Trust deed investing involves three parties that each has specified roles in the agreement. They are namely the borrower, the lender and the investor. Each of these roles comes with different responsibilities, each with their own pitfalls and returns involved.
There is also a margin of safety involved for the lender. This involves that in the case of the borrower not performing, the lender can sell the property. This means they get the return on their loan plus any interest that may still be owed to them. The low risk nature of such a project is attractive to lenders, especially with the high interest returns that go hand in hand with such an undertaking.
Real estate professionals are very much in the business of buying properties at foreclosure prices. These properties are obtained at bargain prices. They spend time and money fixing up these properties to the desired level and then resell them for usually a relatively decent profit.
The only problem with this in today's economic climate is that banks are not willing to loan to these real estate professionals. Very often the property which they wish to use as security needs to have work done to it and the bank sees it as a risky investment. Banks have also suffered greatly with not enough care being taken in loan agreements in the previous year, resulting in bad loans in their books. They usually do not want to be put at risk of having these figures pushed even higher.
The odd cases however are approved by the bank but there are very strict criteria involved. There will be very little or no risk at all to the bank if the case is to be approved. In most cases the loans are declined and real estate investors need to seek other alternatives. The lenders who do borrow to this market are very much aware that limited options exist for the borrower in terms of financing. This means that in a lot of cases these lenders get away with charging excessive interest rates.
These high interest rates require a pretty savvy borrower in order to still make substantial profits. The only reason they do this is because they are sufficiently certain that they will receive a vast return for their investment. The other option is that they make have found a particularly favorable deal. There are also real estate professionals who are anticipating a very big capital influx in the near future, knowing that they will be able to pay back this loan very quickly.
Borrowers estimate to make a return of anything between 20% and 50% annually on their investment. This means that the often double digit interest rates are very relative to them. The borrower's eye is always on the end prize and long term investing is the key here.
Trust deed investing can offer great benefits and returns if the principles are correctly applied. All potential investors are urged to do adequate research and legal advice before investing in a project. Many industry professionals exist who take advantage of novice investors. I
There is also a margin of safety involved for the lender. This involves that in the case of the borrower not performing, the lender can sell the property. This means they get the return on their loan plus any interest that may still be owed to them. The low risk nature of such a project is attractive to lenders, especially with the high interest returns that go hand in hand with such an undertaking.
Real estate professionals are very much in the business of buying properties at foreclosure prices. These properties are obtained at bargain prices. They spend time and money fixing up these properties to the desired level and then resell them for usually a relatively decent profit.
The only problem with this in today's economic climate is that banks are not willing to loan to these real estate professionals. Very often the property which they wish to use as security needs to have work done to it and the bank sees it as a risky investment. Banks have also suffered greatly with not enough care being taken in loan agreements in the previous year, resulting in bad loans in their books. They usually do not want to be put at risk of having these figures pushed even higher.
The odd cases however are approved by the bank but there are very strict criteria involved. There will be very little or no risk at all to the bank if the case is to be approved. In most cases the loans are declined and real estate investors need to seek other alternatives. The lenders who do borrow to this market are very much aware that limited options exist for the borrower in terms of financing. This means that in a lot of cases these lenders get away with charging excessive interest rates.
These high interest rates require a pretty savvy borrower in order to still make substantial profits. The only reason they do this is because they are sufficiently certain that they will receive a vast return for their investment. The other option is that they make have found a particularly favorable deal. There are also real estate professionals who are anticipating a very big capital influx in the near future, knowing that they will be able to pay back this loan very quickly.
Borrowers estimate to make a return of anything between 20% and 50% annually on their investment. This means that the often double digit interest rates are very relative to them. The borrower's eye is always on the end prize and long term investing is the key here.
Trust deed investing can offer great benefits and returns if the principles are correctly applied. All potential investors are urged to do adequate research and legal advice before investing in a project. Many industry professionals exist who take advantage of novice investors. I
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