BiggerPockets

How To Know If Trust Deed Investing Is Right For You?

Trust deed investing is lending your money for real estate purchases, and then collecting interest on that money as the borrower pays the funds back. This is known as hard money loan or a private real estate loan. If you are considering trust deed investing, there are a couple of factors to be aware of.

First, a hard money loan is known as high risk, because you are loaning to a potentially savvy real estate investor who hopes to purchase a property, fix it up or repair it, then turn around and sell the property for a profit. This works in theory for all parties because the lender gets to make interest on the loan, and the borrower gets to make money without spending any of his or her own money.

The returns for trust deed investing are high because you can charge higher interest rates than the typical bank loan. This is simply because you are taking a risk on this investment. This is actually a sound investment to make right now because smart real estate investors are able to find foreclosed property cheaply and sell it for a decent profit. The risk is actually less than investing in stocks, and the benefit to the economy is that you are using your investment to help another person start or continue their own business.

One problem with trust deed investing is that you may have to make a decision quickly. Investors don't have time to sit around and wait for funds to be approved, because another real estate investor will purchase the property while they wait for your word. For this reason, it is a good idea to form relationships with solid real estate professionals. You will have the opportunity to make smarter decisions this way.

Many trust deed investors will run complete background checks and credit score checks on their borrowers. This is perfectly okay as it may serve to lessen your risk in the long run. Other investors are more concerned with the property and making sound decisions as to how much the property will be worth when fixed up. This way, you will be able to make an informed decision as to how much money you are willing to loan for a particular investment.

Most trust deed investors will only loan seventy percent of the properties total repaired worth. That means they would loan $70,000 on a house that could be sold for $100,000 when it's entirely repaired. The borrower would use the funds to cover the purchase price of the house, as well as the cost of the repairs.

This is a win-win situation for both the borrower and the lender, and should result in a sound percentage yield for both of them.

Comments

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  Marc Faulkner — about 1 month ago

  Hey Aaron-Also there are a lot of trust deed investors that buy loans secured by real estate after there is some seasoning and at a discount. This can bring in better returns without having to be a lender. It also allows you time to perform any due diligence needed before jumping in.

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  Marc Faulkner — about 1 month ago

  Hey Aaron-Also there are a lot of trust deed investors that buy loans secured by real estate after there is some seasoning and at a discount. This can bring in better returns without having to be a lender. It also allows you time to perform any due diligence needed before jumping in.