Private money lenders perform an essential and beneficial service to both
borrowers and investors. First, they provide alternative financing solutions
for consumers and businesses that may not be able to get financed otherwise.
For investors, they can offer an opportunity to participate and share
in profits from the $400 billion alternative lending market.
Since the economic turmoil of 2008, the mortgage industry has seen some
distinct changes take place, with banks restricting access to capital
through ultra-conservative lending practices. Strict institutional lending
guidelines have led to an explosion within the alternative lending industry,
helping to fuel a growing real estate market. The amount of retail alternative
capital has been increasing exponentially since 2013. The market continues
to grow, with investment into liquid alternative lending expected to exceed
$490 billion by 2018.
As the market grows, now is the right time to take the next logical step
in the evolution of your private lending business – private money
mortgage pools. Mortgage pools offer diversity, flexibility, and security,
not only for your investors, but also for your business.
Why Create a Mortgage Pool
Mortgage-backed funds were previously an investment reserved for only the
institutional investor. The diversification of the fund provides investors
with the security they need, and returns the better than average profits
they love to see. Today, mortgage pools have gone mainstream, with more
private lenders deciding to use the mechanism to their advantage.
- Mortgage pools provide investors with a safer alternative to financing
individual private loans, and to many investors, this type of diversification
is more attractive than placing all their eggs into one basket.
- With a mortgage pool, risk can be shared with other investors, and if one
or two mortgages in the pool do not perform, the effect on the pool as
a whole is negligible. Investors will look much more kindly upon a broker
when he or she learns any losses are shared equally, with little interruption
to their monthly cash flow.
- A mortgage pool also allows a broker to bring more investors into the pool
and continually roll over their investment. This leads to more flexibility
in the number of deals you can make to your clients.
Why Investors Love Mortgage Pools
As we discussed earlier, investors love diversification. More diversification
equals less risk, and less risk means more participation. It is an equation
that works well for everyone.
- Mortgage pools are attractive to investors because they involve less paperwork.
Investors would much rather receive one package for a pool of loans, rather
than dozens of packages for separate loans.
- Another advantage of a mortgage pool is that an investor’s money
is always working. There is no downtime while the broker lines up a new
borrower. When a loan in the pool is paid off, another can be added at
anytime, without interruption to monthly payouts.
- A mortgage pool is typically audited annually, therefore providing a level
of capital security individual loans cannot.
- Mortgage pools offer investors the ability to reinvest their capital continually.
As long as the interest checks keep coming in, an investor is much more
likely to roll over their funds.
While mortgage pools can provide tremendous benefits, they can present
some challenges in crafting the perfect structure. During the Geraci University
Online Workshop, Kevin Kim will explain why a mortgage fund is essential
for a private lender to grow their business. He will also break down the
key components on how a mortgage fund will allow your business to scale
up your loan production.
Contact Geraci Law Firm at (949) 298-8050 today, for more information.