Trust deed investing is simply investing in loans secured by real estate. Most trust deed investments are relatively short term loans (maturity under five years, with many loans two years or less) made to professional real estate investors. In the current economic climate professional real estate investors are buying properties needing¬† a substantial renovation, fixing-up these properties, and reselling them for a profit. Banks are reluctant to lend to this market not because the loans are particularly risky, but because banks have taken write-offs on real estate loans and are still wary of originating new real estate loans, other than the most “plain vanilla” loans.

Trust deed investing and hard money lending are closely related. Trust deed investors are one of the sources of capital for the private money loans made by hard money lenders. Brokers work with trust deed investors to fund hard money loans for borrowers. In the case of funds that make private money loans, the funds can be said to be making trust deed investments when they fund a loan. For more information about trust deed investing, please see our Trust Deed Investing FAQ.

Private individuals with disposable income can invest in hard money loans through a process known as Trust Deed Investing. Such investors may invest in individual loans or in a fund that manages a portfolio of loans to mitigate the risk associated with any single loan going into default.

Advantages of investing in hard money loans include reliable cash flow (quarterly or even monthly distributions of interest) and risk mitigation, assuming deals are structured and underwritten conservatively. Disadvantages can include a lack of liquidity and if the investor is unfamiliar with real estate investment and operations, loss of principal and/or the need for active management of non-performing loans.