There comes a point for many real estate investors when the question changes.
Early on, the goal may simply be to acquire the next property. Find the opportunity, make the down payment, get it rented and start looking for the next one. But as a portfolio grows, so do the decisions surrounding the capital behind it.
If you have money available today, where should it go?
You could pay down debt on a property you already own. You could hold onto the cash and wait for another purchase. You could put it toward another rental and continue building your portfolio.
Or there is another real estate strategy that sometimes gets overlooked: You can become the lender.
When Another Property Is Not Necessarily the Next Move
Owning investment property can create tremendous opportunities, but every additional property also comes with another set of responsibilities. There are taxes, insurance, repairs, vacancies, property management and the unexpected expenses that seem to arrive at exactly the wrong time.
That does not make owning rentals less attractive. It simply means that experienced investors often begin looking at their capital a little differently.
Maybe you already own several properties and do not feel the need to add another one right now. Maybe you are waiting for a particular market or opportunity. Maybe the numbers on the properties you are seeing simply are not compelling enough to make you want to jump. But you still want your money working in real estate.
That is where trust deed investing can become an interesting alternative.
What If You Were on the Other Side of the Mortgage?
Most real estate investors are accustomed to being the borrower. You find the property, obtain financing and make payments to the lender while you own the asset.
Trust deed investing reverses that relationship.
Instead of borrowing the money, a qualified investor provides capital for a real estate loan. The loan is secured by a deed of trust against the property, and the investor receives interest based on the terms of that loan.
You are still participating in real estate, but you are doing it from the lending side rather than by purchasing another property yourself. For some investors, this is an appealing distinction.
You do not need to find another tenant, replace another appliance or manage another property in order to put capital to work in real estate. Your investment is tied to a loan secured by property instead.
The Property Still Matters
One reason trust deed investing can feel familiar to experienced real estate investors is that the property remains an important part of the decision.
We look closely at the property securing the loan, its value, the amount being borrowed, the available equity and the overall transaction, not to mention the use of Escrow and Title for funding the investment. That is very different from simply handing someone money based on an idea or a promise to repay it.
The investor can evaluate a specific real estate-backed opportunity and decide whether that particular loan fits their investment objectives.
This may be especially appealing to someone who already understands real estate values, equity and the importance of having sufficient collateral behind an investment.
There Is More Than One Way to Build a Real Estate Portfolio
A real estate portfolio does not necessarily have to consist entirely of properties you own.
Some investors might own several rentals and also invest in trust deeds. Another investor may decide to pay down debt on certain properties while directing other available capital into real estate loans. Someone else may simply prefer the lending side of real estate altogether.
The interesting part is that these strategies do not have to compete with one another. They can complement each other.
As investors move through different stages of their lives and portfolios, what they want from an investment can change too. The person aggressively acquiring rentals today may eventually decide they want fewer management responsibilities. Another investor may have capital available but not see a property they want to purchase right now, yet they still want to put their money to work.
Trust deed investing gives them another way to remain connected to real estate without necessarily having to become the owner of another property.
The Pacific Direct Bottom Line
When real estate investors think about putting money back into real estate, buying another property often gets most of the attention.
But owning the property is only one side of the transaction. Someone funds that loan too.
Through trust deed investing, qualified investors have the opportunity to provide the capital behind Private Money real estate loans and earn interest based on the terms of those loans, with the investment secured by real estate.
At Pacific Direct Mortgage, we bring together real estate borrowers who need the speed or creativity of Private Money financing and private investors who are looking for real estate-backed investment opportunities. Our team originates the loan, gathers and provides the information for the private lenders to do their underwriting due diligence, and once funded passes it to a full loan servicing company founded by the same owners.
For an investor who already understands the value of real estate but is looking for another way to put capital to work, deed of trust investing can add an entirely different dimension to a real estate portfolio.
Sometimes the next real estate investment does not have to mean buying another property Sometimes it means funding one.
