Trust Deeds Investing
Should I invest in an individual trust deed or in a trust deed fund?
Individual trust deed vs trust deed fund

Investments in individual trust deeds could yield higher returns than investing into a fund. This is the usual and preferred method for active investors who are experience in real estate investing. Each loan needs special attention and lots of analysis and due diligence for both the borrower and the property. Once a loan is paid off the money will sit as cash until it re-designated. Individual trust deed investing needs a steady and regular flow of sourcing deals so as each loan is paid off the money can be reinvested in another property.

It is less time consuming to invest in professionally managed funds, which makes it a preferred method for more passive investors and investors without broad real estate investing experience. Well organized fund managers have an infrastructure set up with the expertise to perform the necessary analysis and due diligence for individual loans. Establish fund managers are in a more entrenched position to source good deals and continuously reinvest the money.

Whichever appeals to you, it is so important to research the key person that is creating the investments. For individual loans, this is a broker. In the instance of a fund, it is the actual manager of the fund.

What are the main risks of investing in a fund?
Risk of Investing

Fund investing means that investors are delegating the daily decision be made by the fund manager. This is why the competence and trustworthiness of the manager is important to discern. If there is a deficit in any/ either area, you should not invest. While trust deed investing can be done in a low-risk, responsible way, an unruly fund manager will make mistakes that will cost a lot of money and deals. If a fund manager is downright dishonest, take Bernie Madoff for example, money that is supposed to be invested will be stolen and used for personal interest and comfort.

What is a fund’s efficiency?

The percentage of a fund’s invested assets is what constitutes efficiency during a given period. If a $10 million fund were to invest $8 million for six months, and then invest $9 million during the following six months with the balance in cash, over the year $8.5 million of the $10 million was put to work while $1.5 million remained idle. This means that the correlated efficiency is 85%.

How does a fund’s efficiency affect its results?
Fund Efficiency

Using the example mentioned above, assume that all investments were earning %10 in interest. You can calculate the fund’s returns by multiplying the interest earned by the working money; 10% x 85%= 8.5% per year. If another investment fund earned %12 while only keeping 70% of assets invested [on average], the annual returns would be 12% x 70%= 8.4%. Determining a fund managers ability and efficiency will depend the healthy supply of investments that a manager can plug into. Overall, efficiency will affect performance. A highly efficient operating fund will outperform a fund that may charge interest while continuing to make low-risk investments all at the same time.

Is it risky to participate in a loan with other investors?
Risk investing with others

Purchasing a participation loan with other investors does come with risk attached. Majority consent is required to come to agreement on and enact key decisions. Decisions such as beginning or delaying the foreclosure process should a loan default are one scenario. In some cases, when investing in a property more cash to do so may be needed. Varying levels of investors will have varying degrees of interest and tastes and resourced to further invest in funds- this could cause a clash that create challenges completing the things that need to be accomplished.

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