There are a number of reasons people chose to borrow money through a private mortgage.

o    Rapid Response: Private mortgage lenders can often complete a transaction within 7-10 days. Since the property itself is the main criteria to be used to determine loan eligibility, much less information on the borrower and the borrower's other properties are required, resulting in a much quicker approval process.  This can be important when there is quick closing is desired or required.  A commercial loan with an Institutional lender can often take 60 ? 90 days to close.

o    Costs:  There are often less up-front fees associated with Private Mortgages than a Bank, so this may be the right kind of loan for a short term flip or bridge/interim financing, particularly in commercial property where Bank requirements may be high.

o    Time to Increase Value: A developer or investor may need to change a properties zoning, or fill up a less than fully occupied building in order to show the value before a Bank loan can be obtained. This can be a time when a Private Mortgage may be indicated.  Individuals buying land, where there is no income may look at a Private Mortgage, so they can have time to work on zoning, platting and/or developing.

o    Property Value is the Key: Private mortgage lenders are primarily concerned with the appraised value, as long as the appraised value represents a fair market price. Hence, if a property is producing or can produce sufficient income to pay the note and the value of the property will fully secure the note and provide sufficient equity, then the borrower's credit is not as critical an issue for the private mortgage lender.

o    Under-reported Income: Business Owners with cash businesses that do not report all of their income can still qualify because the loan is based on the property, not the income or credit score.  A Private Mortgage Note will not show up on Credit Reports, and therefore has some of the advantages of allowing private investments and one?s financial business to remain private.
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o    Privacy:  Borrowers may not want or be able to provide personal financial information or go through the hassles of the application process associated with obtaining an institutional mortgage loan. The borrower may be going through a divorce or business separation and may not want his wife, partner, government, lawyers, etc. to obtain his personal financial statement. Additionally the borrower may not have all financial information on all his real properties and businesses up to date or complete; he may have filed for an extension on his latest tax return; his accountant may be behind in preparing his financial statements. While all these would negate or at least delay his getting an institutional mortgage, it should have no effect on the borrower's ability to obtain a private mortgage loan.

o    Financial Hardship: Private Mortgages can provide borrowers a lifeline in times of need.

Most situations where Private Mortgages make sense are situations scenarios where borrowers need money for a short period of time such as 6 to 36 months. Although a borrower requiring a private mortgage may be paying a higher mortgage rate than a normal conventional loan, this option often makes sense.  You can expect private mortgage rates to run from 10% to 16% depending upon type and location of property.

Private mortgage lenders will typically lend up to 40% on raw land or undeveloped property; 60% on commercial income producing property such as office buildings, shopping centers, warehouses, etc. and 65% on residential income property such as a duplex or apartment complex or single family home. The key words here are up to; the maximum amount will be lent if all additional criteria are met and if the lender feels good about the loan, lower amounts can be lent if the loan or borrower is considered less than ideal. This is a decision made by the lender with an in depth understanding of the criteria being used and the experience of looking at many lending proposals.

The second parameter is the type of properties to lend on. This is often determined by the comfort the lender has in disposing of this type of property in case of default. All other things being equal, single use property which would take longer to sell is obviously less desirable than a multi tenant office building which would not only sell quickly at 65%-80% of market value, but which would be producing income with tenants paying rents while the property is up for sale.

The third investment parameter the private money lender is concerned with is the cash flow or income potential of the property being put up as security for the note. Although many private mortgage lenders are liberal in this area, the monthly interest payments to keep the note current must come from somewhere. If the property is rented out and is producing a cash flow after all expenses of an amount at least equal to the note payment, the monthly payments can be covered by the property income alone without the borrower having to come out of pocket. This adds a great degree of safety to the note. Cash flow from other income properties or other sources can be substituted for cash flow from the property being placed as collateral; however, the income to pay the mortgage payments must be available from some source.

