If you’re planning to leave property to your children, you should know what a trust deed is. Essentially, a trust is a legal document that protects the investment of the beneficiary. It transfers the legal title of the property to the beneficiary after the loan is paid off. The trust also allows the borrower to enjoy homeowner benefits, such as appreciation, while still remaining an equitable owner of the home. The deed also protects the interests of the beneficiary, which is usually the lender. But the beneficiary can be any individual with a contract.
A trust deed may be prepared in two different forms – the Long Form and the Short Form. The Long Form is longer and incorporates many clauses and conditions that institutional lenders require. The Short Form is typically prepared by an Escrow Officer and incorporates many of the standard provisions of the Long Form. Both forms are legally binding and are recorded in all California counties. However, if you’re preparing your trust deed yourself, it’s best to consult a lawyer, as their expertise will be beneficial.
A trust deed consists of three parties: the lender, the borrower, and a trustee. A mortgage involves the lender, who holds a lien on the property, and initiates the foreclosure process when the borrower fails to pay the mortgage. However, unlike a mortgage, a trust deed is a legal document that may be used for other purposes as well. It can serve as collateral and ensure performance of a contract.
While a trust deed can provide attractive returns, investors should remember that it’s not liquid. As a result, you need to be committed to the entire loan term. You won’t get your money back until the property has been repaid, or if you can’t repay the debt. If you’re new to the investment process, consult with a broker who is licensed in trust deeds.
When you invest in a trust deed, you’ll never make any money unless the property you’re investing in appreciates in value. This is because the capital does not appreciate in real estate; only the interests will earn you profits. Moreover, you’ll be required to do some legwork to find developers and projects that you like. There’s always the risk of losing your money if the developers don’t follow the rules. That’s why it’s imperative to get a good grasp on the real estate sector before you invest your money.
The benefits of trust deed investing are many. First, these investments usually carry a substantial discount on the actual property value. In California, a typical trust deed loan is 70% or less. That means that a borrower purchasing a $1,000,000 property will only be required to borrow $700,000. The security of the trust deed loan helps provide a cushion during market corrections and other expenses. That means trust deed investments can be a good way to generate passive income.