Investors FAQ

Although Trust Deed Investing has been around for many years, many investors have not had the opportunity to learn much about it or to invest. Here are some frequently asked questions, answers and 3rd party information to help you get started. Feel free to contact us for further information.

  1. What is a Trust Deed?
    A Trust Deed is an instrument used to secure a loan on real property. You are in a sense acting as the bank. You lend money to a person who uses the value of their real estate to secure the loan. The California Department of Real Estate has published a fine booklet describing Trust Deeds. You may also want to review this article about trust deeds written by a member of our organization and published in the San Francisco Examiner.

  2. What is the minimum Investment?
    Our minimum investment depends on the total loan size, but is usually between $25,000 and $100,000. You can choose to buy whole loans yourself or co-invest with others in fractional loans. Each method has advantages and disadvantages.

  3. How long are my funds in the Investment?
    The term of the loan defines its maximum duration, though often the loans are paid off sooner. In today's market, most of our loans have terms ranging from 6 months to 5 years with 1 to 3 years being common.

  4. What if I want to sell my Investment before maturity?
    Trust Deed Investments can be sold or traded at any time, just like other investments. There are costs associated with selling, so in general you should invest in Deeds of Trust with the intent of holding them to maturity. Red Tower Funding can arrange the sale of your investment if you desire.

  5. What return can I earn on my Investment?
    In today's market, the net return to investors typically ranges from 9% to 13%. Returns on Trust Deed Investments (like other investments) are often based on risk or perceived risk. We would be delighted to discuss your particular risk/return requirements and present you appropriate opportunities.

  6. How does Investing in Trust Deeds compare with other types of investments?
    When done right, Trust Deed Investing provides a good combination of low risk and solid regular monthly return. The below chart contrasts these and other measures for various types of investments:


    		Savings Account
    		 Stocks
    		 Rental Property Deeds of Trust
    Return 1-4% Uncertain/Low Uncertain/Medium 9-13%
    Risk Factor Low High Moderate Low
    Security High/up to 250k
    by the FDIC    		 Low Medium High
    Costs None/Low Commissions Maintenance, Management,
    Taxes, Insurance, etc    		 None
    Monthly Income Very Low None/Low Low/Medium Medium
    Personal Attention None/Low High Low/High Low

  7. Why would a borrower pay the higher rates on a Private Trust Deed instead of going to the bank?
    There are many reasons borrowers request such funds. A few include:
       The borrower is looking for a quick close
       The borrower only needs the funds for a short period of time
       The borrower has credit problems
       The borrower needs to pay judgments or federal or state tax liens
       The property needs some repairs

  8. What is the difference between a First and Second Trust Deed?
    The difference between a First and Second Trust Deed is the priority of the lien based on the date the Trust Deed is recorded. The earlier recording date would have priority (i.e. First position). If you have a Second Trust Deed and the borrower fails to pay the First you could lose your investment if the First forecloses prior to you doing the same. If appropriate documentation (a Request for Notice) is filed, the First is required to notify you when starting the foreclosure process (by filing a Notice of Default). If the borrower isn't paying the First, you have the right to foreclose even if you are receiving payments on your Second. Therefore, if the borrower isn't paying on the First, the strategy is usually to make payments on the First and keep it current, while you proceed to foreclose.

  9. What should I look for when evaluating a property for a Trust Deed Investment?
    Property type is the first item to look for. We suggest that investors choose mainstream real estate property in metropolitan areas where there is a resale market. This would include properties such as: homes, apartments, commercial and industrial buildings, churches, and land. Most investors avoid very unusual properties such as water parks, fish farms, health clubs, and rural properties.

    Another item to look for is the ratio of the loan to the value of the real estate pledged as security, which is usually expressed as a percentage. This is referred to as the Loan-to-Value ratio or LTV. For example, a loan of $300,000 secured to a property valued at $500,000 would have an LTV of 60%. This means that the loan, expressed as a percentage of the property is 60%. All else being equal, the higher the LTV, the greater the lending risk.

  10. What other considerations are there when making an Investment decision?
    Most Investors first look to the real estate collateral and only secondly to the borrower’s credit and other borrower particulars to determine the safety of the loan.

  11. What documentation should I review prior to making an Investment decision?
    Red Tower Funding provides the following information on our Trust Deed Investments: 1003/loan application, appraisal, preliminary title report, credit report and additional title information. In many cases, we may have further information such as tax returns, other income documentation, further MLS/real estate sales information, purchase contract (for purchases), leases and rent roll (for rental property) and bank statements, etc. When you consider a Trust Deed Investment from Red Tower Funding or someone else, you should look for similar and appropriate information.

  12. How do I collect my payments? (Loan Servicing)
    Red Tower Funding can service your loan for you by collecting the borrower's payments, managing the relationship with the borrower and sending funds to you by mailed check or direct deposit. If you invest in a loan with others, this method is used. If you buy a whole loan, we can service it for you or you can service it yourself. In addition to the above, our Professional Servicing includes preparing annual tax filings for the investor(s) and borrower(s).

  13. How do I receive my payments?
    Most of our loans require borrowers to pay monthly. If your loan is serviced by us, you will receive your interest a few days after the borrower sends in his payment. You can choose to receive your payments by mailed check or direct deposit. If you service the loan yourself, the borrower would mail a check to you.

  14. What happens if the borrower doesn't pay?
    Most loans pay on time, though sometimes loan payments are a little late. In rare cases, after speaking with and mailing the borrower, the borrower becomes unable or unwilling to pay (as potentially with any loan or outstanding credit). In such cases, with the investor(s) permission, we start the foreclosure process to recover the value of the investment, unpaid interest and late fees, etc. This is a relatively quick and efficient mechanism.

  15. Can I use my self-directed IRA funds to Invest?
    Yes, certainly. In fact, many of our investors use Self-Directed IRAs to Invest. As you may know, there are tax benefits of using such funds depending on the type of IRA you have. Review that information and feel free to contact us if we can be of further assistance.

  16. How do I learn more?
    Sign up for one of our free Trust Deed Investing seminars.

  17. How do I get started?
    Contact Solomon Gorlick directly at (415) 377-1284 to discuss your investment goals and see if Trust Deed Investments are right for you.

  18. How do I find Trust Deed Investments that are available for Investment?
    These Trust Deeds are available for immediate investment. To receive notification about future Trust Deed Investments, join our Newsletter and be sure to select the "Investors" list:

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