The Benefits of Investing in Privately Held Mortgages
The privately held mortgage market is seeing a great deal of growth because banks are only giving out about 1/3 of the loans they would have prior to the market collapse in 2007. Many potential homeowners are now stuck without financing from banks and are looking to outside investors for financing. This has created a great opportunity for private mortgage investment. According to Jerry D. Remien MBA & CMI, President of Mortgage Buyers Inc., a company specializing in buying seller financed/owner financed mortgages since 1991, there are four main benefits to investing in privately held mortgages.
The biggest advantage of investing in a privately held mortgage, or trust deed, is the reduced risk when compared to other investments. Here is an example to help explain how a partial mortgage investment, can help reduce those risks.
Consider a 100,000 dollar mortgage that is sold for 120,000 dollars. Mortgage Buyers generally deals with partial mortgages, so you would buy some of the payments. If it was a 20 year mortgage, you could buy 60 to 72 months of those payments.
There is reduced risk in this type of investment, because the asset is assigned to you, the investor, at closing. If the loan goes bad and they stop paying, you retain the asset and have the entire collateral in order to recoup your investment.
Mortgage Buyers focuses on partial investments, because if you had purchased the whole note, then you would be dependent upon the foreclosed property selling for at least the cost of your initial investment to prevent a loss. Even if you had bought the note at a decreased rate of 90,000 dollars, the house would have to sell for at least that much in order for you to not lose money on your investment.
By purchasing a partial, your investment and profit would be secured to the point that the property covers the value. If you had paid 25,000 dollars up to that point, you would be entitled to that investment, the cost of actually selling the foreclosure, and accrued interest. As long as the property covers that value, your investment and property would be protected.
In addition to reduced risk, another one of the benefits of investing in a trust deed is that it can help diversify your portfolio. Investing in real estate is different than investing in the stock market or a business, and with many expert predicating rebounding prices, it is a great time to buy back into the market. A real estate investment is a great way to diversify your portfolio, because they have less risk for loss of return and loss of principal. Banks are only giving 1 percent on your money, on a risk adjust basis, investing in a private mortgage is still higher than any traditional debt product.
There are tax benefits as well. The return on the principal over time becomes long term capital gains versus income. You can defer those taxes because you’re not receiving the money all at once and are receiving those payments over time. If you’re in a higher tax bracket, you can save a lot this way.
A trust deed investment can also have big benefits for retirees. Before the economy collapsed, many people retired thinking they were going to earn 8 percent on their funds each year through retirement funds and have enough to survive. Due to the economic downturn, many are now only getting back 1 percent and are spending retirement savings much faster than originally anticipated. Private mortgages help with retirement, because the average investor will make between 7 and 8 percent. With that return, you also receive payments monthly. A retirement plan with privately mortgage investments, would be a good way to conservatively recapture some of the lost yield and get you back on a retirement plan that makes sense.
For further questions or if you are interested in investing in private mortgage notes, contact Mortgage Buyers, Inc. toll free at 800-949-0888