In California, a trust deed is the term that is used for a mortgage. A mortgage is generally the practice of loaning money against real estate. The trust deed is then recorded against the property. In other states a mortgage and note are recorded against the property.   Anyone who has ever had a mortgage will understand that they are often sold to investors. In California, trust deed investments are happening quite often and are a lucrative investment. Statistics show that California leads the nation when it comes to foreclosures.   

In order to invest in a trust deed in California, you need to be able to purchase back the amount of the original loan from the bank. You will then hold the trust deed as collateral against the loan. The borrower will have to pay you instead of the original holder of the trust deed.   You cannot raise the amount that the borrower pays.

You cannot raise the interest. You can collect the interest and principal that is due for the balance of the loan. If the borrower defaults on the loan and does not pay, you can then go forward with a foreclosure.   

Most people who invest in trust deeds are those who deal with mortgage or trust deed brokers. Mortgage brokerage houses deal with lenders who are considered secondary lenders and whose interest rates are higher than a bank or regular lending institution. The reason borrowers use brokers is because they are usually not qualified to get a loan from a bank due to poor credit or other problems.   

The trust deed investor is usually incorporated and must be a member of the Commercial Real Estate Finance Forum. Not just anyone can begin investing in trust deeds. Once you pass the scrutiny of the finance forum, you can then use your income as a way to make an investment.   

The average interest rate for trust deed loans is around 5 percent. When you think about it, this is a good return for the money. You cannot get this in a bank or anywhere else and the investment is virtually risk free. Real estate is a tangible asset and one that can always be used. In the worst case scenario, a trust deed investor can sell the property easily if the mortgage holder cannot pay and the trust deed goes into foreclosure. In such a case, the trust deed investor will then own the house.   

Some trust deed investors are buying up trust deeds in California that are risky investments hoping to foreclose. In such cases, these investors will hold on to the property and then re-sell it when the market bounces back into shape. They can even rent the property out to others until the market returns.   

Trust deed investment is not a bad idea for individuals or even partnerships, who want good return for their money in a relatively safe investment. Although the housing market in California has bottomed out for now, it is expected to rebound in three to four years.