Trust deed investments are schemes that take real estate as the security for loans. It allows investors to reap huge benefits over a period as less as two years and not beyond five years. This is regarded as a good deal considering that the same cannot be obtained from mortgage service providers. The services are available to professional investors in real estate.
The economic crisis gave rise to the industry because so many properties were available in the market at reduced prices. The foreclosure prices were low and attractive to investors. They only need small amounts to acquire a property, refurbish it and put it back in the market at a higher price. Their returns in these transactions were attractive and profitable. The gap was created by cautious lending exercised by conventional mortgage lenders at the wake of the economic crisis.
Economic crisis left banks with a lot of physical property that could not be converted into cash within a short time. It affected their balance sheets and made them more careful. This property acted as loan collateral and was not good for the lending business. The money cannot serve the interest of the lenders when they needed liquid cash. The trend was considered risky and loose for mortgage lenders and was abandoned.
Real estate lending requirements tightened and included rules that were very strict. Lenders in the mortgage industry argued that this property would not be ready for occupation when the borrower is required to begin repayment. Housing construction industry was therefore regarded as speculative and the players labeled dangerous opportunists. The conventional institutions held back funds from such investors.
With limited funds for their activities, developers turned to money that was simply available and did not require strict rules. Lenders can negotiate better terms because they had the money. The interest rates for such schemes are tilted in favor of lenders. Borrowers in this situation target big returns and can therefore afford the profits that are demanded by borrowers.
A well-structured investment will offer single digit returns which will be dispersed every month. The risk is comparatively low which makes this sector attractive. The return is as high as ten percent in some cases. Other choices within the same profile are bit risky. A built-in margin of safety mitigates on the risk of losing money in such investment. The value of the property is comparatively high compared to the loan dispersed.
Lenders are allowed to sell off property used as security in case the borrower defaults. This does not warrant the recovery of paid out interests. The loans are as little as sixty-five percent the value of the property. The properties are only challenging in that they cannot easily be transformed into cash. Their disposal or liquidation is not as easy as it is with shares and bonds.
Trust deed investments have favorable rates for frequent borrowers. These borrowers offer a percentage point higher to frequent lenders. The facility is structured by a mortgage bank and is readily available in the market. A return rate of up to twelve percent is possible with professionally run schemes. When the lender seeks to sell the property in case of a default, the value cannot exceed the original loan.