Fixed trust is an alternative investment structure typically used for projects requiring larger sums of capital. This type of trust helps to reduce the harm that can come to investors if the project in question fails. To understand how fixed trust works, let’s look at an example.
Understanding Fixed Trust Through an Investment Property Example
Suppose you are an investor looking to purchase a rental property. You must have the funds set aside to purchase the property outright. With a fixed trust, you can work with a trust provider who will provide a loan to you, plus a buffer. The trust provider will then buy the property on your behalf and put it in their name, with you as the borrower.
You as the borrower will enjoy many of the benefits of ownership but will only be responsible for the costs of the loan, not the actual purchase of the property. The trust provider will manage the day-to-day aspects of the property and handle any rental contracts and payments to you as the lender. This safeguards your investment from having to face a potentially difficult tenant situation or incur large costs in the event of a default.
Why Does Fixed Trust Make Sense for Investors?
With a fixed trust, you don’t need to worry about handling the ownership details yourself – the trust provider will take care of everything. It also reduces the risk of your investment because if the project fails, the loan buffer will protect you from taking on too much loss.
Additionally, the trust provider will typically charge a fee to manage the trust assets. This is a safe way for you to protect your investment with minimal risk compared to purchasing directly with cash. Plus, it’s a great way to diversify your portfolio and earn steady income from rental properties.
Conclusion
Fixed trust is a great way for investors to minimize their downside risk on larger projects. It takes the worries out of dealing with ownership, rental contracts, and other day-to-day details, ensuring a steady income with minimal effort. By working with a trust provider, investors can keep their portfolios diverse and protected from any potential losses.