A trust deed or a deed of trust is an intangible instrument of security. It has the qualities of a basic mortgage. The trust deed will declare that until the borrower pays back the debt, the borrower will be entitled to an equitable title alone. The legal title to the property will be transferred to the trustee.
Trust deeds are of two types:
Secured notes: These are backed by collateral, meaning the lender is given assurance in the form return and interest via the deeds of trust.
Unsecured notes: As expected, is not backed by collateral. Unsecured notes are mostly reserved for known acquaintances.
Trust deed investing is investing in loans that are secured by properties. Most trust deed investing is undertaken for short term maturity (usually under 5 years) when investing in trusted real estate investors.
What makes trust deed investing a good option?
The number one factor that drives trust deed investing is the high interest rate with almost no risk. Trust deed investors get their top single-digit returns monthly. Returns over 8% are not uncommon in trust deed investing.
The setback for this policy is that it is not liquid. Investments have to run their tenure or until the borrower has paid the loan back or when there is default, until the property is foreclosed and sold.
In the eventuality of the payment default by the borrower, the property in concern cannot be sold for more than the amount transacted for.
Trust deeds investments, backed by a promissory note that defines the amount and terms of the loan and high rates, are a relatively safe option for investments in real estate.