If you have borrowed from a hard money lender, you have seen the other side of this business: someone funded your loan, collected the interest every month, and was repaid when you sold or refinanced. Trust deed investing is being that someone. It is lending private capital on real estate, secured by a recorded deed of trust, in exchange for the borrower’s monthly interest, with a broker or a fund doing the work of finding, underwriting, documenting and servicing the loan. This guide explains the investment from the investor’s chair: what hard money lending is, what a trust deed is, how the different vehicles work, what can go wrong and how California’s foreclosure rules protect a lender, and what Loan Goat does for the investors who fund our loans. Yields, minimums and the terms of any particular loan are a conversation, not a page; everything else is here.
I. What is hard money lending?
Hard money vs private money
Hard money and private money are the same loan seen from two angles: a short-term real estate loan from a private source, underwritten on the property first. Where a line is drawn, hard money is priced on the asset and private money on the relationship with the borrower.
From the investor’s side the distinction hardly matters. What matters is the structure every such loan shares: it is secured by real estate, it is short, it pays interest monthly, it is sized against the property’s value with a cushion, and it is repaid by an exit the borrower planned before closing. The guide to hard money loans explains the borrower’s side of each of those features; this guide explains why each one protects the person funding the loan.
Business purpose vs consumer purpose
A business purpose loan funds an investment or a business; a consumer purpose loan funds a household. Trust deed investing is almost entirely business purpose lending, on non-owner-occupied property, and that is not an accident.
Consumer loans on a home carry regulation written for homeowners: ability-to-repay underwriting, disclosure timelines, rescission rights, fee limits and lender licensing that most private capital does not hold. Business purpose loans on investment property sit outside most of that, which is what allows the loan to close in days and the investor to fund it on the strength of the collateral. Loan Goat’s published investment criteria say it plainly: the property types we fund for trust deed investors are non-owner-occupied California properties. The investor is lending to a business, secured by a business’s real estate.
Why borrowers use hard money
Borrowers pay a private lender’s rate for three things a bank cannot sell them: speed, leverage on an unfinished or unusual property, and a decision made by a person rather than a policy. Each of those reasons is also a reason the loan is safe to fund when it is underwritten well.
A borrower closing a purchase in a week at a discount because the seller needed certainty is bringing equity into the loan on day one. A borrower renovating a property is creating the value that repays the loan, with the renovation money released in draws as the value appears. A borrower who could not document income to a bank but owns a rental with a tenant is paying the loan from the rent. The investor’s job, or the broker’s job on the investor’s behalf, is to confirm that the reason the borrower needs private money is a good one, and to size the loan so that the property repays it even if the borrower’s plan does not.
II. What is trust deed investing?
The three parties and the instrument
A deed of trust is the recorded instrument that secures a real estate loan in California and most western states. It involves three parties: the borrower, who is the trustor; the lender, who is the beneficiary; and a neutral trustee, who holds the power to sell the property if the borrower defaults and reconveys the deed when the loan is repaid.
The investor is the beneficiary. The investor’s name, or the name of the investor’s IRA, trust, LLC or corporation, is on the recorded deed of trust, and the borrower’s promissory note runs to the investor. The borrower pays interest monthly; the note is repaid at maturity from the sale or refinance of the property; and if the borrower stops paying, the trustee can sell the property at a public auction to repay the note without a lawsuit. That last feature, non-judicial foreclosure, is what makes trust deed lending workable, and it is covered in part IV.
Loan Goat’s published trust deed basics describe the appeal in three lines: higher returns, typically better than bank yields; secured by real estate, with the investment backed by the property’s equity; and passive income, with monthly payments deposited directly to the investor. Those three lines are the promise; the rest of this guide is the work behind it.
Individual trust deeds
An individual trust deed is one investor funding one loan and holding the whole note. The investor sees the specific property, the specific borrower and the specific terms before committing, and receives the whole interest payment every month.
