Why Invest in Trust Deeds?

What is the main advantage of investing into Trust Deeds?

Trust Deeds offer many advantages to an investment portfolio.  The first is non-correlation to traditional stocks and fixed income investments.  The second is the fact you have the tangible collateral of real estate securing your investment.  The third is steady income.  Assuming you have a timely payor or are with a quality pooled investment, you will receive predictable principal and interest payments.  The fourth is return.  It is not uncommon for investors to earn double digit returns through direct Trust Deed investing.

What is a Trust Deed?

When we reference Trust Deeds, we are actually referring to two separate legal contracts, a promissory note and security instrument.  A promissory note is an IOU between two or more parties in which the payor owes a beneficiary a principal sum of money, usually with interest, and payable over a set period of time.  The security instrument is either a deed of trust or mortgage (depending on the state) that is recorded on public record and secures the note with real estate as collateral.  If the payor defaults on the note, the security instrument gives the beneficiary the right to foreclose and take back that asset to make their obligation whole.  While there are promissory notes on numerous asset classes, TDI’s focus is on investing in Trust Deeds secured by real estate.

How are Trust Deeds created?

The most common way a Trust Deed is created is when an individual borrows money to purchase a property or refinance real estate they already own.  Countless trust deeds are created this way every single day.  The second way a Trust Deed is created is when a property owner sells their home and carries back a note.  This is called seller financing.