Should You Invest in an Individual Trust Deed or in a Trust Deed Fund?
Investing in an individual trust deed may yield a higher return than investing in a fund. This is the preferred approach active investors who have deep knowledge of real estate investing. Since each loan requires analysis and due diligence, it can be easier for a first time investor to invest in a fund. Another aspect of investing in individual trust deeds is that it requires the constant sourcing of deals so that when one loan pays off, you can reinvest in another. A fund manager can help you with new deals.
Both options have pros and cons. An investment in an individual trust deed may be better for experienced investors who want more direct control over the specific individual properties being used as collateral for their investment. The other route is generally used by passive investors who want real estate investments in their portfolio.
A good fund manager will have the expertise and skills to perform the analysis and due diligence on each loan. Investing in a professionally-managed fund can save time and it is generally preferred by passive investors.
An advantage of investing in a single trust deed is having the knowledge of precisely which property secures their investment. Real estate investors who are comfortable in their assessment of real estate value and marketability should be more confident in their choice to invest in individual trust deeds. It is important to remember that a small mistake can cost you, however. In the event of an underwriting mistake, it can lead to bad results.
There are some potential advantages of a mortgage pool investment over individual trust deeds such as diversification and longevity but there are some risks to be considered when it comes to individual trust deeds. Structuring the fund properly is a huge challenge for most trust deed originators turned first time fund managers. This can lead to problems down the road. Choosing the right manager with the right strategy is the most important part of investing in a fund. What you want to look for when choosing a manager is experience, communication, fast processing, adequate capital, and flexibility. Find out more here.
The best thing for investors to do is have a good understanding of their own preferences and profile first to know which is generally better suited for you. Due diligence is important when it comes to any kind of investment.