Trust Deed Investing: What You Should Know

Trust deed investing involves an investor lending money to a borrower through a private loan. The borrower—typically a home buyer or developer—will use the investor’s capital to add value to a property. The investor’s name is written on the deed of trust to protect their investment. The trust deed ensures that the property is collateral. When looking at this type of investment for your portfolio, you need to understand how the process works and consider the possible risks and benefits, so you can make informed decisions.

Similar to all types of investments, first trust deed investing involves an inherent level of risk. However, a real estate trust deed protects this lending and investing deal. This deed of trust is an agreement between the borrower (trustor), lender (beneficiary), and an independent third party (trustee). Essentially, the trust deed is what secures the investment against the identified property. The third party entrusts the property’s deed until the borrower fully pays the loan back. Then the borrower can take ownership of the title of the property. Otherwise, if the borrower defaults, the trustee conveys the property.

Real estate is a tangible asset, and investors can generally expect high returns from trust deed investing. A real estate trust deed is an ideal way to diversify your investment portfolio. Investors can also benefit from the passive income earned during the loan period due to the borrower’s interest rates. However, the real estate market ebbs and flows unpredictably. Those interested in trust deed investing should closely consider their investment style, lending criteria, and personal goals to evaluate the risk involved.