What is Trust Deed Lending?
Trust deed investing is simply investing in loans secured by real estate. Most trust deed investments are relatively short term loans (maturity under two years, with most loans only 6-12 months) made to professional real estate investors. In the current economic climate professional real estate investors are buying properties at foreclosure sales for bargain basement prices, 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 a great deal of bad real estate loans on their balance sheets as a consequence of the loose lending practices of recent years. Presently, banks are unwilling to make real estate loans unless they fit a very strict set of criteria. They often do not want to lend to opportunistic real estate investors because the property which is security for the loan is not “move-in ready” at the time of loan funding—it usually needs some work. For this reason, real estate investors have limited financing options available to them, and lenders to this market are able to command relatively high interest rates.