Trust Deed Investing · 2 min read
What Is a Trust Deed Investment?
What a trust deed investment is, how it works, deed of trust vs mortgage, and what investors should understand before investing.
This guide is part of our Trust Deed Investing hub.
A trust deed investment lets you act as the lender. Your money funds a loan to a real estate borrower, and the loan is secured by a deed of trust recorded against the property. This guide explains the basics. For how Fix and Flippers works with investors, see trust deed investing.
How it works
- A borrower, often a real estate investor, needs a short-term loan.
- An investor or group of investors funds the loan.
- The borrower signs a promissory note and a deed of trust secured by the property.
- The borrower makes interest payments, which are passed to the investor.
- At maturity, the borrower repays the principal, usually through a sale or refinance.
Deed of trust vs. mortgage
Both secure a loan with real estate. A deed of trust involves three parties: the borrower, the lender and a neutral trustee who holds title as security. In many states it allows a non-judicial foreclosure if the borrower defaults.
Why investors consider trust deeds
- Income from interest payments rather than property appreciation
- A defined term, often one to three years
- Security in real property rather than an unsecured promise
- No landlord responsibilities
What to understand before investing
- Trust deeds are not insured or guaranteed, and you can lose money.
- Funds are usually tied up until the loan is repaid.
- Returns depend on the borrower performing and the property value holding.
- Some offerings are securities and are limited to accredited or qualified investors.
Read trust deed investing risks and how to evaluate a deal and first vs. second position trust deeds before you commit capital. Speak with your own financial, tax and legal advisors.
Related guides
Explore the full hub: Trust Deed Investing. Other financing: Fix and Flip & Hard Money Loans · DSCR & Long-Term Rental Loans · Commercial Real Estate Loans · Unsecured Business Loans.
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Terms, leverage and timelines vary by lender, property and borrower qualifications. This article is general information, not financial, legal or investment advice, and not a commitment to lend.