Trust deeds – inflation-beating investments?

Low rates of inflation are meaning that savers aren’t seeing much return for their money. Investing in trust deeds can offer interest rates that often go into double digits. Use our guide to find out if trust deeds are the right financial venture for you.

What is trust deed investing?

Put simply, it’s investing in loans secured by real estate. Most investments are short-term loans made to professional real estate investors. These borrowers are planning to make a large return by flipping the property and so are willing to pay higher interest rates for a quick source of capital.

How can I go about it?

If you’re new to the game, find a professionally-managed fund with the expertise to carefully select loans with minimal risks. Fund managers are also able to make sure that your money is continually reinvested and source the best deals.

For the experienced and adventurous, individual trust deeds often give better rates of return – but don’t be swayed by those dollar signs. To go down this route you’ll need an expert understanding of the market and a lot of time on your hands to make sure your money is quickly reinvested when one loan ends.

What are the risks?

Certain conditions can affect your investments, such as the borrower going into bankruptcy or a sharp drop in real estate values. Small investments also carry more risk as should things go wrong, there’s a tighter margin of error to recover your costs than with larger sums.

If trust deed investments are going to work for you, then choose your fund manager carefully – heard of Bernie Madoff? You’re delegating a lot of financial decisions to them, so if you’re at all unsure now’s the time to back off. Remember, trust deeds are no different to other types of investments – sign in haste, repent at leisure.