Top 5 Things You Need to Know About Trust Deed Investing

Savvy investors should always be on the lookout for new opportunities that will put their money to work. Whether you choose to invest in your sister’s new business or a particular stock, the most important thing with any investment is to do your homework first so that you understand the risks and the potential rewards. Here are five things that you should know about trust deed investments.

Trust Deed Investing Puts You in the Banker’s Chair

When you invest in a trust deed, you are essentially acting as the bank for a property investor. You are loaning the funds that property investors need to quickly flip properties for profit, and your loan is secured by the property in question. Property investors often turn to these types of loans even though they have higher rates than bank loans, because banks aren’t usually set up to lend in the fix and flip market place. Their loan parameters are too limited, and their time to fund is too long. So private lenders step in, and more than a third of all house flippers use private loans to fund their projects, because these loans help them leverage their own capital more effectively.

Trust Deeds Often Yield Annual ROIs in Excess of Ten Percent

Yields in the high single digits are common, but some trust deeds return profits around 14%. In most cases, the interest earned from these investments is paid out monthly.

Investing in Trust Deeds Creates a Win-Win Scenario

It’s natural to be skeptical of any investment that promises such high returns. Surely someone is getting taken advantage of, right? In fact, property investors are willing to pay the high rates of private money loans because those loans help them realize exceptional profits. By utilizing private funding, house flippers are able to invest in more properties at once, and they’re able to secure properties ahead of their competition by making more compelling offers. This results in greater success for house flippers, who regularly make ROIs in excess of 30%.

In other words, no one is losing out in these deals.

Trust Deed Investments Carry Moderate Risk

When everything is executed properly, the risks involved in trust deed investing should be low, because the loan is secured by real property. That said, paperwork mistakes, legal issues with the property, and other mishaps can arise, which can cause big problems. That’s why it is so important to only work with licensed lenders with proven track records. Attention to detail can make all the difference when investing in trust deeds.

Trust Deed Investment Companies Can Help You Get Started

Rather than working with a broker who will charge fees that diminish your earning potential, look for a licensed lender to partner with that invests its own funds in trust deeds. Everyone should have skin in the game – that’s the mark of a solid investment.

Check the company’s license, find out their on-time performance rate, and learn about their loan terms and their lending criteria. As always, never invest more than you can afford to lose, and diversify, diversify, diversify. Many trust deed investments have a minimum investment threshold of $5,000. With alternative investments like these, it’s generally a good idea to start small and see what happens.