In general, real estate investing offers two interesting alternatives, active and passive investing. The active investor purchases, rehabilitates and then rents or resells a property. This process can be extremely rewarding financially but carries a significant amount of risk as the buyer can lose his entire investment if the property does not perform up to expectations.
Passive real estate investing, using trust deed investing, does not suffer from this same deficiency. With a first trust deed, an investor can obtain excellent rates of return for a guaranteed period of time on a secured loan without the hassle of active real estate management.
What is Trust Deed Investing?
The investment in first trust deeds involves lending money against a deed secured by a property. The transaction is handled like every other standard real estate transaction and involves escrow, title insurance and all other manners of financial safeguards for the lender.
To start, an accredited investor contacts a firm that specializes in connecting private money lenders and borrowers. This company delivers a list of deals with various loan to value ratios, interest rates and terms to the investor who can then choose a deal that suits his or her financial goals.
The transaction is consummated like other real estate deals with a title search being performed, suitable insurance being underwritten and all legal documents being filed with the appropriate civil agencies.
The Benefits of Passive Investing
Unlike active investing, where the investor must monitor, maintain and administer a property, the passive investor lets the borrower deal with the property and a third party administrative agency deal with the loan payments. While there is a fee for this service, it is more than compensated by the elimination of almost all administrative functions.
In addition, an experienced private money lender will assess and scrutinize any potential borrowers and properties. This service is invaluable for the investor who doesn’t have the time or expertise to do thorough due diligence.
In short, passive real estate investing is ideal for everyone from high net worth individuals and professionals who have no time for the minor squabbles of tenants, to out of state retirees who wish to enjoy their golden years without any aggravation. It offers excellent returns and stability while forgoing the capital gains accrued by more risk tolerant direct investors. In the current stagnant real estate market, it offers the best off all possible options.