How to Evaluate a Trust Deed Investment Opportunity

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How to Evaluate a Trust Deed Investment Opportunity

Trust deed investment opportunities can be quite lucrative, but they’re not all created equally. Once you learn the background of the process and what these opportunities are all about, it’s easier to determine if a certain prospect fits within your level of risk tolerance and may be right for you.

When someone wants to purchase property, there are generally two ways their loan may be secured. Most of us are familiar with a mortgage. When a loan is secured with a mortgage, the borrower accepts responsibility for paying the loan via signing a promissory note. If he or she doesn’t follow through, the lender has the option of going through the judicial foreclosure process. With a deed of trust, the borrower signs a note as well, but also signs security documents which link the loan to the property being purchased. Following this, a notice of lien is recorded. If the borrower doesn’t make good on the loan, the lender does not need to go through the courts to sell off the property.

There are benefits to each. For example, with a mortgage, the lender has the option of suing the borrower after foreclosure if the auction of the property doesn’t yield enough to cover the debt. However, this method can also be time consuming and also gives the borrower a “right of redemption,” meaning he or she still has options to make good on the loan even after a foreclosure sale. The guidelines for this vary by state.

Ergo, with trust deed investments, you are the lender on a piece of real estate, and you have the right to liquidate the property without going before a judge if the borrower doesn’t make good on the loan. The process is much quicker and easier than it would be if you were offering mortgages.

With all this going on in the background, you may ask yourself why a borrower would do anything but a mortgage. Much of the time, this comes down to the speed of funding or outright inability to get bank a bank loan. Banks typically specialize in loans with longer terms as well, and they cater to a specific type of borrower.

Risk Less by Being Involved and Aware

There are many things which naturally make trust deed investment a safe bet. First and foremost, your outlay is secured by the property. In prior markets, values skyrocketed, which made almost every opportunity a safe one, no matter how much you were funding. In today’s market, values do not rise at the same rates, so you reduce risk by lending less. In most cases, it’s best to stick to funding 30-70% of the value of a property, though if you’re working with someone who has a really good track record and a wealth of experience, you may opt to do more. As an investor of real estate, you also have the option of physically examining the property as well.

Work with a successful broker to increase your returns.

Generally speaking, returns for a trust deed investments range from 9-29%, though experienced teams usually bring in around 12%. This is where working with a successful broker comes in handy, as you can determine your level of risk tolerance, and likely bring in more, or opt for safer bets. Naturally, borrowers with lower credit, those who request higher values, and those who present with other factors pay more to borrow. That increase gets paid to you, even though you have a high degree of certainty because the deal is backed by property.



Dennis Dahlber Broker Ri CEO Level 4 Funding LLC
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@level4funding.com

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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