How Investing in Deeds of Trust Passes the 4 P’s Pitfall Test

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How Investing in Deeds of Trust Passes the 4 P’s Pitfall Test

The four Ps of successful investing has been getting a lot of press lately. Investing in Deeds of Trustproves to be a solid strategy across them all.

If you haven’t looked into Investing in Deeds of Trustbefore, you’re in for a wonderful awakening. With this form of lending, a developer working on a real estate project borrows funds from someone, and that investor (you), are listed on the deed of trust as the lender. The investor receives interest payments from the borrower throughout the term of the loan and when the term ends, the bower pays off his balance in full. Most of these are short-term projects, like fix-and-flips, so the principal balance is only tied up for a matter of months and the investor is free to reinvest the money immediately after the balance is paid. The returns are varying from 9-29%, with an average of about 12%. Considering that CDs start out around 2% and the average stock return is somewhere between 5-7% right now, it can be the smartest way to increase your wealth.

In terms of investment portfolios, the four Ps include price, performance, poor diversification, and paying attention. Price relates specifically to the cost you pay to invest. Whereas there are all sorts of middlemen and fees involved with other forms of investments, all payments from the borrower are typically made straight to you.

There’s nobody scraping money off the top of your monthly returns. Performance, on the other hand, relates to what you’re earning, and takes into consideration whether there are other vehicles that might get you better returns. Frankly, 12% is hard to beat.

The final two Ps, poor diversification and paying attention, are up to you. It probably doesn’t need to be said, but any investment strategy should involve diversification, no matter how secure it seems. You’ll also ultimately be responsible for monitoring your investment and making sure things stay on the up-and-up, but if you’re working with an experienced broker, he or she can walk you through how to address any issues that come up.

Avoid Pitfalls by Being in First Position on the Deed of Trust

When people have a bad experience with Investing in Deeds of Trust, it’s usually because they didn’t get listed first. Maybe they accepted second position or contributed to a pool of funds. In these cases, it’s harder to swift take action if a borrower defaults as all investors must be in agreement on how to move forward. As first position, you exclusively make that call, and when the contract is structured well, you still come out on top.

Know how to evaluate a good deal or work with a pro who can lend a helping hand.

There’s risk with any strategy and Investing in Deeds of Trustis no different, four Ps or not. Especially as you’re just getting into it, it’s essential to ensure that your contracts are structured right and that you’re being matched with solid deals, so you’re protected and earn more for your help. This is where brokers come in. However, many investors choose to continue working with the same broker continuously for years because a great one will keep finding new investment opportunities for you to tap into, allowing you to grow your wealth at a steady pace.



Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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