When you purchase a performing mortgage you “are the bank”. Your do not own the actual property, you have a lien that is secured by the property. This type of investment has a number of benefits as compared to owning a rental as well as a few downsides. When considering an investment opportunity there are a number of personal factors that should be considered. Consult a real estate broker or advisory firm that specializes in these types of investments.
Pros
No Maintenance Costs – Purchase Mortgages with a built in discountability for both monthly cash flow and windfall profits when homeowners sell or refinance to pay you off in full Less Competition from other investors since this is a growing niche market.
Cons
If a homeowner stops payment the foreclosure process is typically longer and more costly than evicting a tenant o leverage: There are few to no financing programs available to purchase discounted mortgages
Advice:
Utilize a servicing company to handle your mortgage statements and customer service for the borrower. Two very good servicing companies are http://www.sellerloans.com or http://www.trustfci.com
Do your due diligence, including researching the property value for the mortgage you are buying. If the homeowner has financial difficulties offer to work out a win-win solution that avoids a long foreclosure battle and protects your equity. Read this article on working out win win solutions with borrowers when investing in distressed mortgages.
Andrew Fritz is a real estate and distressed mortgage investor and adviser.
http://www.geminicapitaladvisors.com
Educational resources and available distressed and discounted mortgage investment opportunities.
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