by Donna Burt

Created on: May 31, 2008   Last Updated: June 06, 2008

While everyone has heard horror stories of the real estate market, most are only aware of what they hear on the news. The truth is subprime lending itself was created for the more challenged borrower. Offering higher interest rates in return for a loan, the initial basis of the approval was loan to value/equity. With these guidelines in place, subprime loans only represented an average of a 6% default rate for the previous five years.

With lessoning once traditional guidelines, approval for these once challenged loans found homes when subprime introduced programs allowing 100% financing. When brought to the public eye, mortgage lenders began to fall at an alarming rate. With the majority of mortgage companies funding abilities tied to the riskier funds, the downfall was due more to the lack of research in the investments they made than anything else.

With that said letting you know about an excellent investment strategy that can pay a return of anywhere from 8-15% sounds a little too good to be true. In reality, with correct research, being a private mortgage investor can offer these returns and is no riskier than the stock market. One huge difference, if a company goes under, the stock has no value, every penny invested is lost. If a mortgage loan defaults, since it is secured by the property, when sold, the investment is returned.

Understanding how being a private mortgage investor works is the key to realizing the benefits of the investment. As an investor, you loan the money for someone to purchase real estate. Not just residential, but multi-family and commercial as well. With the majority of loans at 50- 70% of the value, the property would have to lose that much value before any of the original investment was lost.

The key to success as a private mortgage investor is to do your research. Each property has an appraisal, inspection and title commitment. These are done to insure a true equity position and ownership to the property. Should you discover you need your investment returned early, there are companies that will purchase the loan from you.

As the investor, you choose the loan and product to invest in; therefore, set the standards. As this was not practiced during the subprime crisis, it provides for a more securitized investment, while still benefiting from a much higher rate of return. To begin, the two easiest ways are to establish a relationship with a specialized broker or look into investment companies. Either way, you have the final say of the

• 1
• 2
• Next Page >>