Trust deed investments are an excellent option for investors seeking monthly cash flow, the security of real estate, and a passive source of income. Unlike other real estate investments such as rental property, trust deeds don’t require property or tenant management. Further, investors can easily select the trust deeds that meet their specific risk profile.
A trust deed investment is a loan secured by real estate. Trust deeds typically yield returns of 8% to 12%+ annually. Payments are most often made monthly to the investor with a investment time horizon of 12 to 36 months. Minimum investments can range from $10,000 to $100,000. Trust deeds also make an excellent option for investors with a self directed IRA, 401k, pension plan, or other type of retirement account.
Like any investment, there is substantial risk to investing in trust deeds. However, if done correctly, the risk can be mitigated by following simple “best practices”. Contact TaliMar Financial today (858) 613-0111 to learn more about the benefits of investing in trust deeds.
A trust deed investment is a Loan made by an investor (commonly referred to as the Lender) to a Borrower using real estate as collateral. The Borrower makes payments to the Lender per the terms of the Promissory Note. The term trust deed investment refers to the document or “Deed of Trust” that is used to secure the Loan to the property.
Investing in Trust Deeds can be an excellent alternative for investors seeking long term cash flow with the security of real estate. Trust Deeds traditionally offer higher yields when compared with other income generating investments. Unlike a mortgage fund or many crowdfunding platforms, investors are secured directly on the property with a Deed of Trust or Assignment.
Trust deed investments yield returns of 8% to 12%+ annually. The yield will vary based upon the level of risk associated with the trust deed. These risks may include loan position (1st, 2nd, 3rd position), property type and condition, loan-to-value ratio, and financial strength of the Borrower. Payments are typically made on a monthly basis with loan terms ranging from 12 to 60 months.
Payments can be collected directly by the Lender or a third party Loan Servicer. The responsibility of the Loan Servicer is to issue monthly statements to the Borrower, collect and process payments, and submit the payoff demand once the Borrower is ready to pay off the loan. Most Servicers also offer foreclosure services. The cost of using a Loan Servicer is minimal and highly recommended.
A fractional trust deed, also known as a multi-lender loan, is a trust deed owned by more than one Lender. Let’s use a scenario in which three separate Lenders pool their money to finance a single trust deed. In this scenario, each Lender owns a 33.33% interest in the trust deed and thus each would earn a 33.33% of each payment. If the Borrower defaults on the loan and a decision to foreclose was required, that decision would have to be need to be approved by the majority interest holder in the trust deed or the aggregation of Lenders that make up the majority interest. In this scenario, 2 of the 3 Lenders would need to approve the foreclosure. Many states require that a fractionalized trust deed be serviced by a third party Loan Servicer.
One of the most common risks associated with a trust deed investment is late or non payment. If the Borrower does not or becomes unable to make the payment per the terms of the Promissory Note, the loan is considered to be in default and the Lender has the right to commence a foreclosure action (note, this is specific to trust deed states). Should the Borrower be unable to bring the loan current, the property is sold at a foreclosure sale. The proceeds from the sale will be applied to the unpaid principal, interest, and fees associated with the foreclosure action.
The most common ways of locating trust deed investment opportunities is to attend a local real estate investor networking event, post advertisements on real estate websites, or work with a real estate broker that specializes in trust deed investments. We highly recommend that new investors work with an experienced broker that is local to their market and has a strong understanding of state lending regulations. Click here to view trust deeds currently available through TaliMar Financial.
The most common mistake made by trust deed investors is funding a high yield trust deed without understanding the risk. We recommend new investors focus on trust deeds secured in 1st position on a single family or multi-family property at 65% to 70% of current value. Lenders in 1st position will get paid first when the property is sold or refinanced. Focusing on trust deeds secured at 65% to 70% of current value will lessen the risk of principal loss if the value of the property declines or a foreclosure action is required. Lastly, single family and multi-family properties are often much more liquid than other asset classes such as industrial properties or land, and therefore may retain their value better through a market slowdown.
TaliMar Financial specializes in offering Trust Deed investment opportunities. Many investors consider Trust Deeds an excellent addition to a well-diversified investment portfolio. Trust Deeds deliver a number of advantages, including high yields and consistent monthly cash flow combined with the security of real estate as collateral.
As your trusted advisor, TaliMar Financial operates according to the highest levels of accountability and transparency, following a strategic investment approach that seeks to minimize risk and maximize returns. Throughout the full term of your investment, we remain committed to you as a source for guidance.
Please contact our office to learn more about Trust Deed investing and the current opportunities available with TaliMar Financial, including investment programs available for Self-Directed IRA and Keogh accounts.
Generate Strong Cash Flow. Trust Deed investing is an excellent option for investors seeking consistent monthly cash flow. As a trust deed investor, you receive payments monthly from the Borrower until the loan is paid off. Your principal investment is returned once the borrower repays the loan.
Offer High Yields. Trust deeds generally yield returns of 8% to 12%+ annually. The yield is based upon the risk of the trust deed which may include the loan position, property type / condition, borrower financial strength, and the term of the loan.
Limited Management. Unlike owning rental property, trust deeds do not require property or tenant management. A third party loan servicer collects the monthly payment from the borrower and disburses the funds to you. No need to draft monthly statements, manage payoffs, or issue year-end tax statements.