How to Invest in Real Estate Through Trust Deeds

If you're looking for ways to diversify your investment portfolio, trust deed investing may appeal to you. Investing in real estate without the hassle of being a landlord has never been so easy! Follow this step-by-step guide to learn about trust deed investing and see if it's right for your financial goals.

Difficulty: Easy

Instructions

Things You'll Need:

• Knowledge of your personal financial situation
• Investment account records (if you have them)

1. Trust Deeds are simply mortgages. Firms offering trust deed investments offer a wide variety of products for you to invest in. Common products are mortgage pools and fractionalized trust deeds. You should always understand the type of product you're investing in (fund, pool, commercial, residential) prior to committing any money.

2. Research the firms you would consider to invest through. Many firms can be found on the internet by searching "trust deed investing." Your financial advisor may also be able to direct you to local, reputable sources. You should make sure that the firm you choose is licensed to do business in your state and is in good standing with their state regulatory agency for mortgage brokers/agents.

3. Ask the firms you're interviewing about the default rate in their portfolio. Be wary of firms with over a 20% default rate.

4. Be sure you understand the products you're looking to invest in.
   
   * Mortgage pools/funds place your investment dollars in a pool with other investor funds and invest in multiple mortgages.
   * Fractionalized deeds of trust place your investment dollars into one loan with other investor dollars, and are generally for a specific term and stated rate of return.

5. Once you've found a firm you're comfortable with, take a few months to review their available investment opportunities. A good deal today will come along again tomorrow, and you should feel no pressure to invest immediately.

6. Once you've found an opportunity to invest in, have a specialist at the firm you're investing with walk you through the process of your first investment. Ask questions, determine what kind of documentation you'll receive, and ask when you'll receive your first interest payment.

7. Congratulations on being a new trust deed investor!

Tips & Warnings

• Fractionalized trust deeds return on the average of 9% to 12% annually. Returns for mortgage pools or funds may be lower due to management fees.
• Feel free to ask for additional information on any loan you're considering investing in, such as borrower financials, property appraisal, and other information that may be available. Just ask!
• A good guideline for Loan-to-Value ratios for any trust deed investment is 70% or less.
• Trust deed investments generally provide monthly income/cash flow, which make them very attractive to many investors.
• The investment minimum for most trust deed firms is between $10,000 and $25,000. Be aware of this.
• Trust deeds are not guaranteed nor are they insured investments.
• If a property you've invested in goes into foreclosure, be prepared to wait-out the process for the return of your investment dollars. Foreclosures can take from 7-10 months to complete (sometimes shorter, sometimes longer).
• Be cautious of any use of the word "guarantee" by anyone selling trust deed or mortgage pool products.
• Always ask if a product you're considering investing in is a first trust deed (first mortgage) or a second trust deed (second mortgage). Each has a different level of risk.

[genfinsrvc]

on 3/4/2008 Before investing with a First Deed of Trust company, make sure that you are dealing directly with the lender (not a broker who will take a portion of the proceeds), ask how long the company has been in business, verify their status with their state Attorney General Office for complaints, call the Better Business Bureau to see if there are complaints against them, take the time and spend the money to visit the location and see some of their properties -- it's your money and you need to perform all the due diligence you can to protect it. I invest in First Deeds of Trust and will not go above a 60% Loan to Value. I'm a semi-retired CPA and check all investments thoroughly -- you should do no less.

[Socalrws]

on 12/24/2007 See this link:
http://tinyurl.com/23zaws
First Trust Deed Investing risks...

Investors need to know more about how Sub-prime lending affects the investment.
QHL pays ~ 12% for its 1st TD investment, now the investors, owning < $70M are SOL because QHL filed Chap 11
Quality Home Loans also had about 435 investors who provided the roughly $70 million in capital that had fueled the company’s growth. Those investors have not been repaid.
http://tinyurl.com/yr8gnz

Socalrws

[Driverinmyhead]

on 11/16/2007 Very Informative!