquid. This means that the money cannot be pulled out at any given time. Many other investments, like shares, the investor can choose to pull out their money at any given time. This is not the case here and the money is only returned once the borrower pays off the loan or until it is foreclosed.

The only problem with this in today's economic climate is that banks are not willing to loan to these real estate professionals. Very often the property which they wish to use as security needs to have work done to it and the bank sees it as a risky investment. Banks have also suffered greatly with not enough care being taken in loan agreements in the previous year, resulting in bad loans in their books. They usually do not want to be put at risk of having these figures pushed even higher.

The odd cases however are approved by the bank but there are very strict criteria involved. There will be very little or no risk at all to the bank if the case is to be approved. In most cases the loans are declined and real estate investors need to seek other alternatives. The lenders who do borrow to this market are very much aware that limited options exist for the borrower in terms of financing. This means that in a lot of cases these lenders get away with charging excessive interest rates.

These high interest rates require a pretty savvy borrower in order to still make substantial profits. The only reason they do this is because they are sufficiently certain that they will receive a vast return for their investment. The other option is that they make have found a particularly favorable deal. There are also real estate professionals who are anticipating a very big capital influx in the near future, knowing that they will be able to pay back this loan very quickly.

Professional investors like these make a large living off negotiating high interest rates with borrowers. Amateur investors need to be particularly cautious of the pitfalls in the business, especially the legal battles that could initiate when a bad investment call is made. Amateur investors are therefore urged to seek the advice of a professional in order to make sound choices.

When considering trust deed investing there are multiple factors to include in the decision making process. Be aware of all the pitfalls and make a wise and informed decision as the effects can be detrimental if proper research is ignored.

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