Thousands of people benefit from trust deed investing, which helps manage their overwhelming debts and reduces monthly payments to amounts they can afford.
However, in some cases, trust deeds are not the best debt management strategy, and there are other options that can be just as effective depending on each situation.
If you decide to continue with a trust deed investment, it will depend on your affordability, your long-term financial security, and what works best for you. Before choosing a debt solution, make sure you know what you’re getting into and weigh the benefits and drawbacks.
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What is a Trust Deed?
In a similar way to a mortgage, a trust deed in real estate is a legal document that ensures that a borrower and a creditor are able to complete a real estate transaction. Essentially, it is a contract between a borrower, a creditor, and a third party.
The purpose of a trust deed is to provide a creditor with money to purchase a property on behalf of a borrower. The former then receive promissory notes in exchange for guaranteeing the repayment of borrowed funds. As long as the loan is in effect, the title is held by a trustee.
How Trust Deed Works
So how does a trust deed work? There is an inherent level of risk associated with first trust deed investing, as with all types of investments.
This lending and investing deal, however, is protected by a real estate trust deed—and there are three entities involved in this agreement: the borrower, the lender, and an independent third party, also known as the trustee.
Trust deeds are essentially what secure investments against identified real estate. Until the borrower fully pays back the loan, the third party holds the deed of the property. Soon after, the borrower will be able to take possession of the property. Alternatively, the trustee will convey the property if the borrower defaults.
Advantages of Trust Deed Investment
In general, trust deed investing is a high-return investment due to the tangible nature of the real estate. Your investment portfolio would get an advantage from diversification with a real estate trust deed.
In addition to low risk, the returns are between 8% and 14%, creating significant cash flow. Aside from the passive income earned by the borrower during the loan term, investors can also benefit from the borrower’s interest rates.
In the same way that mortgages are recorded in the county where the property is located, trust deeds are also recorded as evidence of security. Upon full payment of the debt, the lender must instruct the trustee to transfer the property back to the lender and release the security for the debt. As a result, trust deed investing provides investors with the same level of security as banks do when making loans.
In addition, foreclosures with trust deeds are often much quicker and less expensive than mortgage foreclosures. An expedited foreclosure process often motivates a borrower to make their payments when they fail to make them.
For investors, this means their investments are not sitting idle in a long, drawn-out process and they are earning interest. Furthermore, investors only pay a minimal amount in legal costs to complete the foreclosure process.
Disadvantages of Trust Deed Investment
There are inherent risks associated with real estate transactions. It is a good idea to run the other way if someone is selling you “guaranteed” returns. The disadvantage associated with trust deed investing is associated with the illiquidity of the investment and the possibility of a default by the borrower.
There is also unpredictability in the real estate market. The risk involved in trust deed investing should be carefully evaluated based on the investors’ investment style, lending criteria, and personal goals.
Ready to Start Investing in Trust Deeds?
Understanding trust deeds’ advantages, disadvantages, and alternatives is essential. It is important that you seek assistance as soon as possible in order to find investments that are right for you. Getting in touch with an expert can help you decide whether or not a trust deed is right for you.
If you’re looking to enjoy returns by investing in trust deeds backed by real estate that are way above average, don’t hesitate to get in touch. It is always a pleasure for us at Saint Investment Group to give our investors tailored investment strategies that suit their needs.
We can provide you with further information about trust deeds and real estate investments by emailing info@saintinvestment.com or by contacting us at 949-881-7128 at Saint Investment Group today!
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President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.
