A trust deed is a legal document that creates a security interest in real property. It transfers legal title to the trustee, who holds the property as security for a loan. Trust deeds are important documents that are frequently used in estate planning, and the process of drafting them is quite simple.
In a trust deed, the legal title of a property is transferred from the borrower (also known as the trustor) to an impartial trustee, usually an escrow company or title company. This is done to protect the interest of the lender, which often has a lien on the property. But the equitable title of the property remains with the borrower.
A trust deed investment typically offers an attractive yield, as the loan term is generally shorter. This is because the loan is extended to borrowers who would not otherwise qualify for a loan through a traditional bank. This means that investors can expect to receive high single digit returns on their investments. Moreover, these returns are paid on a monthly basis, and the principal amount is fully repaid once the loan reaches its maturity. This type of investment is particularly attractive for those looking for passive income.
Although trust deeds are mostly used for real estate purchases, they can also be used for other purposes, including as collateral for a loan or to secure performance of a contract. In fact, trust deeds are the most common instrument for real estate financing in the United States. They are also used to transfer property between two parties.
The process of creating a trust deed involves several steps. First, the trust beneficiary and lender agree on an initial loan amount. This amount is typically equal to the purchase price of the property, less the borrower’s down payment. This ensures that the borrower has a clear understanding of the loan amount and how much is owed.
Secondly, trust deed investors can benefit from high interest rates. Lastly, a trust deed investor is not required to have any experience in the real estate sector. While these benefits are attractive, investors should also be aware of the risks. This type of investment is not very liquid and the investor is unlikely to be able to withdraw it at any time.
Thirdly, trust deeds are only available to those who have adequate disposable income. It’s important to remember that if you don’t have enough disposable income to pay off your debts, you cannot set up a trust deed. If you’re unable to make enough money to make this work, you may be better off setting up a debt payment plan under the Debt Arrangement Scheme instead. This might require selling your home.
Unlike a mortgage, a trust deed involves a lender, borrower, and trustee. If one or all of these parties defaults, the lender has the right to foreclose on the property.