Investor Concerns With Private Mortgage Lending

“Here Are Some Of The Concerns Investors Have With Private Mortgage Lending”

private mortgage investing

Today we’re going to discuss some of the concerns I hear most often from investors that are considering investing in private mortgages.

These are individuals that typically are heavily invested in the stock market and are looking to diversify their portfolio via private mortgages, but are unsure of the related risks, which becomes a barrier for them moving forward with mortgage investment opportunities.

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For the benefit of anyone that is considering private mortgage investing, I came up with the most common concerns I hear and will now go over them.

How To Manage Risk

Investors can have a hard time rapping their head around how providing a private mortgage to someone with bruised or poor financial and credit profile could be a good investment opportunity.

Well the fact of the matter is that a private lender provides mortgage financing in the same manner that an institutional lender does and has the same legal recourse available to protect themselves against loss in the event of borrower default.

On top of that, you’re still actively doing risk management, assessing risk, and determining which scenarios fit your lending criteria because there are lots of scenarios where people can require a private mortgage without bringing high levels of lender risk to the table.

As banks get tighter and tighter with their lending criteria, there are more and more deals that fall to private lenders. And not only are more deals available, but many of these previously bank grade deals are very appealing with respect to risk assessment and risk management.

Private Mortgage Maintenance And Administration

The second most common investor concern is how do I go about maintaining and administrating a private mortgage.

Individual investors don’t typically have a staff or admin pool to draw from unlike a bank or institutional lender, so key barrier to private investing is the concern over how to cover off mortgage administration requirements.

In reality, a private mortgage typically has very little administration that is not hard to cover off. The term is usually one year, and the borrower provides 12 postdated cheques for the monthly interest only payments. The time required to administer most private real estate loans is really quite minimal and should not be viewed as a borrowing deterrent.

What Happens When There Is A Default?

There is always the possibility that a default can occur and there can be a big fear of capital loss which once again stops an investor from moving forward with a private mortgage opportunity.

This is where we come back to risk assessment and entering into a mortgage where capital conservation has been properly considered from the get go.

When a default occurs that the borrower does not immediately rectify, we turn the process over to a lawyer to manage the power of sale process if necessary to get all your capital and accrued interest paid back to you.

Regardless of the amount of time it takes to deal with a default, capital is conserved by the risk assessment and risk management process conducted before funds were ever advanced.

If you need more information on private mortgage investing, I suggest that you give me a call so we can discuss any concerns you may have and determine what lending parameters best fit the level of risk you are prepared to take.


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About the Author Joe Walsh

I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel