A private mortgage investment takes place when an individual or group of individual investors together, advance funds in return for a private mortgage registration connected to a mortgage commitment signed by both the borrower and the lender.
Effectively, a private mortgage lender is an investor, so any private mortgage funding they put out would be considered an investment vehicle to them where they are getting a stated level of return for a fixed period of time.
Private mortgage investors are on the rise, especially within the baby boomer group, as more and more individual investors reaching the retirement are looking at shorter term investments that are more secure in nature.
While the stock market can primarily a by and hold strategy for many, the private mortgage investing world is limited mostly to one to two year periods of time, after which the money is returned to the investor to use as he or she pleases, making a private mortgage a highly liquid and predictable investment vehicle.
Private mortgage investors may also be active stock market investors that are just looking to diversify their investment portfolio through mortgage financing. This will tend to lower their over all level of risk due to the strength of real estate security as well as provide greater liquidity.
One of the great aspects of a private mortgage investment is that any one can become an investor. There are really no barriers to entry compared to much of the regulatory rules associated with different forms of equity investments in private and public companies.
The other great advantage of private mortgage investing is that the investor makes all the decisions related to the investment and can also utilize their own lawyer to make sure the closing process is done properly, with the borrower paying for all related legal costs.
The biggest challenge for investors that want to fund private mortgages is finding qualified deals that they are comfortable with.
Typically this is solved by the private mortgage investor developing a working relationship with an experienced private mortgage broker who is capable of prequalifying potential deals to the investors lending criteria.
The private mortgage broker tends to also have a key role in administering the mortgage over time and managing much of the borrower communication requirements.
If you’d like to develop a private mortgage investment portfolio and want to work with an experienced private mortgage broker, I suggest that you give me a call and we can discuss a potential working relationship.