This is the most direct form of the investment and the one with the most concentration: the investor’s capital rises or falls with one property and one borrower. It rewards an investor who wants to know exactly what secures the money and who can evaluate, with the broker’s underwriting in hand, whether a particular loan is worth funding. Loan Goat’s published investment transparency line describes what that evaluation is built on: before you invest, we underwrite the borrower and the property and provide the full property profile, the appraisal, the borrower’s credit score, assets and debt.
Multi-lender loans and fractional interests
A multi-lender or fractional loan is one note funded by several investors, each holding a recorded fractional interest in the same deed of trust and receiving a proportional share of the interest. It lets a larger loan be funded by investors who each want a smaller position, and it lets one investor spread capital across several loans.
The mechanics are handled by the broker and the servicer: the fractional interests are recorded, the payments are collected once and distributed, and decisions about the loan are made under the terms of the lending agreement among the investors. California regulates multi-lender arrangements closely, including how many investors may participate and how the broker must handle the funds, which is one reason the broker’s licensing matters. Loan Goat’s published document capabilities include multi-lender loans among the structures our loan documents cover.
Mortgage funds
A mortgage fund pools many investors into one entity that makes many loans, and the investor holds an interest in the fund rather than in any single deed of trust. Diversification is built in; so is a management layer, a fee structure and a set of rules about when capital can be withdrawn.
Funds suit investors who want exposure to hard money without evaluating individual loans, and who accept that the return is the fund’s return after its costs. Individual and fractional trust deeds suit investors who want to see the collateral and choose the loans. Neither is better in the abstract; they are different instruments, and an investor can hold both.
III. What are the yields on trust deed investments?
The yield on a trust deed is the interest rate on the borrower’s note, less whatever the arrangement pays to the broker and the servicer, earned for as long as the loan is outstanding. We do not publish a yield figure, because the honest figure depends on the loan: its leverage, its position, its term and the borrower behind it.
What can be said in general is how the yield is built. The borrower’s rate is set by the risk of the loan: leverage, property, borrower, exit and the availability of capital, as the pricing guide explains from the borrower’s side. The origination points are paid at closing and may be shared or retained by the broker under the arrangement. The servicing fee is deducted from each payment. The investor’s yield is what remains, and it moves in the same direction as the loan’s risk. A first lien at conservative leverage on a rented property pays less than a higher-leverage loan on a renovation, and it should. Loan Goat’s published lending criterion for trust deed investors is a loan of up to 70% of a property’s appraised value, and that ceiling is where the investor’s security comes from; the yield is the return for lending under it. Ask us what current loans are paying; the answer is specific to the loan in front of you.
IV. The pros and cons of trust deed investing
The case for it
A well-made trust deed pays a fixed monthly income, is secured by a specific property with a documented equity cushion, has a defined maturity measured in months, and is enforceable through a foreclosure process that does not require a court. Those four features are why investors who understand real estate keep coming back to it.
The income is contractual rather than discretionary. The security is a lien recorded in the public record, with a title insurance policy behind it. The term is short enough that capital comes back to be redeployed as rates change. And the remedy, if it comes to that, is a sale of the property, which at conservative leverage repays the note. The investment also accepts capital from structures many investors already hold: Loan Goat’s published criteria list individuals, corporations, IRAs, pension plans, LLCs and trusts among who can invest, with the reminder to check with your custodian for retirement account rules.
Ten problems with trust deed investments
Every one of the following can be managed, and every one of them has cost an investor money somewhere. They are listed so that the questions they raise are asked before funding, not after.
- The borrower stops paying. Default is the basic risk. It is mitigated by the equity cushion, the exit and the underwriting, and resolved by workout or foreclosure.
- The value was wrong. An appraisal built on poor comparables, or an after repair value that never arrives, erodes the cushion the loan was sized on. Conservative leverage is the answer, and reading the appraisal is the discipline.
