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Many investors are eager to diversify their portfolios and reduce market risk with real assets. Even non-correlated investments like real estate include risk, although they are comparatively more stable than traditional stocks. For those considering alternative strategies that trade liquidity for passive income, trust deed investing can be a lucrative opportunity to make risk-adjusted returns.
Mortgages and deeds of trust are two types of legal documents used when buying and selling real estate, especially when obtaining money from lenders to purchase a property.
Both a mortgage and a deed of trust are necessary, and they serve similar purposes. However, these two legal instruments differ in some key ways—especially in how they work and the legal procedures involved. It’s important for homeowners and lenders to understand how the two differ, so let’s take a closer look at some of the important differences between a mortgage and a deed of trust.
Trust deed investing involves an investor lending money to a borrower through a private loan. The borrower—typically a homebuyer or developer—will then use the investor’s capital to add value to a property. To protect their investment, the investor’s name is on the deed of trust. The trust deed ensures that the property is used as collateral. When looking at this type of investment for your portfolio, you need to understand how the lending and borrowing processes work and consider the potential advantages and disadvantages. This will allow you to make better and more informed decisions.
Whether you’re looking for opportunities to diversify your portfolio or short-term financing for a real estate project, trust deed investments offer distinct advantages. As with any financing, trust deeds also include a certain amount of risk. Understanding the balance of both can allow you to make informed decisions about your options.
