Trust Deed Investing – How to Invest – Risks and Rewards

Geraci Law Firm

Investing in
trust deeds is nothing new. Investors have often sought investment in either
fractional or entire trust deeds because of the better than average rate of
return and the security that comes in the form of pledged real property.

stocks or bonds, where the investor is relying on market conditions to dictate
returns, investing in a trust deed
typically offers a fixed rate of return in the form of monthly payments and in
most cases a return of capital at maturity. This type of investment generally
provides higher yields on capital with less risk than other market offerings.

basic components of a trust deed

1) a
promissory note signed by the borrower and

2) a deed of
trust which secures payment of the promissory note by establishing a lien 

against real property upon the recording of the deed of trust in the county
where the real property is located.

The trust
deed holder is the lender, just like a bank, credit union or other financial
institution. Trust deed investment allows an investor to participate in a loan
secured by real property by purchasing all or a portion of the note and trust
deed attached to a particular property and borrower.

The investor
can either purchase the entire loan or a just fractional share. An investor
that has adequate capital will often finance all of a trust deed loan. An
investor that is the sole holder of a trust deed loan will enjoy more control
over their investment in that the investor will be the sole decision maker with
respect to collection of late payments, foreclosure, modifications and
forbearances. Fractional participation in a trust deed loan will result in less
control over the investment than owning the entire trust deed loan, but it
provides an excellent vehicle to introduce investors to investing in trust deed
loans. With a fractional trust deed loan, the total investment required is
often less than owning 100% of the trust deed loan and the risk of the trust
deed loan is shared by two or more investors. The fractional trust deed
investor trades off the decreased exposure to loss with the sharing of control
over the oversight and management of the investment with the other investors.

that prefer fractional trust deed investments often will participate in
multiple fractional trust deed loans in order to spread the risk of loss rather
than placing all of their eggs in a single basket.

Investment in trust deed loans offers
an array of variables for each investment, including varying returns, property
types, length of the loans, and risk profile. In most instances, a greater
yield will be realized by investing in higher risk trust deed loans, such as
second or third position deeds of trust and loans where the total amount of
loans secured by the property represent a larger percentage of the value of the
property, as opposed to investment in loans that are secured by first trust
deeds with low loan to value ratios. Investing in multiple trust deed loans
provides an excellent opportunity for consistent cash flow, since the chances
that all borrowers will stop making payments is not likely, especially if the
loans are properly underwritten.

there is a single investor or multiple investors, a trust deed loan needs a
loan servicer to manage the loan, including the collection of monthly payments
on behalf of the investors and to disburse such payments, less fees and costs,
to the investors pro rata. The loan servicer is often the broker who arranged
the trust deed loan for the investors, but could also be a third party
provider. The arrangement with the loan servicer is governed by a loan
servicing agreement between the investors and the loan servicer. Typically the
loan servicing agreement delegates authority to the servicing agent to receive
payments, pay distributions to the individual investors, and communicate with
and provide documentation to the borrower. The loan servicing agreement also
provides instructions about the collection and deposit of funds, instructions
on handling delinquent accounts, and limited power of attorney to enforce the
deed of trust contract. The primary job of the servicer is to manage the trust
deed investment account and protect the interests of all investors. This
responsibility may include managing accounts that are not performing or are in
default, and initiating collection activities. When investing in trust deed
loans, emphasis should be on engaging a servicing agent who is experienced,
competent, and lends confidence that he or she is looking out for your

Most established
servicing agents are good at what they do. They already have established
systems in place to support the investors’ interests actively. Part of that
system is online tracking software that allows investors to view payment
activity, confirm trust deed loan details, and determine the status of their
investments at any given time.

By working
with a broker that understands the private trust deed market, and contracting
with an experienced and highly competent servicing agent, trust deed
investments can be a lucrative endeavor. These
types of investment typically demand an 8% to 14% annual interest rate, with
loan terms ranging from 1 to 20 years
. Investment returns will vary based
on the type of property, the condition of the asset, location, type of loan,
and qualifying factors of the borrower. 

With the right team in place and a
proper amount of due diligence on each deal, a qualified investor can
participate in the trust deed marketplace with confidence that they will
achieve positive results.

Level-4-Funding-Dennis-Dahlberg-Mort[1]Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

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About Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true.

Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.