Trust Deed Investments – High Return and Short Term
Time and credit are associated with coupon rates for fixed income investments. Longer maturities have a bigger time window for surprises and investors want to be compensated accordingly. Meanwhile, high yield mutual funds may buy debt from issuers with spotty cash flow, collateral or performance history. Money has time value and investors seeking monthly cash flow may have to settle for quarterly or balloon payouts in some instances. This positive correlation between risk and reward underpins many alternative investments.
Trust deed investments offer a counterpoint to this logic. Secured by real property with a low loan-to-value, first deeds of trust secure loans that can generate annualized returns of 7 to 9% with maturities of 3 years or under.
How is this achieved?
High Demand-Limited Supply
Borrowers who repay the interest on trust deed investments are different than typical borrowers on consumer loans. As opposed to consumers, real estate investors may seek a short term bridge loan because of the time and complexity of traditional financing. As real estate investor may need to close a transaction more quickly than a bank may be able to react. Further, many traditional guidelines may be inflexible or create additional red tape, notwithstanding the quality of the borrower or the real estate. That said, some may argue that trust deed investments carry more risk than traditional loans.
A closer look at the economics and structure of trust deed investments may dispel many misconceptions. In terms of collateral, a first trust deed holds a priority lien position over real property collateral. Lower loan-to-values (LTVs) of 65% or less provide added peace of mind with respect to collateral coverage as property prices rise or fall. The burst of the most recent housing bubble featured loans with high LTVs against collateral with much less margin for error.
Meanwhile, a limited supply of short-term real estate loans and high demand from real estate investors translates to favorable yields compared to other high yield investments. This includes real estate investment trusts, mortgage backed securities and junk bonds.
Unlike a mortgage backed security or exchange traded REIT, a trust deed investment or a pooled mortgage fund investing in trust deeds is privately held and not securitized. This simply means the net asset value (NAV) does not price daily with changes to the market and underlying portfolio. As a pooled mortgage fund investing in first trust deeds and mortgages, the WFP Income Fund typically holds those investments to maturity, which further reduces concerns over near term volatility.
Accredited investors can invest in single trust deeds or access these investments through a pooled mortgage fund, such as the WFP Income Fund.
Monthly Cash Flow
Money has time value that is maximized by more frequent cash flow. Trust deed investments pay monthly interest that can be leveraged for dollar cost averaging into securities, buying other deeds of trust or simply as income. This monthly payment also provides greater peace of mind over the short maturity.
Liquidity is at a premium given recent history of the global crisis in 2008. Investors seek the ability to unwind positions as fundamentals or personal need change. While a trust deed investment is not publicly traded, concerns over liquidity are also mitigated by the monthly cash flow and near term maturity.
Short Maturity High Yield Investments
Looking to boost yield and better manage the duration of your fixed income portfolio?
Contact Wilshire Finance Partners at (866) 575-5070 to learn more about investing in trust deeds and pooled mortgage funds.
* ADDITIONAL DISCLOSURES:
ADDITIONAL DISCLOSURES FOR TRUST DEED AND MORTGAGE INVESTMENTS:
The information contained on this Website (the “Overview”) is not an offer to sell or the solicitation of an offer to purchase trust deed or mortgage investments, or the securities of the WFP Income Fund, the WFP Opportunity Fund or other securities or investments (individually and collectively, the “Investments”) offered through Wilshire Finance Partners, Inc. (“Wilshire”). The purpose of this Overview is to provide an overview of one or more Investments and its private placement. Persons interested in learning about one or more Investments and their private placement will be provided with the Private Placement Memorandum, Operating Agreement (as applicable), Subscription Agreement and other related documents (collectively and inclusive of exhibits and any supplements thereto, the “Memorandum”) prepared by Wilshire, which provides a description of the particular Investments, the terms of the private placement, a discussion of risk factors, and other information related to such Investments. To the extent that there is any inconsistency between the information provided in this Overview and the Memorandum, the Memorandum shall control. This Overview and the Memorandum contain certain forward-looking statements regarding the Investments. The forward-looking statements are based on current expectations that involve numerous risks and uncertainties which are difficult or impossible to predict accurately and many of which are beyond the control of Wilshire’s management, including, but not limited to, national and international economic conditions, changes in legislation, and other factors that can disrupt economic stability. Although Wilshire believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Wilshire, any placement agent, or any other person, that the respective objectives and strategies of investing in one or more Investments will be achieved. Investments be made solely by accredited investors (which for natural persons, are investors who meet certain minimum annual income or net worth threshold), who are provided with the Memorandum and who complete, execute and deliver the subscription documents included therein. The Investments are securities and each of the Investments are being offered in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Regulation D, Rule 506(c), and are not required to comply with specific disclosure requirements that apply to securities registered under the Securities Act. Neither the Securities Exchange Commission nor any state securities regulator or agency has passed upon the merits of or given its approval to the securities, the terms of either offering, or the accuracy or completeness of any offering materials. As securities offered in an exempt transaction, each of the Investments are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell the Investments. Past performance is not indicative of future results. The Investments involve substantial risk, including loss of investment, and is not suitable for all investors. Loans are made by Wilshire Finance Partners, Inc., Bureau of Real Estate Broker’s License number 01523207. Loans made by Wilshire Finance Partners, Inc. outside California will be made pursuant to licenses, authorizations or exemptions in each other state.