Trust Deed Investing – Why Invest in Trust Deeds?

The Lure of Trust Deeds

Investors that pursue trust deed investments are attracted to them because of four primary factors:

1. They offer a way to diversify their investment portfolio
2. They generate regular income
3. They minimize risk
4. They typically produce a more consistent rate of return than traditional investments in stocks and bonds

Consistent Higher Returns

When compared to fixed-rate bond investments, which are subject to fluctuations due to changes in interest rates and the economy, deed trust investments offer more consistent returns. In essence, trust deed investing is similar to investing in a bond with a fixed yield and pay-off at maturity. For example, if you, as an investor, loan $100,000 to a borrower at 10% interest and require interest-only payments, you would receive $10,000 in interest income per year. Absent any default, the loan would pay off at or before maturity, and the original principal would be returned.

Demand for Private Loans

Today’s economy has generated a consistent demand for specialized loans, which produce higher yields for investors. Real estate developers and investors have limited access to traditional lending sources. As a consequence, loans offered by private trust deed investors demand higher interest rates, as well as lower loan-to-value ratios, to protect the investment. This results in higher returns with less risk.

The Advantage of Deed of Trust Security

Trust deeds can yield higher returns than stocks, with less risk. This is because trust deed investments are secured by tangible real property – houses, buildings, acreage, etc. Moreover, borrowers have a great deal to lose from defaulting on a secured loan. The risk of losing the property provides strong incentive to keep current on payments.

Diversification of Investment Portfolio

There are a number of reasons investors embrace trust deeds. The first is diversification. Because trust deeds are fixed-income, real property investments, they are attractive to investors seeking ways to divide investments between equities, such as stocks, and fixed-income investments, like bonds. Trust deeds also provide the opportunity to invest in the real estate market, which when done well, generally delivers considerable returns. Smart investors look for different sectors of the economy in which to invest, such as agriculture, technology and real estate.

Investment Type Comparisons

Investment Options Collaterial Expenses Risk Factor Estimated

Investment Options



Risk Factor

Estimated Yields

Money Markets Bank Secured & FDIC Varies Low .01 – 1.5%
Cert of Deposit Bank Secured & FDIC None – early withdrawal penalties Low .05 – 4%
Bonds None Commissions + Fees Mod Varies by Market Condition
Stocks None Commissions + Fees High Varies by Market Condition
Trust Deeds Real Estate low LTV None Low-Mod 8% – 12%