This type of Trust Deed investing refers to an investor that fully funds a loan on one particular property. One benefit of this type of vehicle is that the investor can receive the full amount of return on the note. Individual deed investing may also appeal to an investor who wants to invest in a shorter-term project, such as funding a note with a six to eighteen month maturity.
One of the risks associated with individual Trust Deed investing is the lack of diversification. Since the investor’s entire investment is secured by a single property, the investment holds more potential risk as opposed to an investment spread over several properties.
Another challenge to whole deed investing is the limitation on investment funds. When dealing with whole Trust Deed investments, a single investor must have sufficient capital to fund the entire loan amount in order to purchase a whole Trust Deed. Individual investors may have insufficient funds to act as the sole funding source for a larger loan.
This is also referred to as “mortgage pool”. This method allows investors to combine their investment funds together to invest in multiple transactions, similar to mutual funds that invest in a variety of stocks.
The mortgage fund gives investors the advantage of diversification. When an investor purchases shares of the mortgage fund, they obtain a proportionate interest in all of the loans in the fund. Interest earnings from the loans in the fund are typically passed directly to investors, who can choose to receive distribution checks or reinvest the monies back into the fund. Investors in the mortgage fund are not required to advance monies or deal with any properties reverting to their ownership, as the fund managers handle these events.
With mortgage fund investing, one particular investor does not have to fund an entire loan on his/her own. This allows more investors to participate in smaller amounts than with whole Deed of Trust investing.
In addition to diversification and ease of entry benefits, many investors prefer fund, or mortgage pool investing because of the ability to fund the investment through a variety of sources. In addition to investing with individual funds, many Trust Deed funds will allow investors to invest through other accounts and entities, such as an investor’s IRA, trust, pension plan, LLC, corporation, etc.