2015 TRENDING STRATEGY: TRUST DEED INVESTING

Arbitrage, the art of making money on the spread is certainly not a new concept and the savvy investor understands that the movement and management of capital is the key element in its growth. Deploying their funds using a variety of techniques and strategies designed to earn double digit returns while minimizing risk is also crucial in building a portfolio that can withstand market fluctuations profitably.

When implemented correctly into a long term investment plan Trust Deed Investing has proven to be a solid technique in the investor’s arsenal to generate monthly income while limiting risk. The current economic climate has provided a financial “boom” not just for professional real estate investors, but for novice investors who have taken control of their capital by re-positioning their retirement accounts for significantly higher returns secured by a tangible asset. Ultimately the goal of the Trust Deed investor is to diversify or provide a “hedge” by investing in multiple deals, spreading the risk while collecting generous monthly payments. To determine if investing in Trust Deeds is a good fit for your portfolio, let’s take a look at some of the pros & cons:

Little opportunity for capital appreciation

With trust deed investing, you are putting your money into loans backed by real estate; you are not investing in real estate directly. So there is little chance for capital appreciation earned when the property in question increases in value, as that remains a gain for the borrower holding title to it and making the loan payments faithfully. Bottom line is you give up the potential for capital upside profits in exchange for monthly income.

Liquidity:

Your capital is typically tied into the investment for the term of the note, though If you require immediate liquidity there is a vigorous secondary market for trust deeds.

Intensive knowledge required to independently invest

From vetting borrowers, assessing deals on their merit, and conducting due diligence on the borrower and the property, to securing the proper paperwork and legal compliance, there is a lot involved for the “part-timer” to handle on their own. Seeking experienced professional real estate and legal counsel is advised as a small flaw in the documentation or due diligence of a trust deed investment could make an otherwise very secure investment become considerably risky

Possibility of default issues

Provided you have structured everything properly you will always be able to take control of the property if the borrower defaults. In most cases you will be able to sell a property given sufficient time for more than the loan you made. Again the extent of your diligence on the note acquisition will determine your fate.

Pros:

• Higher Returns than the typical “safety net” investments such as CDs, Bonds, Annuities
• Prime Market Conditions providing a host of borrowers who will gladly pay you a premium for your money and the speed/time frame in which you can provide it
• Tangible asset providing a secured investment
• Passive Investment options; Thus the popularity of professionally managed firms that provide turnkey trust deed investing programs.

This can be the perfect lifestyle investment property system. However, the performance and stability that makes this investment vehicle so appealing depends greatly upon who does the selecting and servicing of the loans. For most investors, a full-fledged trust deed investment company with loan origination and servicing capabilities is the safest and easiest choice.

In most cases, these firms should be specifically licensed for real estate lending and investment sales, and be capable of handling all aspects of a trust deed investment, including evaluating lending opportunities, securing appraisals, researching title and encumbrances, originating loans, billing and collecting loan payments, distributing investor yields, handling payoff and returning or reinvesting investor principal. In the event of repayment problems, these firms also handle workouts, help investors understand their foreclosure and refinance options, and act as intermediary between investor and borrower. The most fully integrated firms can handle the sale of foreclosed property and/or manage rental properties on behalf of investors as well.

Secured private real estate loans such as trust deed investments are one option that many affluent individuals are evaluating for their portfolios. Backed by real estate collateral and offering impressive yields, trust deeds can provide meaningful portfolio diversification, steady income and very acceptable levels of safety.