This is the fifth of six articles in a series to discuss the Pro’s and Con’s of Real Estate Investing and Private Money Mortgage Lending.
The series consists of
Part 1 – The Introduction
Part 2 – The Pro’s of Real Estate Investing
Part 3 – The Con’s of Real Estate Investing
Part 4 – The Pro’s of Private Money Mortgage Lending
Part 5 – The Con’s of Private Money Mortgage Lending
Part 6 – Putting it All Together
The Cons of Private Money Mortgage Lender is probably the shortest list, but the first three items are the reasons why some people decide to not become a Private Money Mortgage Lender.
Do not Receive the Benefit of Appreciating Property Value – A Private Money Mortgage does not receive a direct benefit from appreciating property value; however, there is huge indirect benefit. As the property appreciates in value, your Private Money Mortgage loan becomes more secure as the Real Estate Investor’s equity in the property increases.
Do not Receive Tax Benefits of Property Ownership – If tax benefits are your priority, then Private Money Mortgage loans might not be for you. You should consult with a CPA and/or a tax attorney.
Do not Control the Property – Control is a relative term. There is a reason Bank of America, Wells Fargo and the other banks are not in the property owning business. True, the Real Estate Investor decides when to sell the home, but if the mortgage is not paid, the Private Money Mortgage Lender takes ownership of the home.
Potential Foreclosure – If the Real Estate Investor does not make the payments to you, you will need to foreclosure on the Real Estate Investor and take ownership of the home. This process can be lengthy; however, there are methods to accelerate the process. Those acceleration steps need to be written into the necessary documents before closing.
If you do have to foreclose on the Real Estate Investor, you receive a property in return (a property that probably has a tenant living in it). What other investment gives you that kind of collateral?
The important thing to know is what are your goals? Are control, appreciate and tax benefits more important than a fixed income? Becoming a Private Money Mortgage Lender is not for everyone.
Is it right for you?
Only you can answer that question. If you have not done so, you need to answer the questions posed in Part 1 before you move onto Part 6, which is the final article in this series.
The next article is Part 6 – Putting it All Together.
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