Trust deed investing is simply investing in loans secured by real estate and it will make money. Most trust deed investments are relatively short term loans (maturity under five years, with many loans two years or less) made to professional real estate investors. When it comes to trust deed investing, you essentially become the bank and that allows you to charge higher interest rates than a bank might. Trust deed investing allows you to invest in real estate (which is always a good idea) without having to deal with the hassles of being a landlord.
- Diversification: The stock market can be volatile and unpredictable but private real estate investing is a more stable investment and offers diversification for your portfolio. Stock market whims, global politics, and long-term real estate trends don’t have an impact on the ROI.
- Collateralization: What makes these loans so attractive is that they are collateralized by real estate. The investment is secured against the appraised real estate. In the event of a default, the investor takes possession of the home and can sell it in order to recoup their investment.
- Profitability: These loans are short-term which means that investors can earn passive income without typing up their money for years. As of 2011, investors can receive returns of 9-12% on trust deeds with a solid margin of safety (loan-to-value of, say 65% or less). Even higher returns are possible for professional trust deed investors, because they invest frequently and have close relations with mortgage brokers and mortgage banks that create trust deed opportunities.
- Control: Trust deed investments are simple and secured loans that have been evaluated to protect the investor and the company who is in charge with structuring the loan. Now you may be wondering who exactly you will be lending your money to. The answer is simple. The borrowers are experienced real estate investors who are individually assessed by the company structuring the loan. You provide real estate investors with financing and you make money. It’s a win/win.
- High Demand: The limited supply and high demand leads to a high yield for trust deed investors. The fact that there are less risks associated with the investments make Trust deed investments valuable. Trust deed investments usually earn high single-digit annual returns, paid monthly. In some cases, returns above 10% are possible. These returns are very favorable relative to other investment options with similar risk profiles. The risk of losing money in a trust deed investment is mitigated by a built in “margin of safety.”