Private Mortgage Note Investing
Private Mortgage Notes provide borrowers with an alternative to traditional bank financing for real estate properties. A borrower may not want to pursue bank financing due to time constraints, credit worthiness, or other factors, so they look for individuals or groups to finance their investment. Investors will take on the risks of lending and in exchange will receive higher than normal interest yields on their investment. The safety net is that the investment is secured by the property itself, via a mortgage lien. Furthermore, loans on these properties are given at no greater than 65% of the appraised value of the property, ensuring that upon default, a quick sale would recoup the investment.
Investing in Private Mortgage Notes are very safe investments. In addition to the mortgage lien, these properties are also backed by Title and Hazard policies. If the property burns down, or if there is a problem with the title, then the investor recoups their money through these policies.
There are firms that deal with Private Mortgage Note investing, and match lenders with borrowers. These firms will thoroughly investigate the potential borrower, ensuring that the situation lends itself well to private lending. These firms generally have a lot of experience in the local real estate market and can readily determine if a potential investment is viable. Therefore investing your money through one of these firms is the safest way to invest in private mortgage notes.
Yields for private mortgage notes are much higher than traditional investing. Return rates of 12 to 15% or higher are typical. The more risk you are willing to accept, the higher the return. Generally, if you want to be listed in the first position on the Deed, you will yield between 10 to 14% on your investment, if you are willing to be listed in second position then your yield will be greater than 15%. You should fully understand the circumstances of a particular investment before determining the amount of risk you are willing to accept.
Many find that private note investing is more predictable and fun than stock market investing. The terms are set at the beginning of the loan, so you will know your rate of return from the beginning. No need to constantly monitor stock prices. Investors also enjoy the idea of being the bank, helping others achieve their success in real estate. If you are looking to diversify your investments and are looking for high yield with low risk, then private mortgage note investing is a good choice for you.
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