Trust Deed Investing 101: All the Basics You Need to Know in 2023

What Does This Mean, And How Can I Do It?

Trust deed investing is a type of real estate investment in which an investor loans money to a borrower, using the property as collateral. The deed of trust is a legal document that outlines the terms of the loan, including the interest rate, repayment schedule, and any other conditions. In most cases, the borrower makes payments to the lender on a monthly basis, and the loan is typically repaid in full after a set period of time, such as five or ten years.

One of the biggest advantages of trust deed investing is that it offers a higher interest rate than many other types of investments. For example, the average return on a 10-year U.S. Treasury bond is currently about 3%, while the average return on a trust deed investment is around 8%. This higher return comes with more risk, however, as there is always the possibility that the borrower will default on the loan and the property will have to be sold to repay the debt. But even with this risk, trust deed investing can be an attractive option for investors who are looking for higher returns.

Another advantage of trust deed investing is that it can be a relatively low-risk investment. This is because the investor is usually secured by the property itself, so even if the borrower defaults, the lender should still be able to recoup their investment through the sale of the property. Additionally, many trust deed investors choose to work with professional loan servicing companies that will manage the loan and collect payments on behalf of the lender. This can further reduce the risk for the investor, as these companies typically have a good track record of collecting payments and avoiding defaults.

Trust Deeds And Mortgages: What's The Difference?

It's important to note that trust deed investing is different from traditional mortgage lending. With a mortgage, the lender actually owns the property and is responsible for its upkeep and maintenance. If the borrower defaults on the loan, the lender can foreclose on the property and sell it to repay the debt. 

With a trust deed investment, however, the investor merely loans money to the borrower and is not responsible for the property. This means that if the borrower defaults, the investor will not suffer any financial losses beyond their initial investment.

Real Estate Can Be Used As Collateral For A Loan.

As mentioned above, one of the key advantages of trust deed investing is that it offers a higher interest rate than many other types of investments. This is because the investment is secured by the property itself, which acts as collateral. If the borrower defaults on the loan, the lender can foreclose on the property and sell it to repay the debt. However, even with this security, there is always the risk that the property will not sell for enough to cover the outstanding debt. In this case, the investor would suffer a loss.

Loan Terms

When you are considering trust deed investing, it's important to understand the loan terms that will be associated with the investment. The most important thing to remember is that the loan will typically have a fixed interest rate. This means that your monthly payments will not change over the life of the loan, regardless of what happens in the market. 

Additionally, the repayment schedule is usually set for a specific period of time, such as five or ten years. Once this time period has elapsed, the loan will be paid off in full and you will no longer have any obligation to make further payments.

Due Diligence

As with any investment, it's important to do your due diligence before you commit to trust deed investing. This means that you should research the borrower, the property, and the market to make sure that you are comfortable with the risks involved. You should also consult with a financial advisor to get an idea of whether or not this type of investment is right for you. Trust deed investing can be a great way to earn a higher return on your investment, but it's important to understand the risks before you commit.

So there you have it, a quick and easy crash course on trust deeds. We hope this has been helpful and informative. If you still have questions or would like more information, please don’t hesitate to call Persevere Lending. They’re always happy to help their clients get the most out of their investments.