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TRUST DEED INVESTMENT TIPS

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TODAY'S TRUST DEED INVESTING TIP:

Apartment First Trust Deeds Are the Best

July 20, 2020

We here at Blackburne & Sons would very much be in your debt if you were to forward this short lesson in trust deed investing to your accredited investors friends. Thank you!

Joke Du Jour

Before going in for surgery, I thought it would be funny if I posted a note on myself telling the surgeon to be careful. After the surgery, I found another note pasted on my chest, ”Anyone know where my cell phone is?”

People always need a place to live. This is why first trust deeds on apartment buildings are much less risky than loans on strip centers or industrial buildings. During a bad recession, shopping centers and office buildings often suffer from painful vacancies; but residents are usually loathe to move out of their apartment buildings. After all, they need to live somewhere.

But trust deed investors know this, so the competition for good hard money apartment loans is fierce. While you can often earn 8% to 12%* investing in commercial first trust deeds, you might only be able to earn 6% to 7% investing in good apartment loans. Is the lower yield worth it? Probably.

A lot depends where we are in the real estate cycle. If its been ten years since the last real estate crash, I’d probably choose the lower-yielding apartment loan. On the other hand, if the bottom of the real estate cycle was reached just two years ago, I’d probably choose the higher-yielding commercial deal.

* Remember, folks, I have often said that I would personally never invest in a first trust deed yielding more than 9%. If the interest rate is any higher than 9%, the higher monthly payments often break the back of the borrower.

Disclaimer:

Investing in first trust deeds involves substantial risk. Be sure to read the “Risk Factors” section of the Offering Circular carefully before investing. Foreclosed property almost always requires renovation, so be sure to maintain some liquidity. A substantial and prolonged decline in real estate values is possible.