What is Trust Deed Investing?
Trust Deed Investing is a type of investment vehicle in which private lenders will fund builders/borrowers that purchase real estate properties, make improvements and sell for profits. This may include existing properties or new construction.
Maintaining the highest integrity and security of the transaction is critically important. This is why all deals are structured using licensed brokers, title companies, appraisers and escrow companies to protect the interests of all parties involved.
The two instruments used to secure and collateralize the investment are a promissory note and a mortgage/deed-of-trust.
A promissory note is a financial instrument constructed by the lender and given to the borrower(s) for the purpose of documenting an agreement to repay a loan. This instrument contains the signature of the borrower(s) that agree to repay the loan according to the terms set forth in the loan agreement. The promissory note includes the:
Name of the borrower(s)
Principal loan amount
Interest rate (fixed or adjustable)
Term of the loan
Grace period and penalty fees
Mortgage or Deed of Trust
A mortgage or deed of trust is the collateral asset used to secure a loan which is reinforced by a promissory note. Whether a mortgage or deed of trust is used depends on the state the property is located in. The mortgage or deed of trust is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan between a borrower and lender. The deed contains an acceleration clause that permits the lender to demand that the entire balance of the loan be paid in full if the borrower goes into default (i.e. borrower stops making payments). If the borrower does not pay the amount due according to the agreed upon terms, the property can be foreclosed on and sold to satisfy the debt.
Benefits of Trust Deed Investing
Low correlation to the stock market and other variable or fixed income investments
Tangible real estate assets are used as collateral to secure your investment
Investors can receive monthly income, accrued interest payments, and/or equity share earnings
Investors can earn high single digit returns when investing high dollar amounts
Loans are short-term and most mature within 6 to 18 months with some extensions in special cases
Loans are only made to well vetted licensed professional builder and borrowers
What are the disadvantages?
Trust deed investments are not liquid. You must be willing to commit to investment for term of loan
Why is this an attractive investment?
Produces high-yields with relatively low risk when the deal is structured properly
Many trust deed investors receive returns above 10% annually. This is made possible in various ways – ask us how
The risk of losing money in a trust deed investment is mitigated by built in “margins of safety.”