Trust Deeds: A Logical Alternative to Bonds

As 2012 draws to a close, the 10 year Treasury Bond is yielding 1.61%, and the Fed is promising to keep yields low until “as long as necessary”.  What happens when it is no longer necessary?   A peek at recent history gives us a clue.  If you purchased a $100,000 10 year treasury on July 24, 2012 (yield @ 1.4%) and sold it 50 days later, you would have lost $4,400 because the market rate on September 14, 2012 was 1.87%.

With yields at or near record lows, it is hard to imagine that they will be lower a few years hence when you may wish to liquidate.  Investors normally purchase treasuries for safety of principal, but if rates are at 5% when you want to liquidate, it may have been wiser to stuff the cash in the mattress.

Real Estate and Trust Deed Investments were negatively affected by the 2008 crash, but statistics generally show an upturn over the last year.  Should this upward momentum continue, then either Trust Deed Investments or Real Estate Equity Investments would benefit.

Trust Deeds are similar to Bonds.  The primary difference is that Trust Deeds are not as sensitive to interest rate changes as bonds.  Trust Deed yields are normally fixed and the term is normally short.  Current yields on well secured instruments range from 6% – 8% and terms range from 1-5 years.

Long a little known investment type, Trust Deeds are becoming much more respected and viable.  “Trust Deed” or “Private Money” lending has been partially filling the huge void created by the mass exodus of banks from the real estate market.   In effect, private lenders are simply replacing banks in the commercial real estate market and are being well rewarded for it.


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