Trust deed investing means investing in loans that are secured by real estate. These are typically short-term loans offered to real estate investors. Investors buy properties at low prices and fix them up, reselling them for a profit. These investments are referred to as fix and flip properties. Banks are uncomfortable to lend on fix and flip properties due to the larger risk. Currently, banks are unable to lend unless the property and borrower fit a strict criteria. Because of this real estate investors have to find alternative financing.
A trust deed investment company (TDIC) offers investments in collateral-backed property loans. TDICs lend to borrowers that are unable to obtain financing with a conventional lending institution. TDICs are also referred to as hard money loans. The collateral that backs them is typically real estate. Requirements for TDICs varies from state to state. Unlike banks that have to follow rigid federal guidelines for lending, TDICs only have licensing requirements that vary from state to state.
Trust deed loans can benefit commercial mortgage borrowers in need of a bridge loan. This investing can provide fantastic returns when the investor is clear on the process. Typically, private investment in trust deeds yields returns between and 8% and 15%. Not too shabby.
However, investors need to consider various opportunity costs when making a trust deed investment. The most important considerations are the concepts of control and liquidity. Unlike stocks, trust deeds give investors more control of the investment. Typically, the investor can pick the loan. They are also allowed to set and price their investment.
Trust deed loans seem almost foreign to an investor, but everyone is aware of the concept. People get a house; they get a loan from the bank. The person or entity that hold the mortgage is the trust deed. So, in essence investing in trust deeds is simply the person who holds the mortgage on the house.
There is important paperwork that goes along with the trust deed. One of them is a trust deed. The trust deed paperwork gets recorded. The promissory note is the terms that are basically attached to the trust deed. In the promissory note it will include thing such as interest rate, how long the note is for, the monthly payments and so on. The trust deed also makes it so that the property can never be sold without you being involved. When you are involved in a trust deed there are different roles being played. There is a trustor, a trustee and a beneficiary. The trustor is the person borrowing the money and making the payments. The trustee is the entity or person who has control over the paperwork. The beneficiary is the person lending the money.
Generally, business owners are borrowing in this manner. There are benefits of not borrowing money in your name, but as an entity or corporation instead. One reason is if you have multiple properties and you would prefer keeping that private, because that is public information. There are also tax advantages, as well. There are many benefits to trust deed investments.
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Dennis Dahlberg Broker/RI/CEO
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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