Pros of Using Trust Deeds

Pros of Using Trust Deeds

Buying and holding trust deeds is a great way to offset buying and holding a property. Trust deeds are also known as real estate notes, seller financed notes, and/or mortgage notes. Notes are usually created by the seller of the property to help finance all or part of the transaction. This service the seller provides usually attracts a lot more buyers for them. The terms, conditions, down payment, interest rate, due dates, payment amount, late charges (if any), length of the loan, and anything else associated with the note will already be negotiated between the buyer and seller of the property. Therefore, you do not have to renegotiate anything. As the investor buying the deed, you need to review the entirety of the note and decide if this is something you want to buy. Deeds are a great investment opportunity for investors. The pros of using trust deeds as an investment tool are as follows:

  • Usually a higher rate of return, meaning better cash flow for you.
  • Less risky than owning the property out right or investing in stocks.
  • No management of the property is needed.
  • No need to pay mortgages, taxes or insurance.
  • You are in first lien position on the property, meaning the trust deed is secured by the property.
  • You can possibly sell your note to other investors, usually at a higher profit than at what you acquired it.

Simply put, you are acting as the bank when you own a trust deed. Your investment is secured by the property, which means if the borrower is not able to make payments to you, you have the right to foreclose on the property, as long as you are in first lien position. Investing in deeds is a great investment strategy to add to your portfolio. I would suggest only getting notes that are first lien position notes. You can find other type of notes, but for now stick to these kinds and you will be in good shape.

What are Trust Deeds?

What are Trust Deeds?

A trust deed is a legally binding agreement between a person and his creditors. The agreement gives the trustee the mandate to manage the assets while repaying outstanding debts that the owner of the asset owes the creditors. With trust deeds, the agreement between the asset owner and the creditor is voluntary. As a result, creditors who opt not to sign the trust agreement can seek an alternative means of recovering the debt that the person owes them. On the contrary, creditors who sign the trust deed are bound by the terms of the agreement in that they can’t seek an alternative means of recovering their debt.

Types of Trust Deeds 

There are varied types of trust deeds, and they are outlines as follows:

  1. Asset free deed 

The asset free deed is taken by individuals who don’t have any assets. The agreement of this type of deed allows the trustee to get some portion of income from the affected individual and use that money in paying creditors. Taking an asset free deed helps the individual who doesn’t own any asset to avoid bankruptcy.

  1. General Trust Deed

Also referred to us a regular deed, the general trust deed is taken by creditors under a voluntary basis. The individual should appoint trustees who are well skilled as insolvency practitioners. He then goes on to transfer all the assets that he owns to the trustee. With the use of the general trust deed, the individual is protected from undergoing the bankruptcy process.

  1. Protect Trust Deeds 

These deeds are enforced by a court of law. The asset owner seeks the aid of the court to bind the creditors to the deed. A protected deed can also be used to protect the home equity of the individual. Once the deed is discharged as per the agreement, the asset owner becomes debt free.