Private Mortgage Lending
Private Mortgage Lending is our newest opportunity for investors.
A private mortgage loan is a form of asset-based loan that has the potential to offer investors a consistent, sustainable income stream. It enables investors to diversify their investment portfolio while mitigating the risks such as stock market volatility, and it can act as a hedge against the Rand.
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. 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.
What is private mortgage lending?
Private mortgage lending occurs when a private individual, or organisation, lends money to a borrower. The private investor determines what qualification and underwriting guidelines to impose on the borrower. To mitigate mortgage investment risk, lenders should only lend money on first lien mortgages. This means that should the borrower default on the loan, the lender will be the first debtor settled through the sale of the property. Typically, a private money lender will also lend no more than 65% – 70% of the appraised value of the property in order to further protect their investment.
Key points to note if you’re considering investing include;
- Investors must know how to perform a thorough due diligence on the borrower and the property before committing to a loan
- Private money lenders must adhere to / comply with, and stay up to date with the state and federal usury laws where they want to invest
- The more experience and expertise the investor is able to draw on, the greater the opportunity to mitigate risk
The Benefits of International Private Mortgage Lending as a strategy
“It is 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, and a knowledge of the country in which they wish to invest.”
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
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.