Why Invest in First Trust Deeds
Discover the benefits of adding First Trust Deed investments to your portfolio
Investing in First Trust Deeds offers a unique opportunity to earn passive, interest-based income while maintaining a high level of security through real estate collateral. Unlike traditional stock market investments, which are subject to market volatility, trust deed investments provide a structured and predictable return profile. Below are key advantages of first trust deed investing:
1. Collateralized Investment with Priority Security
First trust deeds are secured by tangible real estate assets, ensuring that the investor's capital is backed by a physical property. The first lien position ensures that in foreclosure or liquidation scenarios, the first trust deed holder is repaid before any subordinate lienholders.
2. Stable and Predictable Returns
Unlike stocks or mutual funds, which fluctuate in value, first trust deed investments typically offer a fixed interest rate, ensuring steady and predictable returns throughout the loan term. Investors receive periodic interest payments, making this an attractive option for those seeking passive income.
3. Higher Yield Potential Compared to Traditional Fixed-Income Investments
First trust deeds often yield significantly higher returns than traditional savings accounts, bonds, or CDs. While bank savings accounts may offer minimal interest rates, trust deed investments can generate annual returns ranging from 8% to 12%, depending on the risk profile and borrower creditworthiness.
4. Protection Against Market Volatility
Unlike stocks and other market-driven investments, the value of a first trust deed investment is not directly tied to stock market performance. This makes it an effective way to diversify an investment portfolio while mitigating exposure to broader economic fluctuations.
5. Short to Medium-Term Investment Horizon
First trust deed investments typically range from six months to a few years, making them an ideal choice for investors who prefer shorter-term commitments compared to long-term real estate holdings or equities. The flexibility allows investors to reallocate funds efficiently as opportunities arise.
6. Risk Mitigation Through Loan-to-Value (LTV) Ratios
Lenders and investors commonly assess the Loan-to-Value (LTV) ratio before funding a first trust deed investment. A conservative LTV (e.g., 50%–70%) ensures that the loan amount remains well below the market value of the property, reducing risk in case of default. If the borrower defaults, the property can be sold at a foreclosure auction, and the investor stands a higher chance of recovering the principal and accrued interest.
7. Direct Ownership of a Secured Interest
When investing in first trust deeds, the investor holds a direct legal interest in the property through a recorded deed of trust. This differs from indirect real estate investments (such as REITs), where investors own shares in a fund rather than having a direct claim on a property.
8. Passive and Hands-Off Investment
Unlike direct real estate ownership, where investors must manage tenants, maintenance, and property expenses, first trust deed investments require minimal active management. Investors simply collect interest payments while the borrower handles property maintenance, taxes, and insurance.
Secured investments backed by real estate properties like this provide investors with safety and consistent 8-10% returns.