If you have ever thought
about money lending secured by
a real estate, then you will need to know about the risks trust deed investing. As a private lender, you will face these risk
and must know how to mitigate these investment threats.
First, investment loss is a where in you could need additional funds beyond what you've already invested. It's a fact that if your the borrower stops paying, you may have to produce additional money to foreclose, maintain and protect the house. Failure to do this, there's a possibility you could shed your whole investment. Hence, it is essential to know the borrower and also have additional sources beyond what you have invested in the event that you need to protect your initial investment of trust deed investing.
Second, it could be hard to determine the real value of the property. Make sure you feel confident and comfortable with the value of the property you're lending against because if the lender does not pay, you might end up getting the property and have to sell it.
Third, you may have to foreclose. Foreclosures may take some time. Provided you know that the loan is at a very low value compared to the value of the property you are foreclosing upon, , you can expect to foreclose and recoup your initial principal, back interest, as well as legal fees and occasionally even more.
Fifth, bankruptcy by the borrower can discount and delay your investment. Since a bankruptcy will often stop the borrower from giving required payments and stall procedures of foreclosures, you could be left waiting for a bankruptcy ruling without income from the note. Knowing your own borrower plus their ability to pay off the loan will certainly lessen, however, not totally eliminate trust deed investing risk.
To conclude, despite of these trust deed investing risk factors--many which are similar to that of other investments--the high fixed return rate plus the fact that this investment is guaranteed against real property makes them extremely desirable investment choices. It is important to to plan well your investments as to prevent creating blunders that may eventually cause investment loss.
