Simply put, trust deed investing is investing in loans secured by real estate. Most trust deed investments are considered short term as they typically are less than two years with a maturity under five years, an are made to professional real estate investors. With the economic and housing market booming in Las Vegas, real estate investors are buying properties at auctions and foreclosure sales, flipping these properties, and reselling them for considerable profits.
By securing real estate in trust deeds banks and lenders are circumvented and the escrow process is all but eliminated, allowing for real estate investors to acquire properties at a rapid rate.
How the Deed of Trust is Completed
In traditional real estate investment there is high risk on all sides of the transaction, but with Deed of Trust investing, like what we do at RIPO I Investments, your risk is minimized and yields maximized. Transactions involving deeds of trust are normally structured, so that the lender gives the borrower the money to buy the property; the borrower tenders the money to the seller; the seller executes a grant deed giving the property to the borrower; and the borrower immediately executes a deed of trust giving the property to the trustee to be held in trust for the lender. Transaction complete.
Banks Don’t Lend Investment Money
With the recent history of bad real estate loans, banks are notoriously reluctant to lend to house flippers and real estate investors. While the loans themselves may not be particularly risky, one of the consequences of prior years loose lending practices, this trend is not likely to change any time soon. Investment properties are often distressed and not “move-in ready” and therefore banks consider the lending to be lacking proper collateral. Without a bank to secure a loan, real estate investors have limited financing options available to them, and lenders to the Las Vegas market are able to command relatively high interest rates.
Safety In Not Owning?
Well-structured trust deed investments tend to maintain a margin of safety not present in traditional real estate ownership. This is in large part due to a low loan-to-value ratio. Another way to put it would be that the loan is secured by a property that is worth significantly more than the amount of the loan. This protects the lender in the event of a default.
Financing For Deeds Of Trust
Because financing is required on such a short term to execute a trust deed on a property, many finance them using a Self-Directed IRA or other wealth acquiring means to generate a platform for financing.
