Why are smaller first trust deeds less risky? The smaller the loan, the smaller the monthly payments. Marsha, Marsha, Marsha - who remembers that famous episode of The Brady Bunch? The monthly payments, the monthly payments, the monthly payments - it’s all about the affordability of the monthly payments. Remember this mantra: We want our borrowers to succeed.
Have you noticed that I never use the word, “safe.” Ever. I always use words like, "less risky.” Any hard money broker who tells you that first trust deeds are safe in either a crook or a complete rookie. After forty years in the hard money business, we’ve learned that, as the T-shirts say, "Stuff Happens.” :-) We once even had a residential care home collapse into an old coal mine in Pennsylvania. This is why you want to invest a tiny amount in lost of different deals.
“Gee, George, you’re scaring me out of investing in first trust deeds again.” Folks, I honesty believe that a diversified portfolio of small investments in lots and lots of different, small first trust deeds is one of the best investment strategies in the whole world for a retired investor who needs monthly income. Imagine earning 7% to 8% in annual interest income, paid monthly, at a time when inflation is very tame, without having to eat your seed corn. Where else can you earn that sort of interest income?