If you’ve been searching for unique investment opportunities in the real estate space, trust deed investing is an absolute must. Trust deed investments are an excellent method of diversification that provide steady income with impressive downside risk mitigation. While trust deed investing has many merits, there are some nuances that are very difficult to navigate for the inexperienced, making trust deed investment funds a profitable and suggested route for investors that are interested in safety and security.
To get started, let’s discuss the key details of what trust deeds are, how trust deeds work, and how some investors get into this fascinating market with Trust Deed Funds.
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When everyday investors are considering trust deeds for their portfolios, it’s helpful to begin by learning exactly what they are and how they work, as they’re significantly different from basic stock trading. Let’s begin by defining what a trust deed is and what trust deed investing typically entails.
Essentially, trust deed investing involves buying real estate-backed loans and functions in many of the same ways as a mortgage. The two terms are not identical, but they are very similar.
Typically the difference between a Trust Deed and a Mortgage is in how the collateral real estate is treated. In the case of a non-performing (non-paying) Mortgage, typically the lender must go through a process called “Judicial Foreclosure”. It can be lengthy, it often results in delayed timeframes for the lender, and often creates more personal liability for the borrower.
In the case of Trust Deeds, the process for resolving non-performing loans is called “Non-Judicial Foreclosure”. This process is typically quicker, with fewer legal hurdles, and also often results in less personal liability on the part of the borrower. Investing in trust deeds can span short or long-term loans, mostly based on the goals of the investor or manager of a trust deed investment fund, as well as what type of real estate the Trust Deed is using as collateral.
Trust deeds have many unique qualities that make them an excellent fit for those looking to diversify their portfolios without taking on significantly higher risk exposure. What are some of the reasons why trust deed investing is so attractive?
If the loan involving the trust deed isn’t paid back, the underlying property can be taken title of to recover the investment. Generally, a maximum of 70% of the property value is loaned on, so in the event of default, properties may be recovered for below market value. This low loan to value also protects the lender against market recessions.
Another reason trust deeds make attractive investments is that the foreclosure process is significantly easier than with mortgage lending. In these cases, a simple non-judicial process bypasses court involvement, saving legal expenses and time compared to mortgage foreclosures.
Beyond the ability to reclaim investment collateral, another benefit of trust deed investment funds is that the investments are secured by tangible assets, unlike stock investments that can significantly decline in value in a matter of hours, and with an ever-changing business environment.
An excellent reason to invest in trust deed investment funds is the appealing yields and consistent cash flow they can deliver. Investors can receive their returns via a fixed monthly amount at a pre-specified interest rate until the underlying loan is paid in full. Investors can even choose to reallocate their returns back into the fund for increased earnings potential. Consistent, predictable cash flow is one of the key reasons people invest in trust deed funds.
One serious consideration to investing in trust deeds is that to reap the full potential, you’ll need significant depth of knowledge about the real estate market, compliance, laws, collections, and investing in loans. Trust Deeds take a full team to handle them correctly. In addition, there is a substantial amount of due diligence involved with trust deed investing in order to minimize downside risks and secure stable income streams.
Additionally, the due diligence required for the individual trust deed deals is extensive, requires significant legal review and involvement, and can have extremely poor outcomes without the proper information. Every borrower must be evaluated, terms must be examined line by line, market analysis needs to be conducted specifically to the property and borrower. In the US, there are thousands of real estate submarkets, each with merits and drawbacks. These factors create more risk and add time to the investment process, a far less attractive proposition for passive income goals.
Because of the amount of time and risk it takes to invest in Trust Deeds, many investors opt to allocate their capital to a trust deed fund like Saint Investment Group.
Investing in a professionally managed trust deed fund like Saint Investment Group involves significantly less work for investors who aren’t experts in real estate markets. Funds are carefully managed by experienced trust deed fund managers, and detailed analysis is run on every opportunity, allowing investors in the fund to play a more passive role. Investors in trust deed funds get to enjoy the merits of trust deed investing with much less work and far greater security than directly buying trust deeds as a solo investor. And the biggest surprise to investors? They often receive HIGHER returns in the fund than doing it on their own. Why? Because Saint typically buys at lower pricing, higher-quality assets, more efficient legal fee structures, and has overall economies of scale. When most investors weigh these considerations, they find investing in a trust deed fund is the no-brainer option!
When you’re ready to get involved with trust deed investing, there are a few ways you can start. One way is direct lending to individual homebuyers. You can lend your capital directly, and essentially be the loan of the bank underwriting, analyzing, creating all paperwork, and servicing the loans you make. Another option is purchasing real estate loans from banks in large pools with purchase prices typically in the multi-million dollar range. However, for many, the most secure and consistent returns can be accomplished through a trust deed fund.
Because individual trust deeds aren’t nearly as secure as having multiple deeds held in a trust deed fund, there’s a significantly greater risk of potentially losing large amounts of investment capital.
With a constantly fluctuating legal landscape at the Federal, State, County, and City levels, newer investors can easily find themselves in legal messes with individual trust deeds. Investing with seasoned managers of trust deed funds provides investors with the best of both worlds—stability and strong returns, without requiring detailed analysis work on each asset. Saint Investment Group has the trust deed expertise to source premium opportunities and hedge risk by holding numerous property types, delivering stable, consistent passive income every month to our investors.
When getting started with individual trust deed investing, it’s crucial to keep in mind that trust deed investments aren’t as liquid as stock and equity investments are. Typically, you’ll need to own a large number of notes to balance out the risk of any single deal. That’s why a trust deed fund provides far more security and stability for its investors.
If investing in a trust deed fund sounds more like how you’d like to get into the world of trust deeds, Saint Investment Group provides strong returns with an advanced portfolio of underlying properties. Give our expert trust deed team a call today to learn more about earning consistent, high-yield, passive income on your hard-earned capital.
When you want an expert team of trust deed investment analysts reviewing every trust deed in your portfolio along with detailed reporting, Saint Investment Group is here to help you invest wisely. Call (323) 483-0291 today to learn more about our trust deed fund.
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.