Benefits of Investing in Trust Deeds
Would you like to earn a higher interest rate on the money invested in your bank account? If so, then Investing in Trust Deeds works as such: a deed of trust is drawn up and recorded against the trustor's property title. This secures the investment made by the beneficiary. The trustor then transfers the property, in trust, to the trustee. This trustee holds the property title as security on behalf of the beneficiary.
From here, one of these steps is taken: The trust deed is returned to the beneficiary once all conditions outlined in the promissory note are satisfied.The property is put up for sale (foreclosed) because the trustor defaults on the loan. Should a foreclosure occur, the investor attempts to obtain either the title or a third party buyer for the property. This usually satisfies the debt owed to the investor.
There are several differences between a mortgage and trust deed:There are only two parties involved in a mortgage: the lender, and the borrower. In a trust deed, there are three parties: the lender, the borrower, and the trustee. In the event of a mortgage foreclosure, state law determines what foreclosure process will take place. Oftentimes, the process can be quite lengthy and involve the judicial system. A trust deed foreclosure does not usually involve the state, making it much quicker.
The advantage of Trust Deed Investing is that you may obtain interest rates of 8-12% on your investment, exceeding the interest rate of a typical bank account. However, there are several items to keep in mind:Always physically inspect the property in which you intend to invest, even if the property is already vouched for by an appraiser or title company. If needed, contact a realtor for information on the property, its current value, and sale prices of comparable properties. Read the appraisal too.Find out exactly how the trustor intends to pay back the loan. It also helps to know for how much initial loan money the trustor has been pre-approved. When making the loan, the Loan to Value (of the home) Ratio needs to be considered. You should never lend out an LTV that is greater than 60%. If the home is not owner-occupied, the LTV should be no higher than 50%. Click here for a free information download
Benefits of Investing in Trust Deeds
Sara James
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ndividual trust deed investments are relatively small when compared to government or corporate bond issuance. For this reason it would be difficult for large institutional investors to put a lot of money to work into trust deeds. Therefore, the trust deed market is left to smaller investors who also have the expertise to distinguish good trust deed investments from bad ones. It turns out that the universe of such investors is fairly small compared to the universe of borrowers who are seeking private money loans.
ReplyDeleteThe combination of limited supply and high demand results in a high price—in other words, a high yield for trust deed investors.
Additionally, many investors place a high value on liquidity — being able to sell investments quickly and convert them into cash. Corporate and government bonds are some of the most liquid investments in the world. Trust deed investments on the other hand cannot be converted into cash quickly. This lack of liquidity contributes to the higher yield of trust deed investments.