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While trust deed investing carries less risk and volatility than other investments (stocks, bonds, mutual funds and other security instruments), there is still a margin of risk if the investor does not protect himself from the beginning. It is important for a trust deed investor to think to the future and provide protection for himself. It is for this reason that trust deed investors require the borrower to have a substantial amount of equity in the property: to protect the investor. Even in the current depressed real estate market the trust deed investor can recover his initial investment as long as there is sufficient equity in the property from the start. There are a few situations that may cause challenges for the investor although it is rare these instances will cause the investor to lose his initial investment.

Sharp Decline in Real Estate Value

Sometimes investors get a little concerned with the declines in real estate values in today’s market. Fortunately this is not something of concern to trust deed investors because the borrowers who pledge that property will have to make good on the loan when it comes due regardless of the property’s value. The fact that the trust deed investor is loaning money against the equity in the property gives him a cushion against declining real estate values and places that burden on the borrower. Trust deed investors that loan conservatively can ensure the properties that are secured by the trust deeds he holds will still retain enough equity to protect his investment if he should have to foreclose.

Incorrect Valuation of Property

As long as you take the time to research any property in which you invest you will not have a problem with the property secured by your trust deed being incorrectly valued. You want to make sure you don’t make any blind investments but always visit the property first. If you are unable to do it yourself send a representative you can trust such as your lawyer or accountant.

Bankruptcy

While bankruptcy may delay the foreclosure process, it will not necessarily stop it. The laws vary in each state, so investors need to be aware of the laws in their individual states in order to make sure they are prepared for the possibility of a borrower filing bankruptcy. In some cases the judge may choose to rewrite the terms of the loan and possibly decreasing the interest rate, but you will not at any time lose your initial investment.

Litigation and Title Issues

Another issue that could cause headaches in trust deed investments is the issue of a valid title. For instance, the lender may find out after the loan is transacted that the property lines cuts through the building the borrower used as security.

Another potential problem that could arise is the owner of an adjacent property could sue claiming the building is in violation of building codes thus causing devaluation in the property. The property may have been involved in mortgage fraud which will prevent the lender from recovering any money from the property until the case is resolved.

While these are things that can occasionally happen, they can be avoided if the investors spend time and even cash to research the title of any trust deed in which he is planning to invest. A preliminary investigation will show him most snags that may exist in claiming a clear title to the equity on which they are loaning money. These minimal risks should never dissuade you from trust deed investing because a little extra effort makes them avoidable or at least minimizes these risks substantially.