US investors have many options today when they are deciding where to put their money. If you turn on the television you’ll see advertisements for all kinds of online brokerage services, banks and even companies that sell gold and silver. And because of all the advertising, people are somewhat familiar with those investments.
But fewer people are familiar with trust deed investing, although it’s a form of investing that is probably as old as money itself. Simply put, trust deed investing is investing in loans that are secured by real estate. At Evoque Lending, we specialize in First Trust Deeds on California real estate – usually Los Angeles real estate, Orange County real estate and San Francisco area real estate.
Trust deeds and mortgages
A loan made via a First Trust Deed is very similar to a mortgage. The basic difference is that there are three parties in a trust deed: the borrower, the lender and the trustee. The trustee holds the deed while the loan is being paid. Also, there is a signed promissory “note” that defines all the terms of the loan. If the borrower defaults on the loan, the trustee starts the foreclosure process. In a mortgage, the lender has to go to court to get the foreclosure going.
Trust deed investing is attractive today because it pays a comparably high rate of return and the investments are secured by real estate. Further, once the loan has been made, the rate of return associated with the First Trust Deed doesn’t change. For example, you might invest in a First Trust Deed that has a term of two years. You would receive a check each month for the amount of interest the borrower is being charged.
Real estate as collateral
We said at the top that this kind of investing has been popular as long as we have had money. It is essentially loaning money against collateral. The collateral – California real estate in this case – serves to protect the lender’s investment. This leads us to one of the most important considerations in trust deed investing: the true value of the collateral.
It’s very important that trust deed investors consider the size of the loan they are making in relationship to the real estate that is the collateral. This is one reason why trust deed investors use a service like Evoque Lending, where we have more than 15 years of experience evaluating California properties and potential borrowers.
Trust deed investors have a lot of control over their investments. At Evoque Lending, we have no minimum investment amount and loans are available for terms that are as short as several months or as long as several years. These notes pay a very competitive rate of return and terms vary from months to years, depending on your needs.