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TRUST DEED INVESTMENT TIPS

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August 24, 2020

TRUST DEED INVESTING TIP #6:

Achieving Liquidity

By George Blackburne III

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

It’s been raining for days now, and my husband seems very depressed by it... He keeps standing by the window, staring. If it continues, I’m going to have to let him in.

When you invest in trust deeds, it's a commitment of several years. If you suddenly need cash, its not as though you can contact your money market account and ask them to transfer money to your checking account. On the other hand, your money market account is paying you less than 1%. You can reasonably expect to earn 7% to 9% in first trust deeds.

So how do we solve this lack of liquidity issue? The answer is to invest just $10,000 in ten or twenty (or thirty or forty) different first trust deeds. Blackburne & Sons will even allow you to invest just $5,000 in your very first deal, just to test the waters. With twenty different trust deeds, say, you can reasonably expect at least two or three of these loans to pay off every year. This should provide you with the liquidity you need.

I strongly recommend against investing in one-year bridge loans. In theory, this strategy sounds great, but (1) these short-term bridge loans never pay off on time anyway; and (2) to maintain a diversified portfolio of trust deed investments, you will have to expose yourself to a great many different borrowers. Eventually you are going to run into a horrible fraud. It’s like having romantic relationship with two-dozen different partners every year. Eventually you are going to get seriously sick.

Instead, I recommend investing in loans with a term of at least five years. I hereby make two predictions, (1) you are going to like receiving a handsome interest check every month; and (2) you are going to have trouble keeping your money out on the street. Just when you find a good borrower who pays you like clockwork, some competing lender is going to pay off. The competition for good first trust deeds is incredible.

Once you find a good borrower, you should be in no hurry to get paid off. 

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.