Trust deed investing is becoming more and more popular for several reasons. First of all, the returns are quite good, especially compared to alternatives. A savings account currently yields less than 0.5% and even long term federal debt instruments only yield about 2% per year. In contrast, trust deeds can yield 5 times as much per year for the same amount of money. However, many investors still question which type of Trust Deed Investing to pursue. Some like to use a fund structure while other prefer a note structure. Each has its advantages and disadvantages.

Note

The note transaction is a simple purchase of a single trust deed in exchange for capital. There is a return issued by the borrower over time. This type of transaction is simple in the sense that the lender only needs to understand one property and one borrower. They can do their due diligence, underwriting and research on the single property. Additionally, they can negotiate with the borrower to achieve the highest return possible. In general, a note investment is expected to have a higher average return than an investment in a fund.

On the other hand, the risk is much greater because the investment is not diversified. It relies on a single property. Additionally, the note investor should have a trusted hard money lender who can help them vet the deal so that they don’t have to do all the research themselves. The investment could become worthless if the borrower does not live up to their promises.

Fund

A fund is a different type of investment. An experienced Fund Manager will handle all of the research, due diligence and underwriting of investments. They will invest in a broad portfolio of deeds, with some performing well and others performing not as well. The manager will take a set fee and a percentage of the profits. On average, these funds will return a lower amount than a single note. However, the risk is much lower because it is extremely unlikely that all of the investments will become worthless. Additionally, the manager should have years of success in the sector and will handle all of the complexities. For that reason, some people choose to invest in a fund structure.

Trust Deed Capital is a real estate firm and hard money lender. We have the required expertise to help you invest in whichever option you are most comfortable with. For more information, please contact us.