Why Should I Invest in Trust Deeds?

The real question is “why not?”

Will hard money trust deed investments always be available to the private lender – maybe not? The brains on Wall Street are just learning what you have known for years. Namely – hard money or so-called “sub-prime” junior loans can be among the most profitable investments on the street. Even investments in loans secured by junior trust deeds, to borrowers with impaired credit, are sought after products by the secondary market. When we say secondary market we’re not talking about private lenders. We’re talking about the heavy hitters like giant banks, insurance companies and major corporate entities. They buy up these impaired credit loans, create mortgage pools, and sell them back to you as mortgage backed securities. And you must know if the yield from the pool is 12%, you’ll get something significantly less.

Suffice it to say, sub-prime or hard money loans are still one of the best investment opportunities available to the private lender. Compare the yields and the collateral with that of other income generating investments. It’s no secret – those who have invested in stocks and bonds are in pain. Not only were losses incurred from investments in prime issues, but yields from treasury bills, federal agencies, mortgage backed securities and other related instruments now range from 3.56% to a high of 5.5%. On the other hand, interest returns from hard money trust deeds are between 10% and 14.5% and the collateral securing these investments is valuable real estate.

A few years ago there was an erosion of equities resulting from declining real estate values and some losses were incurred. Most were in yields rather than principal. Even under those circumstances, many investors still earned from 6% to 7%. Not so bad when you consider the rough and tumble ride experienced by investors in stocks and bonds.

When you consider the high yields and high degree of security offered by the well placed junior trust deed, is it any wonder why Wall Street has taken so kindly to impaired credit loans secured by real property? The return from trust deeds is more controllable, and is not subject to the up and down fluctuations of the market. The security is also considerably better since each trust deed is secured by real estate with a sound margin of protective equity.

What’s left over for the private lender? Not much – unless you start favoring the brokerages whose only business it is to find you good loan products. It’s hard to believe, that just a few short years ago, private lenders dominated the hard money trust deed market. Henry Swift and Company, a well-known San Francisco investment and research firm, identified mortgage brokers as “California’s new banking industry.” According to their findings, private lenders funded $50 billion of mortgage loan products. Today, banks and savings and loans have taken over a large portion of that market.

Now for the good news. Good mortgages are still available from the broker with whom you are already doing business. Take advantage of these high yielding investment opportunities and contact your broker for a current list of the loans in his inventory.

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