Private Mortgage Investment – Individual And Club

Do you want to mortgage your real estate? Or do you want to sell your mortgage? Banks are not the only options that you have. Just look around and you will find a lot of private mortgage investors who are ready to pay instant money or offer you a loan against the mortgage.

Before getting to the point lets find out what is private mortgage loan.

Private mortgage loans are offered by private lenders instead of traditional lending institutes like Banks or Government Agencies. These loans are normally secured by real estates as they are normally taken by real estate investors.

In this situation the lender offers money by taking the equity and property value as collateral. This does not depend on borrower’s credit scores and other similar parameters. The lender normally offers 65 to 75% of appraised value if the property is income producing; otherwise they offer 55% of appraised value as loan.

And don’t be astonished if you find out the investors are ready to pay 16 to 18% annual interest when the market rate is 6 to 7% less. The borrowers (mostly those who invest the money in other areas) are willing to pay such huge interest for different reasons. However the main reasons are that the borrower does not require disclosing complete personal and financial information, the transaction is completed very fast, the borrower could not get loan otherwise etc.

Now, private mortgage investors are those who hold a mortgage by himself or herself (normally banks and other financial institutions play the role). The sellers of mortgage gets a lump sum amount of cash but the mortgage investors get a better profit margin from the whole process. The investor not only profits from the interest on the note, they also acquire a good margin on the principal amount as the mortgages are normally sold for less than the face value (discounted price).

However, the individual private mortgage investors often make some silly mistakes. For example, some of them do not even thoroughly investigate the property for lack of time or some of them even do not care to properly verify the legal lines of that property to be mortgaged. They often buy a mortgage that is not the 1st mortgage. And the most critical of the situation is when an individual mortgage investor is not well aware of the legal system or laws (for example, a lot of investors do not know about section 32 mortgage). And thus they often suffer from financial losses.

There is another type of mortgage market where people accumulate direct participation mortgage fund (as if buying shares of an organization) and this capital is later on invested as mortgage loan. And like other situations, this accumulated fund is protected or secured by the mortgaged property. The most interesting aspect of this is that you have more money to invest and thus you can take bigger strides and make bigger profits. Now when the profit amount is distributed among individual share holders (participators), the amount is often much higher than as an individual investor you could manage.

Moreover the risk factor associated with the decision making process is reduced to a long extent as you need not take any decision individually. And at the same time most of the direct participation mortgage funds offer you the option to sign out from any investment program if you do not want to participate. And they are normally Limited Liability Company.

You can join a private mortgage investors group or an investment club to get more information on direct participation mortgage.

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