Trust Deed Investing: How to Earn Passive Income from Hard Money Loans

What is Trust Deed Investing?

Trust deed investing allows individuals to become the bank—lending money to real estate borrowers and earning interest income secured by real property. It's one of the primary ways private capital enters the hard money lending ecosystem.

When you invest in a trust deed, you're essentially funding a mortgage loan and receiving a deed of trust (in California) that secures your investment against the property.

How Trust Deed Investing Works

The Basic Structure

1. Borrower needs a loan for real estate investment

2. Lender/Investor provides capital

3. Property serves as collateral (secured by deed of trust)

4. Borrower makes monthly interest payments

5. At term end borrower repays principal

6. Deed of trust is released

Your Position

As a trust deed investor, you hold:

●A promissory note (borrower's promise to pay)

●A deed of trust (security interest in property)

●First or second position lien rights

Two Ways to Invest

1. Direct Trust Deed Investment

You fund a specific loan yourself:

●You're on title as beneficiary

●You receive payments directly

●You make the loan decision

Pros:

●Direct control

●Full visibility

●Potentially higher returns

Cons:

●Requires deal flow

●Need underwriting expertise

●Concentration risk (one loan)

●Administrative burden

2. Mortgage Fund Investment

You invest in a fund that makes multiple loans:

●Professional management

●Diversified across loans

●Passive participation

Pros:

●Diversification

●Professional underwriting

●Truly passive

●Lower minimums often

Cons:

●Less control

●Management fees

●Returns may be lower

Expected Returns

Trust deed investments typically yield:

Returns vary based on:

●Loan-to-value ratio

●Property type

●Loan term

●Borrower strength

Security Structure

Your investment is secured by real estate:

First Position (First Trust Deed)

●First claim on property if borrower defaults

●Most secure position

●Lower returns reflect lower risk

Second Position (Second Trust Deed)

●Behind first position in priority

●Paid after first is satisfied

●Higher returns for higher risk

Loan-to-Value Protection

●Lower LTV = more equity cushion

●65% LTV means property could lose 35% value and you're still whole

●Higher LTV = higher risk/return

Risks to Understand

Default Risk

Borrower fails to pay:

●Foreclosure process required

●Takes time (6+ months)

●May recover less than owed

Collateral Risk

Property value declines:

●Less protection than expected

●May not recover full investment

●Market conditions matter

Liquidity Risk

Capital is tied up:

●Loans have terms (6-24 months)

●No easy exit mid-loan

●Plan for illiquidity

Interest Rate Risk

Market rates change:

●Your rate is locked

●May miss higher opportunities

●Or benefit from rate drops

Due Diligence Checklist

Before investing in any trust deed:

On the Property

●✅ Independent valuation

●✅ Title report review

●✅ Physical inspection

●✅ Market analysis

On the Borrower

●✅ Credit check

●✅ Experience verification

●✅ Exit strategy review

●✅ Financial capacity

On the Loan Terms

●✅ LTV acceptable

●✅ Rate appropriate

●✅ Term reasonable

●✅ Docs properly prepared

On the Servicer/Originator

●✅ Track record

●✅ Default history

●✅ Servicing capabilities

●✅ Transparency

Tax Considerations

Trust deed income is typically:

●Ordinary income (not capital gains)

●Reported on 1099-INT

●May be eligible for IRA/401k investment

●Consult your tax advisor

Getting Started

Minimum Investments

●Direct trust deeds: Often $50K-$100K+

●Mortgage funds: May be $25K-$50K+

Finding Opportunities

●Hard money lenders (like Trinity)

●Private lending networks

●Mortgage fund offerings

●Real estate investment groups

Evaluation Process

1. Review offering materials

2. Understand the security

3. Assess the returns vs. risk

4. Verify track record

5. Consult advisors

Trinity Mortgage Fund for Investors

Trinity offers accredited investors the opportunity to participate in our loan portfolio:

What We Offer

●Diversified mortgage fund investment

●First trust deed positions

●San Diego/Orange County focus

●Professional management

Our Track Record

●$200M+ funded

●Strong historical returns

●Conservative underwriting

●Experienced team

The Bottom Line

Trust deed investing offers:

●Consistent income - Monthly interest payments

●Security - Backed by real estate

●Attractive yields - Higher than many alternatives

●Passive participation - Others do the work

The key is understanding the risks, doing proper due diligence, and working with experienced partners.