Hard Cash For Property

“The biggest risk with any type of real estate investment is that the market goes down again,” Sanderson says. “If the borrower defaults, that trust deed is underwater and you own a property potentially worth less than what you paid for it.”

If a project fails or a borrower defaults, investors may be on their own during the foreclosure process, Hyndman warns. “The fact that these pay a higher percentage indicates that these are higher risk products,” he says. “If they work, they provide nice income. If they don’t work, they can cause a lot of pain. They’re not something where you can walk away and say ‘lesson learned.’ It’s going to be something you’re stuck with in a while.”

All that means investors should be sure any property they lend on is thoroughly investigated, and that the progress of related development projects is monitored. “These become low-risk investments compared to your potential return,” MacDougall says. “Across 250 loans, we’ve had two defaults—one where the property sold and every investor was paid off and one where clients had half their expected return. Nobody lost money.”

While organizations like Nudge offer properties in several different markets scattered across the country to international investors, most trust deed investing is local. Ignite Funding works with properties in California and Nevada, while CrowdTrustDeed works with borrowers and investors in California alone. Innovative Advisory also keeps its trust deed business close to home, Kotyan says.

“We have tended to work with clients and borrowers in the New England area,” he says. “That restriction has not come by our choice. It has come from our clients’ choice. They like to see where they are investing their money.”

The firms say trust deed investing continues to grow. Ignite expects to enlarge its servicing portfolio to $100 million by March 2016, continuing a consistent 35% to 40% per year growth rate. Despite the expanding competition in the hard money lending market, Robbins expects that growth to continue.

“Things are starting to loosen up a little bit,” he says. “There are pension funds and smaller community banks who get into this space, but they are particular about what projects they fund. There’s always going to be a demand for this kind of lending. The process to fund a loan takes too long at a bank because they are worried about credibility of borrower, and that’s not going to change.”

And as long as the projects continue to deliver on promises of double-digit returns, Robbins should have plenty of investors to work with.