The fourth major investment parameter the lender must consider is exit strategy. Very simply, this is how the borrower plans to repay the loan. Since most private mortgage loans are short term the private mortgage lender has a keen interest in finding out the borrower's exit strategy and in analyzing whether this exit strategy is viable, and the risk of this particular exit strategy. The particular exit strategy must have a reasonable chance of success.

Typical exit strategies include property sale before the note is due, refinancing the property with a long term mortgage loan, packaging the property with other properties owned or to be acquired by the borrower and obtaining a blanket mortgage on all the properties, borrowing on equity in other property owned by the borrower and selling a partnership interest in the property to an equity investor. Each of these strategies has numerous variations. The lender must determine the viability of any particular exit strategy.

A private mortgage is a secured debt obligation, which produces a regular, predictable income stream to the investor with all the security, protections and recourse that a mortgage lien can provide. While mortgages do not typically provide any capital appreciation, they do generate a steady stream of interest payments, which, in today's market, can exceed current money market rates by more than 10%. Unlike stocks, the security is tangible bricks and mortar, where legal protections such as title insurance and many other unique rights and remedies ensure the enforceability of a mortgage lien. Many private mortgage loans are also secured by personal guarantees from the Borrowers, adding another layer of recourse beneficial to the investor.

The typical interest rate for a direct private mortgage ranges from 10% - 16% depending upon the time frame, the purpose, the loan-to-value ratio, the exit strategy, the quality of the Borrower?s personal guarantee(s) and other factors.

The interest rate can be either fixed or floating, depending upon the way the transaction has been structured. Typically the floating rate mortgages always set the initial interest rate as the ?floor? so that it can go up if, for example, the Prime rate rises, but cannot go down if the Prime rate drops.

Not many investments can dependably generate such strong returns, and few other investments have an asset like real estate as a ?backstop? providing a very well protected downside. The key, as in any investment strategy, is to find a good Fund Manager. Whether private mortgage investments are right for you will depend upon your time frame, your risk/reward expectations and your anticipated need for liquidity. Furthermore, private mortgages have stable returns and fit well within a portfolio of stocks, bonds and real estate. Adding these to a portfolio will make the returns of the total portfolio more consistent. When evaluating any potential investment, the advice of a professional investment advisor is helpful in assessing the role of private mortgages in an otherwise liquid investment portfolio.

Why would a Borrower seek a comparatively expensive private mortgage rather than a conventional bank mortgage?

The answer is frequently time-based. There are many reasons, but for starters, here are two:

1. Time Crunch: The Borrower has applied for a conventional bank mortgage, but the time-of-the-essence closing date is rapidly approaching, the bank is still completing it's due diligence, yet the Buyer/Borrower simply has to close in a timely fashion in order to avoid losing a hefty contract deposit. After closing the bridge loan with a Private Lender, the Borrower can then take as long as necessary to arrange permanent financing.

2. Transitional Property: Another typical case would involve a Borrower purchasing a vacant property that he plans to convert to another use (office to residential, for example). A bank would rather finance the deal AFTER the Borrower has executed his business plan, rented the property and created cash flow. The Private Lender is willing to get more deeply involved than most banks, evaluating the Borrower's past track record, the viability of the Borrower's current business plan to convert/improve the property, as well as the value of the Borrower's personal guarantee or other collateral. The savvy Borrower is also fully aware that he is only going to have the Private Loan outstanding for perhaps 12 months, and that paying 12% - 14% for such a brief period of time is far LESS expensive than bringing in much more expensive equity partners for the long haul. If an owner or developer raises additional equity by bringing in partners, it is certain that he will have to give up a substantial piece of the pie.

Can I invest my IRA money?

Yes. There are many IRA custodians across the US that handle self-directed IRAs and are familiar with this type of investment. You can utilize all forms of retirement plans including Keoghs, Profit Sharing Plans, etc. We accept IRA and other tax-protected investments through a third-party custodian. Tax-deferred investors (IRAs, Pension Plans, Keoghs and the like) should also speak with their financial advisor.

How often will I receive interest payments?