866-461-2695 ken@hardmoneyman.com

If you’re looking for something less risky and more financially secure than mutual funds and other security instruments, you might want to think about trust deed investing. While nothing is completely risk free, some investments carry less risk and higher ROIs (return on investment) than others. Since trust deed investments are actually secured by the equity in a property, they carry less risk than traditional mortgage loans that sometimes require as little as 3-5 percent down depending on the type of financing the borrower obtains.

What Is a Trust Deed?

In short a trust deed is actually a mortgage although there are some differences between them which we will not discuss at this time. Rest assured the differences are minor. When you invest in a trust deed you loan money against a piece of real estate. While this defines a mortgage in standard terms, it is a private mortgage rather than one between a financial institution and a borrower. The terms of the transaction are defined either by the investor or by the borrower. Likewise, the investor receives regular interest payments at the rate agreed upon at the time the loan was made. When the borrower repays the loan the investor gets his capital back and can use the money to loan to someone else. The majority of these private mortgages have higher interest rates than traditional lenders: usually a minimum of 10 percent. However, for those who have low credit scores, this option makes the difference between being able to obtain a loan or not.

Risk Factors

All investments involve a certain degree of risk—there is no way to avoid it. Fortunately trust deed investments provide more security than most of the other popular investments: they are back by the equity in real estate. No, having liens on real estate didn’t help the big banks, but we are talking not just real estate but EQUITY in real estate. This is the key factor in creating a successful trust deed transaction: making sure there is enough equity in the real estate to protect the investor in case of default. It is even possible to use more than one property in order to create more of a cushion and increase the potential for the investor to recoup the money he loans in a trust deed transaction. These types of loans are commonly referred to as blanket loans. The higher equity requirement involved with a trust deed transaction provides the investor with a cushion in case the borrow defaults on the loan.

Return on Investment

It is not only the rich and famous that make money through trust deed investing. The average middle-income investor can use retirement funds in a self-directed IRA. Most people don’t realize they can actually invest their IRA in almost anything, so instead of investing in the mutual funds that most brokerage houses tying to encourage, you can put those funds into trust deed investments and earn a healthy 10 percent compound annual return free of any tax liability on those earnings.

Looking at trust deed investments over the long term provides much less volatility than the average mutual funds or other security instrument investment. For instance, an investment of $100,000 over ten years can provide close to seventeen times the return of investing the same amount of money into the S&P 500 with a lower risk. With the current state of the economy creating higher volatility for stocks, bonds, and mutual funds, investing in real estate equity can provide a high rate of return provided the investment ensures sufficient equity in the property to cover the investor in case it becomes necessary to foreclose on the property or properties.