What is Trust Deed Investing?

Trust deed investments are short-term loans provided by private investors. The loans are secured by real estate and commonly known as hard money loans or private money loans. Trust deed investing allows investors to obtain attractive returns while having the security of an investment that is backed by real estate.

With trust deed investing, the investor (lender) essentially acts as a bank. The investor receives monthly payments from the borrower until the loan is repaid. Returns on trust deeds are generally in the range of 8-11% depending on the specific loan scenario and property. The investor’s trust deed investment is secured by the property being borrowed against. The loan to value (known as LTV) is the ratio of the loan amount being borrowed compared to the current value of the property. An LTV of 75% is generally the upper limit, which protects the trust deed investor if the borrower defaults on the loan or if the value of the property decreases, or both.

Trust deed investments are usually short-term, with the average loan length ranging between 1-3 years. This protects the trust deed investor from being locked into a long-term investment if interest rates were to increase drastically.

Who are the Borrowers for Trust Deed Investments?

The borrowers are usually real estate investors. Often they are acquiring a property for a short period of time in order to make improvements and then sell it for a profit. There are various other situations involving real estate that require hard money loans. The purpose of the hard money loan and primary use of funds will be disclosed to the trust deed investor prior to committing to the investment.

How Does One Get started in Trust Deed investing?

The majority of trust deed investors work with hard money lenders (brokers). If the hard money lender allows for investing in individual trust deeds (as opposed to investing in fund), the hard money lenders are able to bring potential investments to the trust deed investor that meet the investor’s criteria. The investor is able to analyze the deal and make a decision with the guidance of the hard money lender.

Working with an experienced broker is also necessary to make sure all of the documentation and disclosures are completed correctly in order to avoid any legal issues down the line. A loan that is completed by a broker also ensures that the loan will be exempt from usury laws.

View the Trust Deed Investing Frequently Asked Questions page for more information.