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Posted almost 6 years ago

Trust Deed Investment FAQ

Investing in trust deeds is a smart and simple way to diversify your portfolio with a low-to-moderate risk investment that yields excellent returns. But what exactly is trust deed investing? How do you get started?

If you’ve heard about trust deed investing and want to learn more, here are some of the most frequently asked questions to get you started:

What is trust deed investing?

When real estate investors buy properties to fix and flip, they often turn to private money lenders for additional funding. Trust deed investors are the people who provide that private money. Essentially, with this type of investment, you’re acting as the bank for a property investor, and that means that your investment is backed by real property.

Why do property investors take out these kinds of loans?

Banks like to give out long-term loans with terms between five and thirty years. That’s how they make their money. Short-term house flipping loans create too much expense with too little profit for big banks, so private money lenders step in to fill the gap. Private loans often have significantly higher rates than traditional bank loans, but those higher rates are usually worth it to property investors who can flip houses in under a year and realize returns in excess of 30% with the help of private money.

How safe are trust deed investments?

All investments have risks, so you should never invest more than you can afford to lose. That said, trust deeds are backed by property, which helps mitigate the risks involved. If the property investor unexpectedly goes broke, you’ll still have the deed to fall back on. The biggest problems arise when errors or poorly written contracts create legal issues that put the ownership of the deed in question. That’s why it is so important to only work with licensed private money lenders with proven track records.

How much do I need to invest?

In California, no single trust deed investment can equate to more than 10% of the lender’s net worth. You can, however, invest in multiple trust deeds at one time. Often, the minimum investment level is $5,000, but that will vary from company to company.

How much do I stand to make from a trust deed investment?

Returns in the high single digits are common. Annual returns can reach as high as 14%, and dividends are usually paid monthly.

What kinds of properties do real estate investors seek loans on?

The most common property type is single family homes, but some investors will flip or invest in apartment buildings, condos, or commercial developments.

How do I get started as a trust deed investor?

The easiest way to get started is by partnering with a licensed private money lender. Ideally, the company should invest its own money in trust deeds and should also require that property investors put a portion of their personal funds toward any property investment. This helps ensure that everyone has “skin in the game.” Be sure to check the license of any lender that you work with and learn everything you can about who they lend to, their loan terms, and any hidden broker fees that your investment might be subject to. As with any investment, do your homework to help ensure the best results.



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