Discussion of the pros and cons for using private mortgage lending versus actually buying real estate investments.
There are a variety of reasons people are turning to private mortgage lending to enhance their investments, the primary reason being the current uncertain economic situation that is causing stocks and mutual funds to plummet. With private lending, your investment earns a higher rate of return than stocks and mutual funds, is secured by real property, as well as a mortgage insurance policy. What could be better these days when it comes to investing?
If you are considering getting involved with private lending, you will want to be aware of the financial reasons that are counter balanced by potentially negative reasons. Private mortgage lending is very beneficial and at the same token can be difficult depending upon how you manage it in this economic climate.
Here are a few pros and cons to point you in the direction of private mortgage lending.
Pros
* As the lender, you are able to earn a high interest rate that is typically between 50 and 100 percent higher than the interest of conventional lending institutions.
* With private lending the investment is short term from 6 months up to 3 years earning you a high rate of return within a short period of time.
* Private lending in the current economic climate is more lucrative than investing in stocks and mutual funds.
* Private lending allows you to be creative with the financing which gives you better control over your money.
* You have the option to sell the mortgage to companies that buy them in the event you need exit the deal before the loan matures.
* Private mortgage lending allows you to invest securely in real estate without having to deal with the hassles that come with it such as problems with tenants and property maintenance.
* You are in control of how long your money works for you.
* You have the option of using an IRA to invest in real estate while still enjoying the tax benefits of an IRA.
Cons
* A long-term decline in the economy could possibly negate the short-term advantages of the real estate investment if the property significantly decreases in value.
* With private lending, you are subject to state and federal laws that place a restriction on the amount of interest you earn.
* Private mortgage lending in general is a high risk investment because you are dealing with people who for one reason or another cannot secure a mortgage with a conventional lending institution.
* Private mortgage lending is considered issuing a Security on the state and federal level and you could face the possibility of running into complications with the SEC.
* The borrower may have a poor credit history and plan to refinance with a conventional lending institution.
This could leave you in a sticky situation as the private lender in the deal.
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