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How to Risk Less and Earn More with Trust Deed Investing
Trust Deed Investing is a smart way to diversify your portfolio and grow your wealth. Like any form of investing, though, it’s important to ensure your deals are structured in a way that minimizes your risk.
Also referred to as private mortgages, Trust Deed Investing allows you to finance someone else’s real estate loan. It’s secured by a trust deed, which is an agreement that transfers the property’s title to a trustee who holds it as a security for the borrower and lender. This alone gives the lender a great deal of protection, but there are three primary ways these investments can run into trouble.
1. Losses in the housing market. One of the greatest concerns is a large scale downturn like what happened during the recession. If values drop or a property won’t move when it’s time to sell, the borrower may either be unable to pay or might take a hit, making it harder for him or her to make good on the loan.
2. Resale losses. Although it’s not often seen with short-term Trust Deed Investing, the structure typically enables the lender to resell the investment, much like a bond. Given the fact that money is usually only tied up ... more
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