How to Invest In High Yield Trust Deeds

When most people think of investing, they think of stocks, mutual funds, CDs and real estate. An individual almost never lists the trust deed as an investment alternative and this is a mistake. When investing in a trust deed a person is simply loaning money to another party with real estate equity as the collateral. As with any investment, there are possible pitfalls, but investing in high yield trust deeds is something anyone can do.

Difficulty: Challenging

Instructions

Things You'll Need:

• Experienced mortgage broker

1. Select a mortgage broker with a proven record of accomplishment. The mortgage loan broker will locate and advise your purchases of these trust deeds. Call the Department of Real Estate in your state and the Better Business Bureau to determine the broker's qualifications. Also, make sure the broker has experience with trust deed investing.

2. Evaluate the market value of each property used as collateral for the trust deed. If the property value for the real estate is declining for whatever reason, it will most likely be an unwise investment. To establish the market values of the properties under consideration, have the mortgage broker research recent sales of comparable properties in the area.

3. Visit the underlying property that is the basis for the trust deed. You need to make sure that the property is in good condition because if the owner defaults on the trust deed you will become at least a part owner in this property. Check the property thoroughly for any issues that may affect its value. It is also a good idea to hire an appraiser or inspector to give the property a thorough examination.

4. Check the credit history, employment record and tax history of the person to whom you are lending money through the trust deed. If this person is a credit risk or does not have the proper capital they may not be able to pay off the trust deed, thereby sending the trust deed into default.

5. Establish the yield and payment term for the trust deed. The mortgage broker with your approval handles this negotiation to get the borrower to agree on trust deed terms.

6. Use an escrow service to fund the trust deed. Once you decide on a property and establish the basics of the trust deed agreement, you need to use an escrow service for the trust deed transaction. An escrow service is a neutral third party that facilitates the financial transaction and allows you to establish exchange instruction for the trust deed.

7. Sign the escrow, title papers, and trust deed agreement. Once you establish all the terms of the trust deed and agree on the escrow rules, you then need to sign all of the necessary paperwork to complete the investment in the high yield trust deeds. Then transfer your trust funds to the borrower.