Making the decision to invest in private mortgages can be a lucrative one. If this is something that interests you, putting an independent advertisement out and waiting to see who comes to you asking for money may not be the best way to go about things. Investing in private mortgages is not a get-rich-quick scheme and takes some careful preparation.
Most people that invest in private mortgages do it through several avenues. Some people network themselves with real estate lawyers, some use brokers, some use lending clubs, etc. If you are planning to invest in private mortgages by supplying an amount of money for one or many mortgages, you will want to connect with people that have lots of experience in offering private lending services like mortgage brokers. They can help you with your Due Diligence questions.
Private mortgage investors are obviously interested in a good rate of return on their funds, but typically they also want to help people. This is especially true for people that are self-employed, or life happened and they need to clean up some credit issues. Banks have strict guidelines and often decline mortgage applications for people in these positions. This means that these highly motivated and trustworthy people need to find alternative funding sources for their loans.
The most typical way for private lenders to mitigate their risk is by paying attention to the amount of equity left in the property that their mortgage is secured against. A lawyer registers the mortgage on the title to the property, just the same way they register a bank mortgage on the title of the property.
A mortgage broker can help you to gain insight into just how risky a mortgage application might be. They are also aware of market rates for private lending, and can help you get an idea of what you can expect. If you create a relationship with a mortgage broker, they can help you to develop a portfolio of mortgages that will most often get you a much higher rate of return than a GIC at your bank. The return can be 7-10% or higher for riskier loans.
Before actually lending your money out, it is important that you have a sit down with a mortgage broker and figure out what your risk tolerance is and what your desired rate of return is. Making the decision to invest in private mortgages may seem very risky, but it can be much safer by getting in touch with your local mortgage broker and learning how to do “Due Diligence.” Contact us today to find out more!