Finding the right real estate deal may seem like a most daunting task to an inexperienced investor but more seasoned ones know that there is an excellent alternative to traditional lending institutions – private or “hard” money. In fact, hard money offers some distinctive advantages to the funds provided by banks, savings & loans, and other traditional lending institutions. Here are just three:

Hard Money Advantage #1: Enhanced Versatility

The most advantageous aspect of hard money loans is their versatility, since the loans are made by accredited investors – who make decisions about their money on their own - there is no need to jump through hoops of traditional lending institutions with their subjective loan criteria and their loan approval boards. Instead, if a lender and borrower can agree on terms, the deal can be consummated in a legally binding and very secure way.

With more and more investors looking at participating in the recovering housing market, new challenges have arisen in figuring out where to invest your money. For a while, the biggest challenge was finding people who wanted to take out hard money loans. Today, it's selecting the best possible borrowers from the large pool available. Setting up a system for lending can help you to streamline the process.

In today’s investing arena the performance of most fixed income portions of investment portfolios is, at best, anemic. While the low interest rate environment is a boon to those seeking capital, for investors, the returns from the fixed income portion of their investments is unable to keep up with inflation.

Trust Deeds can be a viable alternative, offering substantially higher returns available in the real estate market, with considerably less risk and without the hassles of acquiring, maintaining and managing real estate holdings.

One of the most under-appreciated financial instruments available to the California real estate investor is the trust deed and the “hard money” associated with them. They are an excellent option used by experienced investors when a real estate deal is too unconventional for traditional lending institutions. In addition, they offer the same legal safeguards as traditional mortgages and usually come with a better degree of security.

What Are Trust Deeds?

A first trust deed is a financial document that transfers legal title of a piece of real estate to a trustee in return for a loan against the property by the trustee. A contract is signed that details the arrangement and if the borrower is unable to fulfill their part of the bargain, the property transfers to the lender.

Since traditional banks are not involved, the terms of these contracts can be almost anything that satisfies the borrower and the lender. Since the deals may involve some added risk, trust deed contracts generally have a slightly higher interest rate and require a lower loan to asset value.