You may have heard that investing in real estate can produce high returns. And you would be correct. The reason for such high returns is that trust deed investing allows you to charge higher interest rates than a bank might. Doing so reflects the fact that trust deed investing does carry some risk. Not only is trust deed investing profitable, it can also give you a sense of fulfillment; you are helping to benefit the economy by helping someone else to begin or continue their business. However, despite all of the benefits of this investment type, you may still wonder if trust deed investing is right for you.
The ability to make a decision quickly is a hallmark of the successful trust deed investor. This is because it is common for one investor to buy property while another one sits in uncertainty. Indeed, being hesitant can negatively affect your chances for success in this type of investment. However, if you can align yourself with real estate professionals, you may be better able to make quick decisions than if you were to go it alone.
Two Options for Investing
Unlike other investments, which may only offer one way to approach them, trust deed investing offers two: passive and active. In a passive real estate investment scenario, there is no need to actively manage real estate. Instead, the investor can receive impressive return rates for a guaranteed amount of time on a loan that is secured.
The active investment option involves not only the purchase of a property, but the rehabilitation and then resale of that same property. Of course, active trust deed investing can be very lucrative. However, it also carries a greater risk than its passive counterpart carries, due to the fact that the investment can be completely lost if something should go wrong.
The returns on a trust deed investment will vary according to more than one factor. The nature of the deed is one. An investor may see a return of between 8.5 and 12 percent annually. When set against the returns of stocks at an average of 3.52 percent between 2009 and 2011, the return potential becomes obvious. To add to this, bonds have an average of 4% returns between the same two years.
The return received via trust deed investments will also depend on how you invest, via the funding of a specific loan, or in a pool with other investors who share in a multiple-loan portfolio.
Just like the price of anything else you purchase, the value of real estate will tend to fluctuate. As well, a common risk of trust deed investing is in borrower default, which can cause a delay in repayment. In addition, different types of trust deeds will carry differing amounts of risk. A loan that has been secured by a first deed of trust sees the lender being paid first should a borrower default. More risk is held by lenders holding a second deed of trust. However, the returns tend to be higher as a general rule.