Diversification Beyond Real Estate: How Trust Deeds Fit Into a Broader Investment Strategy

When one thinks of smart investing, one word comes to mind: diversification. A diversified portfolio is not just a random collection of investments but rather a well-thought-out balancing of assets to minimize risk and maximize returns. To accredited investors, trust deeds are a great way of diversification, especially when one wants to look beyond direct property investments. Now let’s deep dive into why trust deeds deserve a place in your greater investment strategy, and how they can offer stability, consistent cash flow, and risk mitigation.

Why Diversification Matters

Financial markets are unpredictable, and no one class of assets is immune to down cycles. Stocks fluctuate in value, bonds lose appeal during periods of rising interest rates, and even real estate has its own natural cycles. Diversification spreads your risk across different kinds of investments so that a single underperforming asset does not bring down the entire portfolio.

A diversified portfolio generally contains a mix of stocks, bonds, mutual funds, and real estate. Even within this mix, there is room for further refinement. Trust deeds can fill an important gap in that they offer returns backed by tangible assets-real estate loans-without the high volatility of the stock market or the slow-moving nature of traditional bonds.

What Are Trust Deeds, and How Do They Fit In?

In simple terms, a trust deed is a loan that is secured by real estate. Instead of taking direct ownership in property, investors in trust deeds become the lenders and receive returns based upon the interest paid by the borrowers. At LBC Capital Income Fund, LLC Income Fund, we specialize in trust deed investments through our private debt fund and help investors enjoy stable returns without the hassle of property management.

Trust deeds are a good fit for an overall investment strategy since they fill the gap between fixed-income assets, such as bonds, and equity-driven assets, such as stocks or real estate. They offer the predictability of bonds and the higher returns often associated with real estate investments.

Benefits of Adding Trust Deeds to Your Portfolio

1. Reliable Cash Flow
   Unlike some investments that rely on market appreciation or dividends, trust deeds provide consistent monthly or quarterly income from borrower repayments. This makes them especially appealing to investors looking for passive income.

For instance, LBC Capital Income Fund, LLC Income Fund provides an average annual return of 8-10%, distributed monthly. This kind of predictable cash flow can complement other assets in your portfolio that may not generate regular income.

2. Asset-Backed Security
   One of the prime benefits of trust deeds is the layer of security they provide. Each loan is secured by real estate, so in case of a borrower’s default, there is actual collateral. This reduces risk compared to unsecured investments such as stocks or corporate bonds.

LBC Capital Income Fund, LLC ensures that all trust deeds in our portfolio have a low Loan-to-Value ratio, generally between 50–70%. This means the real estate that underlies the loan is significantly more valuable than the loan amount, providing a cushion of safety.

3. Low Volatility
   Stock markets fluctuate wildly due to geopolitical events, interest rate increases, or company-specific problems. Real estate is less volatile but also carries risks, such as market saturation or a decline in the value of the properties. On the other hand, trust deeds operate within a more controlled environment.

By investing in loans rather than properties, you avoid many of the challenges of real estate ownership, such as fluctuating property values or tenant issues. Trust deeds offer a stable alternative, with returns tied to interest rates and not market speculation.

4. Diversification Within Real Estate
   Even if you are already a real estate investor, trust deeds can diversify that asset class for you. You are not holding physical properties but diversifying into the lending side of real estate.

At LBC Capital Income Fund, LLC, we focus on short-term loans, typically 6–24 months, secured by various types of real estate, from residential to commercial properties. This allows us to diversify our risk among many different loan types and geographic locations, which further strengthens your portfolio.

Trust Deeds vs. Other Investments

Stocks
Historically, stocks have yielded great returns, but again, they come with highly volatile and unpredictable movements without guarantee. Losses brought by market declines can erode gains in days. As against this, trust deeds are predictable and offer steady return on investment that is insulated from stock market gyrations.

Bonds
Bonds are usually considered a sort of “safe” investment, but they don’t look quite so good in a rising interest rate environment. Trust deeds, though, outshine bonds at times by providing higher yields and offering better inflation protection.

Direct Real Estate Ownership
While owning real estate can be profitable, it’s also labor-intensive. Property management, maintenance, and tenant turnover are just a few of the headaches. Trust deeds eliminate these hassles, offering exposure to real estate returns without direct ownership responsibilities.

How to Incorporate Trust Deeds into Your Portfolio

1. Work with Experienced Professionals
   Trust deed investing isn’t something to jump into without expertise. At LBC Capital Income Fund, LLC, we’ve been managing trust deed investments for over 14 years, carefully vetting each loan and borrower to ensure security and profitability for our investors.
2. Evaluate Loan-to-Value (LTV) Ratios
   As mentioned earlier, the LTV ratio is crucial in assessing risk. A lower LTV ratio means the loan is more secure, as the property backing it is worth more than the loan amount. LBC Capital Income Fund, LLC’s stringent underwriting ensures that our loans maintain conservative LTV ratios.
3. Understand Your Investment Goals
   Is it regular income, preservation of capital, or long-term growth? All three align, depending on how the trust deeds are structured within a fund like ours.

Who Is a Good Candidate for Trust Deeds?

Trust deeds are particularly suitable for:

• Accredited Investors: Generally, trust deeds require a higher initial investment, and thus they are more applicable to accredited investors seeking stable returns.
• Conservative Investors: If the mitigation of risk and a steady income are what you seek, as opposed to taking on high-risk, high-reward opportunities, then trust deeds are a good fit for you.
• Investors Seeking Passive Income: Investors don’t have to actively manage anything with trust deeds. Funds such as LBC Capital Income Fund, LLC will handle due diligence, underwriting, and loan servicing on your behalf.

Why Choose LBC Capital Income Fund, LLC Income Fund?

LBC Capital Income Fund, LLC is not like every other debt fund. Here’s why investors trust us:

• Proven Track Record: In business for over 14 years, delivering between 8-10% annually.
• Expert Team: Expert fund managers in real estate and private lending make sure that every investment is vetted for the utmost caution.
• Diverse Portfolio: We diversify our portfolio by investing in different types of real estate-backed loans that stabilize and provide a hedge against risk.
• Transparency: Audited financials and communication with investors transparently keep us in a different league compared to other funds.

Diversification is the foundation of any successful investment strategy, and trust deeds offer a unique opportunity to strengthen your portfolio. With their consistent returns, low volatility, and asset-backed security, they provide a compelling alternative to traditional investments like stocks and bonds.

At LBC Capital Income Fund, LLC Income Fund, we’re committed to helping investors navigate the complexities of trust deed investing with confidence. Ready to explore how trust deeds can fit into your broader investment strategy? Contact us today to learn more.