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Private Trust Deed Investments - Finding The Diamond In The Rough

Feb. 10, 2019 9:02 AM ET2 Comments
Chris Jaccard, CFA profile picture
Chris Jaccard, CFA


  • A private trust deed is simply a loan made against a real estate investor's property.
  • Trust deed investments can make excellent investments - but they can also be much, much riskier than you realize.
  • Make sure you thoroughly understand all aspects of the investment, the management team running it and the amount of risk that is being taken to generate the advertised returns.

By Jim Freeman, CFP®

A private trust deed is simply a loan made against a real estate investor's property. In other words, it is a private mortgage. Trust deeds and mortgages have slight differences, but for this discussion it's fine to think of them as very similar.

Over 10 years ago, we sat with a prospective client reviewing his portfolio and discussing his financial planning goals and objectives. When we got to one of holdings he said he really liked this investment and wanted us to take a closer look at it. He saw no reason why he shouldn't put all of his money into it. The investment was a private trust deed fund.

We told him, on the contrary, that most likely we'd be advising him to take all of his money out of it.

We explained that we had reviewed many investments of this type for our clients in the past and had not recommended a single one for their use. We further explained that the past trust deed investments we reviewed had the following negative characteristics:

  • Their loan to value ratios were high which made them too risky for our taste.
  • They had too much leverage.
  • They had high internal expenses.
  • They were not transparent. It was difficult to understand what type of loans were being made.
  • They were fraught with conflicts of interest. Management may have incentives to make risky loans rather than keep money in cash and wait for a less risky loan.
  • The managers did not have enough of their own skin in the game.
  • They were illiquid and required investors to tie up their money for a substantial amount of time.

This Investment was Different

Surprisingly, after a detailed review of this investment, we found that this particular trust deed investment defied our negative

This article was written by

Chris Jaccard, CFA profile picture
I’m pleased to have spent my entire professional career with independent financial advisory firms where our interests are aligned with those of our clients. Since 1998, I have helped clients with a range of matters, from personal budgeting to sophisticated investment and tax planning. In addition to advising individuals and families as part of our financial planning team at Financial Alternatives, Inc., I oversee trading and operations. I also guide firm-wide investment policy alongside Jim Freeman, CFP®. Certifications: Chartered Financial Analyst (CFA); CERTIFIED FINANCIAL PLANNER™ Specialties: Integrated Wealth Management; Investment Management; Financial Planning; Asset Protection; Life, Tax, and Estate Planning.

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Comments (2)

Chris Jaccard, CFA profile picture
Hi @seeking betta, unfortunately for compliance reasons we cannot share the specific name as that may constitute providing investment advice. Our purpose was to share some helpful tips when you conduct your own due diligence as we've found each fund we have looked at seems to operate at least a little bit differently from the next.
Interesting- but go thru all that and not name the fund in question?
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