If working on a fixer-upper is not your thing or if dealing with tenants is something you are not good at but you want to add real estate investment in your retirement portfolio, then trust deeds or mortgage notes investments could provide you with similar, or sometimes higher, amount of income for your self employed retirement account. Also, this kind of investment gives you less effort compared to an actual real estate investment.
Investing in mortgage notes and trust deeds is a good alternate investment to rental properties or real estate buy and sell, or even better if you learn how this type of investment works. Both mortgage notes and trust deeds allow an investor to receive monthly payments. The borrower issues a promissory note that indicates the amount of the loan or the principal and the interest rate. The document also contains the how much and how often payments must be made, usually every month, and the penalty or late charges should the borrower missed a payment. Penalty may also apply if the borrower decides to pay the debt prior the maturity date of the agreement.
The risk involved in trust deeds and mortgage notes investments is not as unfavorable as the risks when investing in stocks. In stocks, there is a potential that you might lose everything, even your initial investments
Mortgage notes and trust deeds are secured investments because the loan is guaranteed by the borrower’s real estate property. The only risk that involves trust deeds and mortgage notes investments is when the borrower makes permanent non-payments on the obligation. However, the risk is not as damaging like the risks involved in traditional investments because foreclosure will take place if non-payments happen. The lender can recover the remaining debts and other fees when the property is put in auction and gets sold. Normally, the value of the final bid is more than the amount of the debt, or even higher because the lender places the initial value. If there is no third party bid, the lender could keep the property for himself to satisfy the debt.