There are many ways to invest in real estate, and investing in trust deeds is one of them. This is where an investor puts his or her money into loans that are secured by properties.
In the United States, only some states use a deed of trust versus a mortgage to secure the property as collateral for a loan. Deeds can be invested through brokers that specialize in this type of financial instrument.
To start the process, it is important to find a reputable financial investment group or brokerage. Hard money lenders Phoenix are often a good choice for people looking to invest in Arizona real estate. If you know of someone who has already succeeded in the trust deed investment arena, ask them for recommendations. Alternatively, you can ask your accountant or real estate lawyer for reputable companies to start working with.
Most investments are done with short-term loans that mature within five years or less. When you find a brokerage, they will be able to show you the loans or deeds of trusts they have available for purchase/investment. You want to check the following details carefully before purchasing one or more trust deeds.
You want to know the terms of the deed and its duration. You must find out the loan amount and its LTV (loan to value). It is also important to find out what you can about the borrower. If the borrower defaults on the loan, you will be able to foreclose on them but only if they do not choose bankruptcy as an alternative. In this instance, you would either need to wait for the bankruptcy to be completed or file to move for relief from the bankruptcy stay.
Be sure to review an accurate appraisal of the property before selecting a trust deed to purchase. You must be certain the loan is less than the amount of the property in order to protect your investment and earn a return on it.
Returns on deeds of trust are high. Investors can realize returns of about 10 percent and the risk of losing money is low because, if the loan is much less than the value of the property as evidenced by the appraisal, there is a profit to be made.
Besides purchasing these instruments through investment brokers, you can invest in funds trust deed pools. You can also invest with others who are acting together as an investment group. Always perform due diligence and your success in obtaining returns will be greater.