What Is A Trust Deed?
There are different ways of giving loans to a real estate borrower. One of such ways is for the lender, also referred to as an investor, to provide the loan using real estate as collateral. The term ‘Trust Deed’ comes from the ‘Deed Of Trust,’ the name given to the instrument used to secure the loan. As soon as the borrower can sell or refinance the property, the loan is paid back.
Investing in Trust Deeds for Cashflow
Trust deeds are valuable to the lender or investor by the nature of the returns they offer. A typical trust deed offers 8-12% interest yearly, is consistent in monthly income, and accepts real estate as collateral. Lots of lenders and investors prefer to invest in trust deeds as opposed to owning rentals. This is because there’s no need for tenant management or upkeep.
Pointers On Investing In Trust Deeds
- When borrowing or investing in Trust Deeds, lenders that are new to the concept must know that the most important thing to do is set their sights on 1st position trust deeds. This refers to the priority of the deed.
- As a lender, you should focus on single and multi-family real estate, as they’re considered, among property classes, the most liquid.
Common Mistakes In Trust Deed Lending
Investing in Trust Deeds over a long period will almost certainly result in the lender being required to initiate a foreclosure. This could be down to non-payment of loan maturity. In a correct transaction, the LTV should be enough to take care of the foreclosure. To avoid a bad situation:
- Don’t invest in a trust deed at too high Loan To Value
- Don’t invest in real estate assets considered too liquid or complicated.
- Act on defaults immediately. Don’t delay.
Investing in trust deeds is an exciting concept for real estate lenders. To read more about investing or lending to Trust Deeds, click here.
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