- A junior position. A second or third deed of trust is repaid after the first. If the first forecloses, the junior lender must cure the first or lose the position. Junior liens pay more for a reason, and the combined leverage on them must be watched.
- Title and fraud. A forged deed, an undisclosed lien or a borrower who does not own the property are why every loan closes through escrow with a lender’s title policy and a lien search.
- Illiquidity. A trust deed cannot be sold at a click. The investor’s capital is committed until the loan is repaid or the note is sold, usually at a discount.
- Concentration. One loan is one property, one borrower and one neighbourhood. Fractional interests and multiple loans spread the risk; a single large position does not.
- Administration. Payments must be collected, taxes and insurance monitored, draws inspected, payoffs calculated. A professional servicer does this for a fee; an investor who does it alone is running a small business.
- The cost and time of foreclosure. Non-judicial foreclosure in California is efficient by national standards, but it still takes months and costs fees, during which interest may go unpaid and the property may deteriorate.
- Property damage and lapsed insurance. A fire on an uninsured property, or a borrower who lets the hazard policy lapse, turns a secured loan into an unsecured one. The servicer’s job includes checking that insurance stays in force with the lender named on it.
- Regulation and usury. Loans arranged by a licensed broker in California are exempt from the state’s usury limits; loans made directly between private parties may not be. The licensing of the broker is not a formality; it is part of what makes the note enforceable on its terms.
Margin erosion
The equity cushion on a trust deed is not fixed. Unpaid interest, default interest, late charges, foreclosure costs, property taxes advanced by the lender, insurance premiums, and the cost of securing and repairing a vacant property all accrue against the same equity the loan was sized on.
A loan made at 70% of value with a borrower who stops paying in month three and a foreclosure that completes in month nine may find the effective leverage well above 70% by the time the property is sold, before any decline in the market is counted. This is the reason conservative leverage matters more than yield, and the reason a fast, well-run default process is part of the investment rather than an afterthought. It is also the reason Loan Goat underwrites the exit on every loan: a borrower who can refinance rather than default never tests the cushion at all.
Judicial vs non-judicial foreclosure in California
California allows a lender under a deed of trust with a power-of-sale clause to foreclose without a lawsuit, through the trustee, in a process measured in months. Judicial foreclosure, through the courts, is available too, but it is slower, costlier, and rarely used on a trust deed unless a deficiency judgment is the goal.
The non-judicial sequence is a recorded notice of default, a statutory period of about three months in which the borrower can cure the default, a recorded notice of sale, and a public trustee’s sale at least twenty days after that notice, at which the property is sold to the highest bidder for certified funds or taken back by the lender as REO. A lender who forecloses non-judicially in California gives up the right to pursue the borrower personally for any shortfall; the property is the remedy. Investors accept that trade because the process is predictable and the property, at conservative leverage, is enough. It is also why our investors fund non-owner-occupied property: the borrower protections that apply to a home do not slow the process on an investment.
V. Examples of trust deed investments
The structures below are illustrations of how a trust deed investment is put together, not loans we have made; the figures on any real loan depend on the property, the borrower and the market at the time.
A first trust deed on a rented property is the plainest form: an investor funds a bridge loan for a landlord buying a second building, secured by a first lien on the property being bought, at leverage under our published 70% ceiling of appraised value, interest paid monthly from the rent, repaid when the landlord refinances into a long-term loan. The investor’s security is the tenant’s rent and the equity below the loan.
A fractional interest in a renovation loan is a group of investors funding a fix and flip loan together, each holding a recorded share, with the renovation money held back and released in draws as inspections confirm the work. The interest accrues on the drawn balance; the loan is repaid at the sale of the finished property. The investors’ security is the as-is value on day one and the value created as the draws are released.
A loan with a refinance backstop is any of the above with Loan Goat’s published competitive advantage attached: as part of underwriting, we check that the hard money loan could be refinanced into a 30-year non-QM loan if the borrower matures on the loan without selling. The investor’s exit does not depend solely on the borrower’s plan working on time.
