In this present day period of a crazy stock market, it might be nice to get some decent returns and maintain your sanity so you can sleep at night. You might consider real estate trust deeds.
What are they? Picture this: A real estate investor cannot get a loan through a regular bank because of lack of income or bad credit. He or she would turn to a private money lender or sometimes called hard money lender.
The lender offers the borrower a higher than normal interest rate. He finds an investor who wants to loan money on the real estate that the borrower wants. He puts the two together, draws up the loan docs and then you have a marriage between the borrower and trust deed investor.
The investor then has the option of servicing the loan himself or choosing an outside service agency. The servicing agency usually charges $15 to $20 a month. What they do is send a statement, follows up with the borrower if they are late with a payment, and collects the money. Once they collect the money, they pay the investor.
As of this writing, bank CDs are paying about 1-2% on money deposited. Real estate trust deeds pay anywhere from 8% to 12.5%. That’s a huge difference. Why would anyone put their money in the bank when you can invest in trust deeds? It is because most people don’t know about trust deeds.
Your financial advisor won’t tell you about them if he or she knows about them because they won’t make any money if you invest in them. They sell the things they make money on and it is certainly not real estate trust deeds.
You may want to know how can an investor lose their money. Let’s say the investor loaned $100,000 on a property that is worth $150,000, the property would have to lose almost $50,000 in value for their money to be at risk. If the property did go down to $100,000 and the borrower decided to stop paying, the investor would instruct the servicing company to foreclose on the borrower.
We have had several people who didn’t pay their on their loan so we had to file a notice of default. Once you file a notice of default, they usually have 90 days to catch up on their payments by refinancing or selling the property. In the last five years, of the several people who had notice of defaults, we have not had one that went to auction to take the property back. Some day that will happen but that is one of the risks in investing in trust deeds. Most of the time, everything goes smoothly.
While trust deed investing is not for everyone, it certainly is for a select group of people. Once they do it and become familiar with it, they start to get better at it. They start to know when a certain property and interest rate is a good deal and when to back away. We recommend to start with a smaller amount of money to invest and then you can build it up as time goes by.
For more info on trust deed investing go to www.cahardmoneynow.com