IT’S TIME… TO LOOK TO MAIN STREET USA FOR INVESTMENTS
I have said it before and allow me to say it again: Investing is a serious matter. It takes time and hard work to save money. Once saved, you want to invest your money wisely.
Warren Buffet of Berkshire Hathaway fame says it much more eloquently: First rule of investing is: Don’t lose the money. The second rule is: Don’t forget the first rule.
Fortunately, we do have choices when it comes to investing. Typically, people think either of the Stock Market or the Real Estate Market.
In my opinion, one of the best investments is an investment in a private mortgage. With the continuing reduction in the number of USA banks, the role of private mortgage investing will increase. Already, there are literally ‘billions and billions of privately held and invested mortgages out there,’ to paraphrase the late Carl Sagan.
However, over the years, I have witnessed people invest in private mortgages without giving the investment so much of a moment of thought let alone a thorough analysis. It is as though they were dismissing the investment as having no risk at all.
This is wrong.
It’s time for investors to take private mortgage investing seriously. There is risk. In some private mortgage investments, too much risk.
Why do investors treat a private mortgage investment with little thought and very little analysis?
Faith.
Yes, that’s right. Faith. Investors have faith in real estate, the security for the mortgage investment. They incorrectly reason that if the real estate is worth $100,000 and they are asked to invest in a mortgage of $50,000 secured against this real estate, it must be a safe investment.
Not necessarily so.
Investors should be reminded of the recent Great Recession of 2008 to 2012. A lot of investors lost a lot of money investing in private mortgages. In point of fact, the Great Recession was caused by Subprime mortgages. So to dismiss this investment as ‘riskless’ is foolish at best.
There are various names for private mortgage investing: Hard money loans, Subprime mortgages, Bank Turn Down Mortgages, Alternative Mortgage Lending, etc., etc., etc. Truth be told that private mortgage investing involves those Mortgages that Prime Lenders like Banks won’t fund.
Why would a Bank turn down a mortgage borrower?
Lack of verifiable income.
Unacceptable credit.
Unacceptable real estate as collateral.
Lack of verifiable money.
Not enough time.
Private Mortgage investing requires a flaw. Yes, that is correct. Without a flaw there is no reason for a Borrower to come to a Private Mortgage Investor for a loan.
However, the question that a Private Mortgage Investor needs to ask is whether or not this flaw is fatal. Most investors lack the experience to even ask this question, let alone answer it.
What is a fatal flaw in Private Mortgage Investing? It could be the character of the Borrower; it could be the real estate itself; it could be the amount of debt being placed against the real estate; it could be the terms of the private mortgage itself; it could be the appraisal valuation of the real estate; it could be unforeseen economic forces; it could be government mandated policies; it could be fraud; it could be unanticipated financial change. It could be a number of other factors.
Investing involves risk. Private Mortgage Investing is no exception.
Stated a different way, most investors lack the experience to see all the risk involved in Private Mortgage Investing.
On top of all of this, the Real Estate Market is going through a demographic upheaval. The baby boomer generation is over with its huge numbers of people. The Internet is beginning to have its creative- destructive effect on real estate. The social, educational, environmental and political attitudes of the new generations are beginning to take hold. All this change will have an effect on terra firma real estate.
So the next time you are asked to invest in a Private Mortgage, you best take it seriously.
At Brownstone, we do: we take Private Mortgage Investing very seriously. That is why we can state: “Since our founding in 1980, not one of our investors has ever lost one cent while at the same time earning an above-market rate of return on their private mortgage investments.”