Trust deed investments, which match reliable real estate borrowers with investors seeking capital preservation in collateralized turn-key real estate, allow you to go beyond stocks and bonds and diversify your investments, a key element of all sound investment strategies. If you have just discovered this interesting alternative investment option, these are just a few reasons why you may consider it right for you:
- High demand for real estate loans: The recent credit crisis has created a high demand for specialized loans, since real estate developers are often unable to obtain the funding they need through conventional sources. As a trust deed investor, you can therefore earn interest by becoming the bank to fund their capital needs. With trust deeds you can earn double digit annualized return, which is far more attractive than investments with similar risk profiles. The problem with obtaining traditional finance in current markets isn’t that real estate loans in themselves are risky, rather, banks have numerous regulations they comply with that makes commercial homebuilders too small for large institutions and too large for small community banks. Communities across the Southwest are actively growing in value and size again, providing homebuilders the need to acquire, construct and/or develop land and homes for market.
- Less risk: Real estate investments have proven over time to be a relatively stable investment vehicle as the value is not dictated by the stock market but local market influences. Trust deeds provide an added protection of being collateralized. The collateral provides you, the investor, with first position recourse should a borrower default. In order to assist in mitigating risk further intensive research and review is conducted by the underwriting teams on all loans. They use a loan-to-value ratio, BPOs and appraisals to provide assessments on the projects providing the investor built in equity. Moreover, real estate investments generally bring in highly attractive returns, since the situation is similar to when you invest in a fixed yield bond that pays off at maturity.
- Diversification of your portfolio: It is considered part of a sound strategy to divide your investments between trust deeds, equities and fixed-income investments and real estate is proving to be a popular sector in which to invest, as are the tech and agricultural sectors. Only through diversification can you control the impact of societal changes on your financial future. Self-directed IRAs provide the caveat to invest in alternatives.
- Greater control: All trust deed projects are outlined to provide the location, project scope, assess value, duration, amount and loan type to fit with anyone’s investment strategy. You can choose the real estate project you wish to invest in as well as the amount you invest. Hard money lenders offering trust deeds have minimum investment levels as low as $10,000. Alternative investments such as trust deeds can be purchased with IRA funds housed by a self-directed custodian to provide your retirement account tax-deferred or tax-free growth depending on your plan. With greater control over your retirement plans, you can unlock the potential of your retirement accounts.
- Speed: Trust deeds vary in length but traditionally average between 6 and 24 months. You may not wish to have your investment tied to a particular project for too long; with a trust deed you are looking at a short period of time to tie down your money. After the investment pays offer, you can decide to move your money or reinvest for greater returns.
- Simplicity: There isn’t too much to analyze, since trust deeds cover a turn-key real estate investment. It is a great relief for investors to know that they won’t have to wade their way through reams of bureaucracy and red tape, or sign too many documents. Additionally hard money lenders work directly with self-directed custodians to get funds transferred appropriately. All interest payments and principle amounts go directly back into your IRA account monthly or at the time of payoff. Most custodians provide online account access to view the transactions and returns your retirement accounts are making.
- Trust deeds yield more than bonds: Individual trust investments are considered too small to interest large corporate or government investors. Therefore, the deed market is generally monopolized by smaller investors who, with the right professional guidance, can ascertain the risk, value and expected return to be garnered from particular investments. The market is made even more exclusive by the fact that trust deed investments do not offer instant liquidity, since they are tied in to the completion of particular real estate projects. Available trust deeds are therefore concentrated in the hands of a smaller group of investors, who stand to gain from high annualized returns. Anyone can get started in trust deeds investments.
- The time is right: Some investors may be concerned about investing in real estate after the billions of dollars which have been lost during the financial crisis. However, it is vital to note that during the heightened real estate bubble many real estate loans were set at 75 percent or higher of market value and lenders were therefore bound to suffer losses. Moreover, numerous loans were made to those with poor credit ratings. Experience has led lenders to be wary of risking anything over approximately 65% of market value. Moreover, most lenders are requiring safety nets like personal guarantees of creditworthiness.
- The minimum investment amount varies: Some investment firms welcome investments as low as $10,000, while others set much higher limits. This variation allows you to make a smaller investment at first, to ascertain whether or not you are comfortable with this type of investment. It also provides middle-class Americans the ability to get involved.
The number one questions asked about trust deeds tends to be “Why have I not heard of this before?” and the easiest answer is that in the past financial planners did not get paid on alternatives investments as they do with securities, therefore if they were associated with large brokerage houses they were not allowed to discuss these options with you. Now some hard money lenders as well as self-directed IRA custodians provide platforms to integrate financial advisors, allowing you to truly diversify your money into any available option that meets your goals.
Preferred Trust Company | preferredtrustcompany.com
Custodian for clients to self-direct their IRA’s in order to facilitate the use of their retirement funds in a variety of investment vehicles, including non-publicly traded assets. By expanding the clients’ investment possibilities, Preferred Trust dispels the popular notion that bank CDs or the stock market are the only investment options for an IRA. Our clients receive flexibility to select investments to complement their retirement wealth portfolio, timely funding of investments and competitive/flexible fee structures to meet their investment objectives.
Preferred Trust continues to break down conventional thinking for building wealth.