As an investor, you have many options when it comes to where you put your money. Day after day, whether you are driving to work or watching your favorite reality TV show, you’ll see advertisements telling you to invest in gold, stocks, digital currency, mutual funds, etc.
And because of those ads, people have become familiar with those types of investments. But very few people are familiar with trust deed investing, although it’s a form of investing as old as money itself.
What is Trust Deed Investing?
A trust deed investment is when a lender (you) lends money to a borrower (homebuilder/developer) that is secured/collateralized by real estate. Trust deeds allow investors to get a passive introduction to investing in real estate without the need for large capital outlays.
Investing in trust deeds means you are loaning your money against collateral. The collateral—real estate/land, in this case—serves to protect the lender’s investment.
This leads us to one of the most important considerations in trust deed investing: the true value of the collateral. It’s especially important that trust deed investors consider the size of the loan they are making in relationship to the real estate collateralizing the loan. This is why a detailed underwriting process is helpful to justify the value of the property, evaluate each piece of collateral at hand, and ensure the borrower is accountable for what they are borrowing.
Before investing in any trust deed, ensure you are provided the following:
- Type of loan
- Terms and funding date
- Interest schedule
- APNs or property address
- Collateral history, if applicable
- Property details
- Borrower use of proceeds
As an investor, you get to choose which projects you invest in, as well as which borrowers your funds are lent to.
To read the rest of this article and its entirety, you can do so by clicking here.