A deed of trust is a legal document needed to record real estate used as collateral to secure financing. The deed is filed through county recorder's office and creates a first lien on the property. Once the loan is paid in full the lien is removed and the deed is no longer needed.
A little know secret is deed of trust makes an excellent investment product that provides consistent cash flow and high returns. Those in the know often integrate trust deed investing with retirement planning to diversify their portfolio.
Becoming a trust deed investor typically involves locating private money lenders. However, you can also be a private financier by lending money to a person who buys real estate. Novice investors are usually more comfortable working with an established private lender or mortgage broker who possesses a proven track record in deed investing practices.
Investors decide how much and how long they are willing to invest. On average, investment amounts range from $50,000 to $150,000 with a duration of 6 months to 2 years. Investors generally earn an annual return of 9- to 13-percent.
The risk associated with trust deeds is considerably less than most other investments since the loan is secured with a promissory note and real property. If borrowers default on loan payments the property can be liquidated to pay off the first lien.
Some people use IRA funds when investing in trust deeds. It's important to note that many IRA custodians prohibit this type of investment practice unless the account is a self directed IRA. Establishing a self directed IRA can be a lengthy process; especially when funds are rolled over from another retirement account.
Due to the complexities associated with using IRA funds when investing in deed of trust, it's vital for investors to obtain advice from experts. Investors will want to have a team that includes a tax attorney, real estate agent, mortgage broker, and estate planning lawyer.
When real estate is secured with a trust deed it must be appraised by a state-certified real estate appraiser and insured against loss or claim. While this helps limit investors' financial exposure it does not eliminate all risks.
As with any investment, there is a chance that investors will lose money. However, with careful planning and working with trustworthy brokers, investors are at less risk than with other types of investment products.
Perhaps the biggest risk is the potential for borrowers to default on their note. This could result in the need to foreclose on the property in order to protect the investment. Foreclosure often results in loss of capital, so it is crucial to take every action to ensure borrowers can fulfill their obligation.
Hard money lenders generally limit private financing to real estate investors and developers, as opposed to individuals. Loans are mainly reserved to purchase non-owner-occupied residential homes, commercial properties, or raw land.
Individuals interested in trust deed investing to supplement retirement plans ought to consult with a retirement planner to ensure proper strategies are put into place. Furthermore, investors will want to engage in estate planning to protect investments for heirs.
The law office of Craton and Switzer specializes in helping clients learn about investment opportunities to strengthen retirement planning and protecting assets with adequate estate planning.
We offer informative articles in our estate planning blog to help visitors discover ways to maximize investment portfolios. We welcome inquiries via email or phone and can be reached at 562-628-5533 Monday through Friday from 8:30am-5pm.
Tags: Business, Deed of Trust, Estate Planning Lawyer, Investing, Law, Real Estate, Retirement Planner
Published on July 14, 2013 | Comments: 0