Private Mortgage Lending is a great way to diversify your investment portfolio as it enables lenders to generate a consistent, meaningful income in all market conditions. It allows you to diversify your investment portfolio while decreasing the level of risk typically associated with the volatility of a stock-market based portfolio. As YDL’s investment opportunity is for investing in Private Mortgage Lending in Atlanta, GA, USA, the investment can also act as a hedge against the Rand, as the returns are US Dollar-based.
What is Private Mortgage Lending?
Essentially, private mortgage lending occurs when a private individual, or organisation, lends money to a borrower.
Suitable as a passive cash-flow generating business, private mortgage lending can generate above-average returns with low investment risk if the correct due diligence is performed. The main reason the investment is low-risk, is because the private mortgage loan is secured by a tangible asset – the physical property that the borrower wishes to purchase. While entire investment portfolios based on stocks and bonds can be lost, with private mortgage investing, the investor will consistently retain some value as the loan is secured by a tangible asset.
The private mortgage loan opportunity that YDL is offering our investors are short-term loans to borrowers who are wanting to buy and renovate residential properties, or those doing new builds in Atlanta, Georgia. Loans could also include wholesalers, who buy property for the purpose of cleaning it up and on-selling the property for a profit. In selecting short-term loans, our offering reduces the risks and produces better returns over a shorter period.
Why borrowers are turning to private mortgage lenders for funds
There are a number of reasons borrowers are turning to private investors for funding of their mortgage loans. In the United States, many potentially good borrowers are being rejected by traditional lenders as qualifying guidelines have become very stringent since the 2008 recession. This vacuum is being filled by private money lenders.
One of the biggest drawcards for borrowers is that private mortgage lenders can often approve a loan and supply the funding faster than a traditional bank. This means they don’t risk losing out on a property while waiting on feedback on the application from the bank. Even though the interest rates charged by private lenders are usually higher than that of traditional lenders, borrowers are prepared to pay the higher rate to secure a faster approval, and because there is the potential to borrow larger amounts than they would through traditional lenders.
Borrowers might also have financial information privacy concerns, or the possibility of borrowing a larger sum from the more flexible private mortgage lender might be more appealing to them.
The reasons for the borrower choosing a private mortgage lender should not have an impact on the decision whether to grant the loan or not, as long as the property used to secure the loan is more valuable than the loan itself, and that the exit strategy meets the lender’s requirements. The fact that the lender always determines what qualifications and underwriting guidelines the borrower will need to meet, means the potential risk is more carefully managed.
The importance of using an experienced private broker
Part of mitigating risk is having the expertise and experience to navigate potentially challenging property investment waters. It is critical to know how to perform a thorough due diligence on the borrower and the property before committing to a loan, for example. This ensures a higher likelihood of receiving a solid return on your investment.
The more experience and expertise the investor is able to draw on, the greater the opportunity to mitigate risk. It is therefore highly recommended that investors who are interested in becoming private money lenders partner with a knowledgeable, experienced and honest private broker/lender who has real estate experience.
Benefits of investing in Private Mortgage Lending
- Generate consistent, sustainable income, just like a salary
- Generate above-average returns with lower investment risk than a market-exposed portfolio
- Is a passive investment strategy, so your money works for you
- Is more stable than a market-exposed portfolio
- Ensures that your investment is secured by tangible real estate properties
- As the Private Mortgage Lending is done in the United States, the investment is a hedge against the Rand
First lien mortgage
A first lien mortgage is a legal agreement that conveys the conditional right of ownership of an asset or property by its owner (the mortgagor) to a lender (the mortgagee) as security for the loan. This means that should the borrower default on the loan – as long as you’ve lent on a first lien mortgage – you will be the first debtor settled through the sale of the property.