VI. Loan Goat’s role in trust deed investing
Loan Goat’s published role for trust deed investors runs through five cards on our investing page; expanded into the sequence of a loan, it is seven steps, and the investor is involved at two of them, choosing the loan and approving the documents.
1. Licensing
Mortgage brokers need to be licensed in some states, but not all, to originate business purpose loans, and each state has its own laws that brokers and lenders must follow. In California the broker arranging private money loans is licensed by the Department of Real Estate, and loan originators are registered through the NMLS. Loan Goat’s founder, Milad Shamoun, is licensed by the DRE and the NMLS, and the company’s NMLS numbers are printed in the footer of every page on this site. The licence is what allows the multi-lender structures, the usury exemption and the state-specific disclosures that a compliant loan depends on.
2. Generating loan opportunities
The broker’s first job for the investor is finding loans worth funding. Loan Goat generates inbound business through content marketing, search, a monthly email newsletter, previous relationships with borrowers, and industry sources such as real estate agents, mortgage lenders, accountants and attorneys. More than 1,300 closed loans since 2022 is the pipeline the investor is choosing from.
3. Underwriting and due diligence
Even on an asset-based loan, the broker performs significant due diligence on the borrower and the property before an investor sees the file. Loan Goat’s published list covers the credit report, a background check, financial statements, verification of the borrower’s real estate portfolio, previous project history and a title report with a lien search, alongside the appraisal of the property. The investor receives the full property profile, the appraisal and the borrower’s credit score, assets and debt before deciding.
4. Generating loan documents
Loan Goat uses The Weiss Group, a law firm that specialises in private and commercial loans, to generate loan documents for any situation in any state: multi-lender loans, cross-collateral blanket loans, different vesting for each property, first, second, third and fourth lien positions, lender’s instructions, state-specific disclosures and title coverage requirements. When the documents are ready they go to the investor for approval, and then to escrow to schedule the signing.
5. Closing
Escrow collects the signed documents, confirms the title policy, receives the investor’s funds, records the deed of trust and disburses the loan. The investor’s name, or the investor’s entity, is on the recorded instrument, and the title insurer’s policy insures the lien.
6. Servicing
Loan Goat uses Deltoro Loan Servicing to service hard money loans funded by trust deed investors: payments are collected from the borrower, deposited to the investor, and tracked, with taxes, insurance and any draws or extensions administered on the investor’s behalf. Monthly payments deposited directly to you is the published promise, and the servicer is how it is kept.
7. Payoff
The loan ends with a sale or a refinance, the borrower’s payoff is calculated by the servicer, escrow pays the investor, and the trustee reconveys the deed. If the borrower cannot sell or refinance before the note is due, Loan Goat’s published policy is to refinance the hard money loan into a non-QM loan, securing the investor’s position; most hard money lenders are not licensed to offer that alternative, and it is the reason we call it a competitive advantage rather than a feature.
VII. Additional resources
The California Department of Real Estate publishes consumer guidance on trust deed investments and on the obligations of brokers who arrange them, and it is worth reading before the first investment; the DRE’s site is at dre.ca.gov. The NMLS Consumer Access site at nmlsconsumeraccess.org lets any investor verify the licensing of the company and the individuals arranging a loan, and we encourage every investor to look us up. Our investor FAQ answers the questions we hear most, and the pricing guide explains, from the borrower’s side, how the rate an investor earns is set.
VIII. Get started
Trust deed investing rewards the investor who treats it as lending rather than as a yield product: read the appraisal, understand the exit, keep leverage conservative, insist on licensed origination, professional documents and professional servicing, and diversify across loans. Loan Goat’s part is the pipeline, the underwriting, the documents, the closing, the servicing and the refinance backstop; the investor’s part is choosing the loans and funding them. If you are ready to fund hard money loans secured by non-owner-occupied California property, the investing page is where to start, or call (619) 617-2797 and ask for the current loans.
