What to Expect With a Trust Deed

It is no secret that real estate can be a profitable avenue for investors. Unlike other forms of investment, there is tangible collateral, namely the property.  Along with this, investors can procure passive income if playing their cards right. Even the most seasoned real estate investors, however, may not know one of the most lucrative ways to expand their portfolio within real estate investment. 

One of the best ways to set up a high-interest return on a passive investment involves the use of trust deeds (also known as deeds of trust). Trust deeds provide an easy way to secure profit from real estate. This article will walk through the role of trust deeds, along with what to expect on a trust deed. 

Trust Deeds: What They Are

Trust deeds are a common practice throughout much of the United States. Similar to a mortgage, trust deeds come into play when a borrower seeks to secure a property with a loan from a lender.

However, unlike a mortgage, there is a third person who receives the property the “trustee” until the loan is paid. This third party person oversees the deal itself, and moves onto the foreclosure process if the borrower fails to pay the loan.

Trust deeds often occur when the loan process is harder to procure, such as some development or investment properties. This means that trust deed investors have a better chance of charging a higher interest rate, which then becomes passive income as the real estate development takes place.

This interest rate is the profit the investor can largely expect throughout the process. Along with higher interest rates, the investor also has the benefit of expanding their investment portfolio without needing to be incredibly knowledgeable in the field. Rather, the investor should know how trust deeds work, and what to expect when entering into an agreement.

Trust Deeds: What to Expect

Once you enter into a deed of trust, it’s important to know what to expect regarding the paperwork involved. As an investor in a trust deed, your name will go on as the deed of trust lender. This serves as the living document for the agreement and mentions the stipulations of the individual agreement.

In general, here are a few things to expect in a trust deed:

• General Overview: The first part of the trust deed will include the general stipulations of the trust. This will include the loan amount and the names of the borrower, lender, and trustee. This will look different for each trust deed.

 

• Details of Payment and Interest: The next part includes important information regarding the timing of payment and interest rates.
  

 

• Escrow: How the third party will hold and release money throughout the development process.

 

• Insurance: As with any development project, expect to see insurance terms on a trust deed. This will outline what is needed for each aspect of the development and is important to keep in mind when investing in a property.

 

• Collateral Liens: Should the borrower default on payments, the trustee will move to begin the foreclosure process. The unique thing about trust deeds is the fact that it does not work within the judicial system, but is rather handled in-house following the steps outlined in the trust deed.

 

• Property Stipulations: Depending on the state, trust deeds include an occupancy clause where there must be a resident in the property typically within the first two months. This is also outlined within the document to ensure an exit strategy on the borrower’s behalf.

 

Bottom Line: Trust deeds are a lesser-known, but lucrative part of real estate for those who are able to manage their investments. For more information about how deeded trusts may benefit your investment portfolio, JMJ Funding can help guide the way to a successful lending process.