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Trust Deed Investing for New Investors and/or Retirees
For some people, the thought of taking a risk with their hard-earned money and putting it into an investment can be frightening. For most of their lives, their strategy has been to put their cash reserves in a bank account with a low return on investment because they never wanted to risk losing their money and continue to save some of their money every month.
Future investors or people who are about to retire and now have access to their retirement funds should understand that every asset, including cash itself, has a risk of gain or loss (inflation) .
Not putting your money in higher rewarding asset classes such as stocks, bonds or real estate can really set you back, but just because you’re taking on a higher risk doesn’t mean you’ll lose the money. that you are investing. However, not investing and keeping it in low-yielding accounts can pose a greater risk in terms of future purchasing power.
For example: Let’s say a retiree now has $1,000,000 at retirement and holds it in a cash account at age 65. Now suppose this person is now 85, what this person could have bought in 1994 for $1,000,000 would now cost them $1,750,000 in 2014. This person has lost 40% of their money in purchasing power . Which, due to inflation, amounts to having only $600,000 of the remaining $1,000,000. Use this to give you a personal example if you want to do the math with different numbers.*
Taking a bigger risk does not mean you will lose all or even part of your money, it could just mean that your return may turn out to be less than you expected, which compared to a small return or at no yield at all, is still the best. alternative. This is why it is important to diversify your investment knowledge and understand the different forms of investments available, such as real estate trust investing.
DID YOU KNOW you could invest your money in real estate without having to manage your property, know a lot about real estate, or take too much risk? Some examples would be investing in REITs, which is a company that sells shares to unitholders (another word for shareholders) or bonds backed by the company’s real estate portfolio. Another is to be a private mortgage lender through a broker who will find a safe property to put your money against, called a trust deed.
Here’s an example of why investing in a trust deed is safe and how investing in this asset class would put you in a better position in the future, then I’ll show you how the numbers work.
Why is it safe?
1. These properties are all insured.
2. You will own the mortgage on the property and can sell the property to reclaim your money and promised interest, if your interest is not repaid.
3. You lend your money to an experienced rehabilitation professional or real estate investor who most of the time also invests his own money.
4. The duration of the investment is comparable to a CD, from 6 months to 2 years at rates ranging from 5 to 7% of return on investment.
5. You have a broker who appraises these properties at a professional level.
6. You can see the property, visit it and know what you are investing in.
Although you can also learn how to provide these loans yourself, it is much more advantageous to go through a broker, because you can run the risk of choosing the wrong person to lend to, which brokers have filtered out over time. Not that you can’t get your money back after legal proceedings, which brokers know inside and out, but instead you want to receive your monthly return as contracted.
Also, a broker can create a higher return for you without the legal risks of usury laws. These laws prevent someone from overcharging another person on a loan given to them.
So let’s say this same retiree invested his $1,000,000 in trust deeds consistently for the past 20 years at a minimum rate of 5% and continued to reinvest half of his monthly interest earnings. Today, he would have over $2,700,000! This means that this person was receiving $2,500 per year, or $135/month after taxes, and after 20 years accumulated, they were still accumulating that much wealth. Although after a 35% tax deduction, that would be around $2,000,000. Calculate the numbers for yourself at http://www.bankrate.com/calculators/retirement/roi-calculator.aspx
Here is a table showing an example in the original article. http://privatelending.org/why-not-taking-risk-is-a-big-risk-what-to-do-with-your-hard-earned-cash-in-2014/
Hopefully this article gives you a better understanding of the importance of taking risks and what risk really is. It doesn’t mean you’ll lose your money, and it doesn’t mean you can’t get a higher rate and be careful with your money. Either way, it’s always best to diversify your portfolio across a range of investments and hire a professional for planning and advice. Let me know what you think!
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