With the concerns about bond prices falling and the low yields in certificates of deposit (CDs) and other fixed income investments, perhaps there is an opportunity in an area most currently avoid – real estate.

With the horrific losses so many have experienced in real estate over the past five years, one may ponder – might the baby have been thrown out with the bathwater? Given relatively low real estate prices, and the high yields available, perhaps it is time to revisit trust deeds for a reasonably safe return with income significantly above most other options.

Are Trust Deeds Safe?

With any fixed income investment, the first issue is always safety of principal. A trust deed is secured by actual property, so it is largely the value of the piece of real estate which you evaluate to determine the level of risk in a trust deed. A first trust deed is then the primary loan secured to a property, much as a first mortgage is your primary mortgage.

In 2005 I warned my clients, and anyone else who would listen, that we were heading for a 30 percent decline in real estate values. That meant trust deeds were a bad place to have money, even though they had been great income investments for years.

Now that we have seen most (hopefully all) of the real estate decline, the risk of further significant decreases in real estate values has eased to the point at which trust deeds should once again be considered a viable option for high potential income.

Without going into great detail, the key factor of a trust deed is the loan to value (LTV) ratio. The lower the LTV, the higher the level of security. Thus, a trust deed secured by a property with a 40 percent LTV is considered far more secure than one at 75 percent. You own the actual title, so you may have a well-secured investment which can throw off a significant amount of income.

However, as with all investments, there are risks, and trust deeds require either more individual knowledge and involvement, or a relationship with a qualified advisor who has experience in managing trust deeds for clients. In addition, there may be income or net worth restrictions imposed by the government which exclude some from investing in trust deeds.

How Much Income Can You Earn?

Based on the current lending and real estate environment, it is not unusual to find first trust deeds with yields of eight to 12 percent. I have many clients earning 10 to 14 percent on what we agreed was a fairly safe investment.

Each trust deed is unique. Since each trust deed is a stand alone investment, nothing can replace careful due diligence and research to understand the pros and cons of that specific trust deed.

How Long Is Your Money Committed?

As with the other factors, you can find trust deeds as short as four months, and as long as 30 years. In most cases, the average trust deed will be between one and five years, though I am seeing more and more with shorter terms of six to 12 months.

Being as you can find the trust deed that is a perfect fit for you, it becomes an excellent replacement for CDs if you are able to gain comfort with the level of security provided. Nothing can match FDIC of course, but many investors and professionals have found well secured first trust deeds to be a reasonably safe source of high income.

It’s Time To Take Action!

Call your financial advisor and ask them if they have ever managed trust deeds for their clients. If not, ask for a referral to someone who has. There are those who specialize in trust deeds only, and others who use them as one of many options for their clients. If you find your current professionals do not have experience in this area, then be sure to talk to someone who does to discover if a well-secured first trust deed paying around 10 percent might be a good fit for you.

William Jordan is a nationally recognized financial advisor and well-known speaker on a variety of financial and investment topics. To attend his free Maximum Income Workshop, contact his office at (949) 380-8600 or online at www.WilliamJordanAssociates.com.