You can derive substantial returns with limited risk with trust deed investments. To acquire these high returns, you should take care with the type of property you invest in and ensure that adequate valuations are done. There are usually two options available to investors.

Your first option is to offer a direct loan. The second is to buy a promissory note that has already been established. The process may be similar to a normal mortgage bond, but the contracts involve three separate entities, instead of two.

The parties involved in trust deeds are the borrower, lender and trustee. The appointed trustee acts as an independent third party. The trustee holds the legal title to the property on the lender’s behalf. The title is held until such time as the borrower has paid off the full amount of the loan. If the borrower is in default, the lender has the right to take ownership of the asset.

You may be given promises by mortgage brokers of the potential high returns with trust deed investments. This is normally very tempting, however, you should ensure that you take care with your money. It is advisable to research the status of the property title, as well as the exact market value before you make an investment. A report dated during the past 90 months can be obtained fairly easily. You should inspect the property to ascertain if there are defects or disrepair that could have an effect on its market value.

Rather than taking another party’s say-so, you should undertake your own due diligence tests. You should check if the property or the owners of the property have any pending legal issues. A definite variance between the appraised and assessed property value should be investigated without delay.

This type of contract is not insured by governmental agencies. This puts it at risk should the borrower default or if the economic situation declines. This puts you at risk of losing all or a large portion of your total investment. If the borrower opts to declare bankruptcy, you could experience cumbersome problems with foreclosure. This could ultimately cost you a huge amount of money.

You may be able to buy a part or the entire trust deed. If you opt for a whole contract, you will obtain total ownership of the promissory note. You need to have adequate funds available to cover the entire loan amount if you wish to enter into this type of deed. A part deed offers you a portion of the investment, along with other investors. The number of investors allowed to partake in this type of deed is limited to ten. In this case, the amount of the investment is split between the investors.

When you make the decision to partake in trust deed investments, a decision will have to be made to enter into a first or subsequent contract. A first note offers you precedence over any other claimants to the property. This is the safest investment as a second or third deed would be at risk if the available funds are insufficient to settle the total debt. This type of promissory note should be raised by means of a bond. The bond instructions should stipulate all the conditions to be met before the funds are finally made available to the property owner or borrower.

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