David Kirkpatrick

October 21, 2009

A trust deed investment primer

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 1:45 pm

Trust deed investments can offer high returns relatively safety, but this investment vehicle isn’t for everyone. Like with any investment you should take the time to learn about the pros and cons of trust deed investment. Understanding the risks involved and the upside to any investment should be a major part of your investment strategy.

With trust deed investments your investment is secured by a deed of trust against a property owned by the borrower of your money. This promissory note involves risk to your investment, defines a time period for the return of your investment and is not covered by any federal insurance.

If the borrower default on this promissory note you will acquire the property through foreclosure. This could be a pro or a con depending on your view of directly owning and investing in real estate. Before a foreclosure you are buffered from direct real estate investment by the trustee of your investment.

Here are some points to consider with trust deed investment:

  • Trust deed investments are high-yield and and relatively safe, but they aren’t liquid. Don’t make trust deed investments a part of your overall portfolio if you need access to your money at a specific time.
  • Be sure to use a title company, and not your broker, to deposit your investment and receive your return when the loan is paid off. Allowing your broker to handle the funds make trust deed investment much more risky than necessary.
  • Appraisal shouldn’t be the only method you use to value a property, but it is a major tool in your valuation toolbox. An appraisal will give you a wealth of important information about the property.
  • Only invest in first trust deeds. You should never put money in a second, or even more junior, position in a trust deed investment.

1 Comment »

  1. Great primer. If you’re looking for more detailed info check out http://arixacapital.com/about-us/articles-publications/

    Comment by Arixa Capital — June 13, 2011 @ 1:01 pm


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