Diversifying Your Portfolio with Trust Deed Investing

Most investors know about their investment options regarding stocks, bonds and some real estate transactions. One lesser known strategy is investing in trust deeds, a specific type of real estate investment that is low risk and high return.

Smart investors know that having a well-rounded portfolio is a key component of successful investing. One investment that most people take advantage of is a stock investment. With this type of investment an investor purchases parts, or shares, of a company. When the company makes money, so does the investor. If the company loses money, so does the investor. The risks and rewards of stock investing varies by the specific companies the investor chooses to invest in. There is not insurance against loss. To help make this investment less risky, investors can do their research. Make sure they know about the finances of the company they are investing in and choose companies that show stability over time.

Another type of investment is bonds. There are a variety of different types of bonds that can be

purchased from the United States government. Depending on the bond type it takes a specified amount of time to mature. Once the bond is matured the government will purchase it back for a guaranteed interest rate. Bonds are extremely safe investments as they are backed by the U.S. Department of Treasury. The main downfalls of bonds are that they earn fairly low interest rates, usually in the single digits and often as low as 2%, and they take a significant amount of time to mature. Bonds are a safe investment but don’t offer very high or timely returns.

A third investment that can help diversify an investor’s portfolio is known as trust deed investing. In this type of investment, the investor purchases an interest in a mortgage that is given by a bank. The borrower purchases a property, the bank lends money, and the investor (known as the trustee) invests money for the privilege of holding the financial deed to the property.  The trustee holds the deed for a specified amount of time from months to years, depending on the terms of the investment. As long as the trustee holds the deed, he/she earns interest from the bank and has almost no responsibilities as long as the borrower is current on payments. Interest rates on trust deeds are between 9 and 12 percent.

Level 4 Funding LLC

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com

Trust Deed Investing and Default

The most common question people have before investing in trust deeds is what happens if the

borrower defaults. The trustee has a few options at this point, depending on what state the property is located in.

One option is that the trustee can assume payments and takeover the property. Since the trustee owns the legal deed to the property, he/she can take over payments on behalf of the borrower and the real estate transfers entirely to the trustee. It can now be lived in, rented, or sold as the trustee sees fit.

A second option that is generally less work for the trustee is that the trustee can begin the process of non-judicial foreclosure on behalf of the lender. The lender provides the trustee with proof that the borrower has defaulted on the loan and since the trustee holds the legal deed to the property, he or she can begin the process of selling the property on behalf of the lender without a court order. This is less expensive for the lender than judicial foreclosure. Once the property is sold the lender recoups its funds from the sale proceeds. Once the lender’s debt has been paid, the trustee’s initial investment is also returned.

Once you have decided to invest in deeds of trust
there are several ways to reduce your risks and maximize your returns.

One key feature of a solid trust deed investment to keep in mind is to always hold the first deed of trust on a property. The first deed holder is the investor who is paid first in the event of a default. If you are the second or even third trust deed holder you are putting your investment at a higher risk than the first deed holder is. You can also help minimize your risk by investing in more credit worthy borrowers and modifying the length of your investments. There are lots of different options depending on what state the property is in. Talk with a broker to help navigate the various ins and outs of trust deed investing .

Level 4 Funding LLC

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com