Does First Trust Deed Investing Fit Into My Portfolio?

December 29, 2016 Marketing

When it comes to building your investment portfolio, customization is key. Investing should not be one-size-fits-all, but should be tailored to your unique budget and priorities. It’s worthwhile to look beyond conventional funds to find the best way to use your investment capital.

One approach is to become more directly involved with the market by funding specific projects and properties. It’s possible to participate in the real estate market without being the one who acquires, fixes, and eventually resells the actual real estate.

Private money lending is an important source of capital for real estate development. It’s often the best approach for house flippers who need capital in place for purchase and renovations on a chosen property. Private money loans offer strong returns to investors with relatively low risk, and is especially true with first trust deeds.

Private investors work with banks for first trust deed investing, and it entitles you to interest payments over the course of a mortgage loan. When the property sells or the mortgage term ends, the original investment is returned. The investment is secured by real property, so if the buyer defaults, the holder of the first trust deed has the right to foreclose and sell the property.

Diversification is critical to a robust and balanced portfolio, so it makes sense to include investments like first trust deeds. Fortune published comments from investment guru Tony Robbins in which he emphasized the importance of allowing an element of risk into the portfolio, and that doing so makes sense as long as investments are diversified. The level of risk you can tolerate will depend on your individual situation, age, and other factors, but according to Robbins, most of us would do well to consider some of the investments he puts in the “risk bucket”:

  • Equities (e.g., stocks, mutual funds, indexes, exchange-traded funds)
  • High-yield bonds (e.g., junk bonds)
  • Real estate (e.g., rentals, spec homes, first trust deeds, commercial real estate, real estate investment trusts)
  • Commodities (e.g., gold, silver, oil, coffee, cotton)
  • Currencies
  • Collectibles (e.g., art, wine, coins, automobiles, antiques)
  • Structured notes with partial principal protection

Maybe you’re not ready to go out and invest in wine or cotton, but real estate is a great way to diversify and earn better than average returns. Some sources place average returns on first trust deeds at 12%. Trust deeds are secured by real property, so risk is moderated. The initial investment is recovered when the property is sold or the term of the mortgage ends.

Trust deeds typically offer better returns than traditional investment options such as stocks, bonds and mutual funds. A trust deed property can add balance to an investor’s portfolio— especially considering today’s volatile economy. Some advantages to investing in first trust deeds include:

  • Higher Returns than the typical investments like CDs, Bonds, Annuities
  • Tangible asset providing a secured investment
  • Investment terms are often relatively short
  • A passive investment option that generates monthly income.

Interested in learning more about this type of investment opportunity? Connect with our team at Patch of Land today!

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