Why Investing in a Mortgage Fund Offers Greater Diversification Than Individual Trust Deeds

Real estate debt investing is a popular strategy for those seeking passive income with relatively lower volatility than equities. However, investors looking to capitalize on private lending opportunities often face a key decision: should they invest in individual trust deeds or a mortgage fund? While both options provide exposure to real estate-backed loans, mortgage funds offer a significant advantage in terms of diversification, risk mitigation, and ease of management.

Understanding Individual Trust Deed Investments

A trust deed investment involves an investor directly funding a loan secured by a specific piece of real estate. The investor assumes the role of the lender, receiving interest payments from the borrower. While this approach allows investors to select specific loans based on their risk tolerance and return objectives, it comes with inherent challenges:

• Lack of Diversification: An individual trust deed investment is tied to a single property and borrower. If the borrower defaults, the investor’s capital is at risk, with potential losses if the property value declines.
• Illiquidity: Trust deed investments typically require investors to commit their capital until the loan matures, limiting flexibility.
• Active Management: Investors must conduct due diligence on the borrower, property, and market conditions while also handling loan servicing, default management, and foreclosure proceedings if necessary.

Mortgage Funds: A More Diversified Approach

A mortgage fund pools capital from multiple investors and deploys it across a portfolio of real estate loans. This structure offers several advantages over individual trust deed investing, particularly in terms of diversification:

1. Risk Mitigation Through Loan Pooling

By investing in a mortgage fund, an investor gains exposure to a diversified portfolio of loans rather than a single borrower or property. If one loan underperforms or goes into default, the impact on the overall return is minimized, as income from the remaining performing loans continues to generate returns.

For example, TaliMar Income Fund I maintains a diversified portfolio of loans across various property types and borrowers, reducing the risk associated with any single investment.

2. Broader Geographic Exposure

Mortgage funds often lend across multiple markets, helping to mitigate risks tied to local economic downturns or real estate cycles. In contrast, an individual trust deed investor may be overly concentrated in a single market, increasing exposure to regional price fluctuations.

While TaliMar Income Fund I focuses on core urban markets in California to minimize volatility, it strategically distributes its loan portfolio to avoid concentration in any one borrower or submarket.

3. Steady and Predictable Returns

Mortgage funds typically distribute income to investors on a monthly or quarterly basis, providing consistent cash flow. Since funds hold multiple loans with staggered maturities and terms, cash flow remains stable even if some loans pay off early or go into default.

Conversely, individual trust deed investors may experience irregular income streams if their loan is paid off early or delayed due to borrower issues.

4. Professional Management and Due Diligence

One of the key benefits of mortgage fund investing is professional oversight. Fund managers conduct thorough due diligence on each loan, monitor borrower performance, and actively manage risk. This eliminates the burden of underwriting, servicing, and handling defaults that individual trust deed investors face.

At TaliMar Financial, our team of experienced professionals carefully underwrites and services each loan within our mortgage fund, ensuring investors benefit from prudent risk management and consistent returns.

5. Liquidity and Flexibility

Most trust deed investments require investors to commit funds for a fixed term, often ranging from 6 to 24 months. Exiting a trust deed investment early can be challenging and may require selling the loan at a discount.

Mortgage funds, on the other hand, often provide greater liquidity options. For example, TaliMar Income Fund I has waived its lock-up period, allowing investors to redeem capital without being tied to a mandatory holding period. This flexibility makes it easier for investors to access their funds when needed.

Conclusion

While individual trust deed investing can offer attractive returns, it comes with concentrated risk, illiquidity, and a hands-on management burden. Mortgage funds, such as TaliMar Income Fund I, provide a more diversified, professionally managed, and flexible alternative, helping investors generate passive income while reducing their exposure to any single borrower or property.

For those seeking a stable and scalable way to invest in real estate debt, mortgage funds present a compelling option that enhances diversification and minimizes risk.

About TaliMar Financial and TaliMar Income Fund

TaliMar Income Fund I offers investors the ability to participate in the rapidly growing demand for private real estate debt. The fund is comprised of a diversified portfolio of short-term loans secured primarily on residential single family and multi-family properties throughout California. The fund manager, TaliMar Financial, was established in 2008 and has successfully funded over $500 million in loans.  Investors in the mortgage fund include high net worth investors, family offices, and private equity funds who are seeking consistent monthly income, the security of real estate, and the tax benefits of a mortgage fund structured as a real estate investor trust. 

Disclosure: This advertisement is for informational purposes only and does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can only be made by the Private Placement Memorandum (“PPM”) and related subscription documents. Any investment in TaliMar Income Fund I involves significant risk. You should not enter into any transactions unless you fully understand all such risks and have independently determined that such transactions are appropriate for you. Business Purpose Loans arranged through TaliMar Income Fund I, LLC (DFPI CFL License No. 60DBO-137778).