| What is the Yield? |
| 11 to 14 % p.a. is the usual
yield, but some mortgages do have higher yields. It depends on the
interest rate on the mortgage you buy and the discount you buy it at. The
greater the discount, the higher your yield. |
| What is the Investment Term? |
| The term of the loan depends on the
mortgage you buy. Some loans go out to 15 years, but many have a three year term or
less. It is your choice whether to buy them or not. |
| Is it safe? |
| Mortgage loans are rated among the SAFEST investments you can make. That's why home interest rates are so much lower than credit cards rates. Private money loans typically are based on the value of the real estate itself, as much as the individual borrower's credit.
Second mortgages are always much more risky than first mortgages. But be
careful of mortgage fraud. |
| Is the Investment Liquid? |
| Your mortgage is less liquid than a stock or bond. We recommend only investing money you won’t need back in a hurry. But if you want to turn your incoming payments to cash, just advertise the loan on this
site. |
| How much do you need to Invest? |
| Most mortgages are from $10,000 to $50,000. You and only you own the mortgage. You are in complete control. The closing should take place either at a title company or at your attorney's office. It's your choice. Of course, you should get title insurance, an independent property appraisal and other pertinent documents needed. Your check should go directly to the Title Company or your attorney. |
| Is it a hassle? |
| You get your money quickest and have most control when you receive the checks yourself. But if you prefer you don't even have to collect the payments or contact the borrower. Your mortgage can be set it up for collection by you with a collection firm or your bank. |
| How about IRAS and other Retirement Programs? |
| This is a great investment for your Pension Plan or IRA. The following is an example of how your money will increase so much faster by just letting it compound at a higher rate. Don't forget, if you use your Pension Plan or IRA your income is tax deferred and can compound much faster with no taxes to
pay. |
| What precautions should I take? |
Be aware of the meaning of Loan to
Value and Investment to Value.
The greater the Loan to Value the riskier the loan, other things being equal. Loan to Value is the percentage of the loan to the property value. Thus an $80,000 loan against a property worth $100,000 has an 80% LTV.
Most lenders agree that you require a lower LTV on certain types of loan.
The least risky loans are to homeowners in their own home, followed by second homes, rental properties, commercial properties then vacant land. Many lenders will only lend 50% or less of the value of vacant land.
Many lenders also will not lend to corporations or trusts. We recommend that if you do lend to either of these entities you require a larger cash down-payment and/or a lower LTV.
We recommend you ALWAYS insist on a Borrower being personally responsible on the
note.
Investment to Value (ITV) means the percentage of your
investment in an existing mortgage to the value of the property. If you
pay $60,000 for a $70,000 mortgage secured by a property worth $100,000,
your ITV is 60%.
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