More On Investing In Mortgages, Trust Deeds, or Contracts

How much money do I need as an investor to buy mortgages? This, of course, can vary; and you can probably find investments available as low as $15,000 to $20,000; however, more likely there are plenty available under $50,000.

How do we find opportunities to invest in mortgages? You can advertise in your local newspaper or look up Note Brokers, of which there are plenty to choose from. I suggest that you interview Note Brokers until you find one you are comfortable with and have him (or her) find mortgages for you to invest in.

The Note Broker should know how to protect your interest and ensure that all the “due diligence” (previously discussed) is performed. Question him prior to buying any notes through him, and then check his work.

Let’s talk a little bit about Risk -vs- Yield. Further, in looking at Risk -vs- Yield, how is that affected by the type of mortgage investing one does – Direct Lending or Buying existing loans?
Direct Lending - is usually safer than buying existing notes because the lender has more control, such as requiring credit information on the borrower and requiring a thorough appraisal of the property. In addition, there are numerous licensed Mortgage Brokers who specialize in Private Money Lending. These people can help the lender locate people who want to borrow money.

Mortgage Brokers can be of great assistance in the due diligence phase, however, they do charge a fee which is usually called points. One percent of the loan amount would be one point. Some Mortgage Brokers tend to get a little greedy and may charge “excessive” points. The points charged are negotiable and the borrower pays the points. Normally the borrower pays ALL costs to make the loan: points, escrow fees, Title insurance, appraisals, document preparation fees, etc.

The advantages over other investments (Stocks for example) is that the investor has something TANGIBLE as security. One very important thing that a Mortgage Investor MUST keep foremost in mind is this: anytime the investor makes a loan or buys an existing loan, there is a possibility that the investor may end up OWNING the property which is the security for the loan.

Here is the CRUCIAL QUESTION: If that happens, can the investor recover the money he has invested? If the answer is “no” – then the investor should NOT MAKE THE INVESTMENT. This means that the investor needs to know how the reasonable market for Real Estate in the area where the security property is located. Obviously, if the investor has to foreclose on the security property, he will then have to re-sell the property to recover his investment. There might be repairs to be made or other improvements done to make the property marketable.

These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.