Why Do Trust Deed Investing Yield High Returns?
April 30, 2024
By Edwin Asetre
Hello Everyone,
Trust deed investments offer investors the chance to earn substantial returns and consistent monthly income.
These investments involve funding short-term, real estate-backed loans (“private money loans”) that appeal to borrowers needing fast closings and flexible underwriting.
**Please share your thoughts at the bottom of this article**
Faster Closings and
Flexible Underwriting:
Compared to traditional bank loans, private money loans boast quicker closings and more flexible underwriting. This caters to borrowers who need fast access to funds and may have less-than-perfect credit histories. However, this flexibility also translates to higher risk for the investor, hence the justification for higher interest rates.
Demand for Speed:
The need for fast closings often comes at a premium. Private money loans with quick closing times (1-14 days) typically carry higher interest rates (8%-14%) and points (2-4%) compared to traditional bank loans with longer processing times.
Lien Position and Risk:
The position of a trust deed in the loan hierarchy also impacts returns. First lien positions (meaning the investor is first in line to get repaid if the borrower defaults) offer lower interest rates (8-11%) compared to second (12-14%) or even third (14%+) lien positions, which carry greater risk.
Catering to a Wider Borrower Pool:
Unlike banks, private money lenders can consider borrowers with poor or no credit history, even those with past bankruptcies or foreclosures. This flexibility again translates to a higher risk profile for the investor, reflected in the higher interest rates.
Financing for Niche Properties:
Private money can finance a wider variety of properties than traditional banks. This includes vacant properties, properties needing major rehab, income properties that do not debt service, and even properties for special uses like cannabis businesses or adult entertainment venues.
Streamlined Documentation:
Private money loans often require minimal documentation compared to traditional loans. Tax returns, pay stubs, appraisals, and even broker price opinions are not mandatory. This streamlined process contributes to the faster closing times associated with private money loans.
In Summary: Trust deed investments, with their underlying bridge loans, provide attractive returns by catering to a specific borrower niche.
Faster closings, flexible underwriting for a wider borrower pool, and less documentation come at a premium for borrowers, translating into higher yields for investors who understand and are comfortable with the associated risks.
Ready for a Reliable
Stream of Income?
Have Questions? If you are new to investing in trust deeds or a seasoned investor with a sizeable portfolio, our team of experienced, licensed mortgage bankers can help you reach your goals.
What did you think of this
weeks Newsletter? Was it Helpful?
Please let us know your thoughts...