Trust Deed Investments vs. REITs: A Comprehensive Comparison

If you’re looking to diversify your portfolio, you’ve probably come across two popular real estate investment options: Trust Deed Investments and Real Estate Investment Trusts (REITs). But which one is right for you? Both have their advantages, but they cater to different kinds of investors and offer unique ways to gain exposure to real estate. Let’s break down the differences and help you decide which path to choose.

What’s the Deal with Trust Deeds?

Let’s start with trust deeds. These are loans backed by real estate. When you invest in a trust deed, you’re essentially acting as a lender, providing a loan that’s secured by property. The borrower makes payments to you, just like they would to a bank, and if they don’t pay, you have the legal right to foreclose on the property and sell it to recoup your investment.

Trust deed investments typically offer high returns (often between 8-10%) because they’re considered riskier than your average bond or savings account. But what makes them less risky than, say, a stock? Real estate. The loan is secured by an actual property, so even if things go sideways, you’re not left holding nothing. Instead, you’ve got a tangible asset to fall back on.

At LBC Capital Income Fund, LLC Income Fund, we specialize in trust deed investments, providing a unique opportunity to earn steady returns while being backed by real estate assets. So, if you’re an accredited investor looking for predictable income, trust deeds are definitely worth considering.

What Are REITs?

On the flip side, REITs are publicly traded companies that own, operate, or finance real estate. Think of them like mutual funds for real estate. When you invest in a REIT, you’re buying shares in a company that either owns properties (like office buildings, shopping malls, or apartment complexes) or provides financing for real estate projects.

REITs are great if you want liquidity—you can buy or sell shares on the stock market at any time. They also provide diversification, as you’re not tied to a single property or loan. Instead, you own a small piece of a big portfolio of properties, spreading your risk across various real estate assets.

Most REITs pay dividends, and by law, they must distribute at least 90% of their taxable income to shareholders, which can result in consistent cash flow. But there’s a catch. REITs are often more correlated with the stock market, meaning if the market tanks, your REITs might take a hit too. Plus, there’s no direct security in owning real estate yourself—your shares are tied to the company, not to specific properties.

So, Which One Offers More Stability?

It depends on your goals. If you’re chasing higher returns and want direct exposure to real estate without the volatility of the stock market, trust deeds might be the better option. With trust deeds, you’re the lender, and your investment is backed by the actual property.

That said, trust deeds generally require more capital upfront (LBC Capital Income Fund, LLC, for instance, has a minimum investment of $250K) and are better suited for accredited investors. But in return, you get a fixed income stream, and your returns aren’t affected by stock market fluctuations.

On the other hand, REITs offer a more liquid and diversified option, ideal if you’re looking for real estate exposure but don’t want to lock up your money in a single investment. REITs are easier to buy and sell, and you can start with much smaller amounts compared to trust deeds. However, their performance can be more volatile, as it’s tied to both real estate markets and the stock market.

Control vs. Convenience

Another factor to consider is how much control you want over your investment. With trust deeds, you have direct control over the terms of the loan, the interest rate, and the property securing the loan. You know exactly where your money is going, and the real estate backing it gives you a certain peace of mind.

In contrast, with REITs, you’re handing over control to the management team. They decide which properties to buy, how much debt to take on, and how to manage the portfolio. You’re one step removed from the actual real estate, which can be convenient, but also means you have less say in how your investment is managed.

Tax Considerations

Both trust deeds and REITs have tax advantages, but they work differently. Trust deeds can provide tax benefits depending on how they’re structured, especially if they’re held in tax-deferred accounts like IRAs. The interest income you receive from trust deeds may be taxed at your ordinary income rate, but there are ways to structure your investments to minimize the tax burden.

On the other hand, REITs are required to pay out most of their earnings as dividends, which can be attractive for income-seeking investors. However, those dividends are usually taxed at higher rates than qualified dividends from regular stocks, which can eat into your returns. If you’re looking for tax-efficient investments, it’s worth discussing these options with your financial advisor.

A Quick Recap

• Trust Deeds offer higher returns, more control, and direct real estate backing, making them ideal for accredited investors looking for steady income and security. But they often require higher minimum investments.
• REITs provide liquidity, diversification, and a lower entry point, but they’re more tied to the stock market, and you have less control over the real estate itself.

Both options can play a valuable role in a diversified investment portfolio, depending on your goals. At LBC Capital Income Fund, LLC, we focus on trust deed investments, offering a way to earn steady, reliable income backed by real estate. If you’re interested in learning more, feel free to reach out.