What is a First Trust Deed?

What is a First Trust Deed?

When people think of real estate investing, they envision an HGTV show with a glamorous host who parades in front of a camera, finding and flipping properties for profit. But did you know there are several different ways you can invest in real estate besides flipping properties? What is a first trust deed? Trust Deeds, also known as Notes, allows investors to take a stake in a piece of property without getting their hands dirty. Basically, an investor can purchase the trust deed of the property and hold it in lieu of repayment of a loan.  This alternative method of generating investment dollars allows house flippers to use the hard asset of the property as collateral to acquire a loan to finish the renovation.  The trust deed holder then acts as the private money lender to the flipper, while protecting their investment by taking a lien position on the investment property.

The Challenge: Finding Funding

One of the most challenging aspects of real estate investing for the fix-and-flip investor is funding. Many flippers might be short on cash or highly leveraged with monies sitting in other hard assets, including other properties. First Trust Deeds benefit both the home flipper by providing capital to purchase and improve the property, while simultaneously providing ROI to the lender in the form of interest payments on the loan.

Differences Between a Mortgage and First Trust Deed

People tend to think of property loans in simple terms of mortgages. And rightly so, as most people familiar with buying a home use mortgages to acquire the loan to make the purchase.
But there are some distinct differences when you look closely at what constitutes a property loan in each state.

Mortgages

Mortgages consist of two parts: the promissory note and the trust deed. The promissory note consists of a promise to pay with the loan details and repayment terms. This agreement between the lender and borrower creates a lien position on the property held by the lender. The lien, depending on the state, can be created either by the mortgage or through a trust deed. These give the lender the power to foreclose on the borrower in the case of nonpayment. A lien is a legal claim on a property. In the first position, the note holder has “first dibs” on the property if something goes wrong. Lienholders can also take a second position on a property, but this comes with more risk.

Trust Deeds

Under a mortgage there are two parties, the lender and the borrower. But in states where trust deeds are used to secure a loan, there are three parties involved. These consist of the following:

  • The Lender;
  • The Borrower; and
  • The Trustee (who holds the trust deed).

The function of the trustee is to sell the property at auction in the case of foreclosure. Under a traditional mortgage, foreclosures for lending institutions like a bank can be complex due to state laws. In cases such as these, a “trustee” facilitates the sale of the property at auction in the case of a foreclosure.

Mitigating Risk

One of the great things about investing in trust deeds is that it gives the investors a return on their money with managed risk. That “managed risk” is that by owning the First Trust Deed lien position, the investor receives some protections as the hard asset (the property) acts as collateral. The foreclosure process can be complex and take time, but for the note holder, there is at least some protection for their investment dollars if something goes wrong. Typically, many private loans are short-term. Anywhere from 1-3 years. This allows the investor to earn passive income in the form of interest payments over the loan period.

Benefits of First Deed of trust in real estate

  • Higher rates of return for the investor
  • Reduced risk
  • Loan is secured by the property
  • Shorter loan terms

Risks of FIRST DEED OF TRUST IN REAL ESTATE

  • Not federally insured by the FDIC
  • Title problems can interfere with returns
  • Investor is responsible for the accuracy of the appraisal
  • There can be some difficulty if the owner declares bankruptcy

First trust deeds for sale

Interested in investing in trust deeds?  Now you can with an experienced investment team that can walk you through the steps of acquiring notes on properties throughout the U.S.  Click the button below to peruse available opportunities and don’t hesitate to call our funding team with any questions.  You can reach them at (800) 427-9898.

 


NMLS #160709 • Please click here for the Secured Investment Corp NMLS Consumer Access Page

Secured Investment Corp and its members, officers, directors, owners,  employees, agents, representatives, suppliers and service providers provides this website for informational purposes only. By using this site, you are subject to our Terms of Use and our Privacy PolicyPlease read these carefully before proceeding. In exchange for using the site, you agree not to hold Secured Investment Corp, our affiliates or any third party service provider liable for any possible claim for damages arising from any decision you make based on information or other content made available to you through this site.

