Trust Deed investments simply refer to loans that are secured by real property in California.  A Deed of Trust ("Trust Deed") is the document that shows specified real property has been used as collateral for a promissory note. While other states use Mortgages instead of trust deeds, each of these documents achieves the same objective of securing the loan by real property.


Trust deed investing represents an alternative to investing in bonds. Like corporate bonds, trust deeds are considered fixed income investments. Both, bonds and trust deeds can vary widely in their level of risk. Unlike bonds, however, there are no rating agencies to help determine the level of risk for trust deeds.  Trust deeds, like bonds, can be prioritized, such that a first trust deed has the right of repayment prior to a second trust deed. Trust deeds are not as liquid as bonds, but tend to yield higher rates of return, typically 10-14% per annum for non-instituational loans. Denominations for bonds usually start at $1,000, while trust deeds typically have much larger capital requirements.


Since no two trust deeds are the same, an investor must rely upon their own knowledge and expertise to evaluate each trust deed and assess its risk. This is critical to successful trust deed investing because what appears to be a minor difference in two trust deeds may turn out to be the difference between a performing and non-performing loan.


Interest rates and loan terms vary between trust deeds depending upon not only the creditworthiness of the borrower, but the length of the loan, the size of the loan, the priority of the loan, the amount of equity remaining after the loan is made, the type of property securing the loan, as well as numerous other factors.


Banks, savings and loans, and mortgage companies, ("Institutional Lenders") are most often associated with first trust deeds.  These are loans that are first in priority and generally have lower interest rates than junior liens.  Except in the case of loans that are made for development, construction or renovation purposes, most first trust deeds through banks and mortgage companies have longer maturity dates.  In the single family home and condominium market it is commonplace for loans to be fully amortized over 30 or 40 years.  In the apartment and commercial markets, loans frequently mature between 7 and 25 years after they are funded.


Lenders that make loans with perceived higher risk are sometimes referred to as "Non-institutional" or "Hard Money" lenders.  As a result, interest rates paid by borrowers on these loans are higher than those from Institutional Lenders, usually between 10-14%, and maturity dates on the loans are almost always shorter, normally six months to three years.


  1. Risks of Trust Deed Investing

  2. Priority of Trust Deeds

  3. Determining Interest Rates

  4. Lending Criteria for Non-Institutional Lenders

  5. Individual versus Group Investment

Trust Deed Investing