Neither Secured Investment Corp. nor any of its affiliates are registered investment advisors or broker-dealers, nor do they provide tax or financial advice and do not represent in any manner that the outcomes described herein will result in any particular tax or financial consequence.

The information on this website does not constitute an offer to sell the membership interests identified herein in any state or jurisdiction in which the issuer is not qualified to do so.

THERE IS NO ASSURANCE THAT ANY STRATEGY WILL SUCCEED OR THAT ANY PROGRAM WILL MEET ITS INVESTMENT OBJECTIVES.

All investments contain risk and may lose value, and any investment with Secured Investment Corp is considered speculative. There are no guarantees of distributions or returns, and an investor may lose all or a part of their investment. Past performance is no guarantee of results, and any historical returns, target returns, expected returns, disclosed rates of return, disclosed earnings statements, or probability projections may not reflect actual future performance. Investors should not rely on forward-looking statements because such statements are inherently uncertain and involve risks. Any reliance on figures presented is done so at the investor’s own risk. Secured Investment Corp cannot guarantee that investors will achieve similar returns as prior investors.

Secured Investment Corp encourages investors to invest carefully. All investors are advised to fully understand all risk associated with any investment the investor may choose to make. Accordingly, you should consult with your own attorneys, accountants, and other professional advisors prior to making an investment. The Fund files audited annual and unaudited semiannual financial reports which are available for review here.

Circle of Wealth Fund III LLC has filed offering circulars and may additionally post-qualification amendments (including supplements to such filings) with the Securities and Exchange Commission (the “SEC”) covering the current offering of membership interests. An investment in membership interests entails risk of loss, and you may lose all or part of your investment. Each investor should carefully consider the risk factors and other information discussed in the qualified offering circulars/PQAs (and current supplements, if any) before purchasing membership interests. For more information on the Risk Factors and Cautionary Notes of investing with Circle of Wealth Fund III LLC, please click here: http://las.cogo.membership.site.s3.amazonaws.com/COW/COWIII-RISK-FACTORS.pdf

Offerings by Circle of Wealth Fund III LLC: The Offering Circular is available here: https://www.sec.gov/Archives/edgar/data/1762825/000173112220000349/e1852partiiandiii.htm

Generally, no sale may be made to you in this Offering if the aggregate purchase price you pay is more than Ten Percent (10%) of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, Investors are encouraged to review rule 251(d)(2)(i)(c) of Regulation A. For general information on investing, Investors are encouraged to refer to www.investor.gov.

A copy of these materials may also be obtained for free on the SEC’s website at: https://www.sec.gov

The information above presents a general summary of the business and the purpose and principal business terms of an investment in the Company. This summary does not purport to be complete and is qualified in its entirety by reference to the more detailed discussion contained in the Offering Circular.

Photos of real estate assets depicted are not part of this offering. These are representations of past transactions conducted and underwritten by the Secured Investment Corp. management team. These transactions are representative of the types of transactions and assets that the Fund will be participating in.

Articles or information from third-party sources outside of this domain may discuss Manager and/or Company (or its affiliates) or relate to information contained herein, but Manager and/or Company and its affiliates do not approve and are not responsible for such content, nor does Company make any representations as to the accuracy or completeness of the information contained on third-party websites. Hyperlinks to third-party sites, or reproduction of third-party content, do not constitute an approval or endorsement by Manager and/or Company or any of its affiliates of the linked or reproduced content.

Neither the SEC nor any state securities commission or regulatory authority approved, disapproved, endorsed, or recommended the merits of the offering described in the Offering Circular or reflected on this website.

Manager’s and/or Company’s services do not constitute “crowdfunding” as described in Title III of the Footer 3e Jumpstart Our Business Startups Act (“JOBS Act”).