STOCK MARKET ALTERNATIVE

What alternatives exist that can provide strong and predictable cash flow that might offer a "safer haven" for investors? How can an individual investor diversify his or her portfolio beyond the usual choices of stocks and bonds? One little known answer would be: Private mortgage investments. For those already in the know, this has long been an investment of choice; double digit returns, steady cash flow and the security of a mortgage lien with (if approached properly) multiple exit scenarios and a very low likelihood of a loss.

What kind of net returns can an investor expect from a private mortgage investment? Certainly somewhere north of 10% depending upon whether the investor chooses to deploy his or her capital in a) one specific mortgage (higher return, greater risk, with no diversification), or b) a Fund, which owns a pool of mortgages supplying diversification and reducing risk (slightly lower return with much lower risk, and virtually no risk of sudden and unwanted prepayment or interruption of cash flow).

For those not already familiar with this type of investment vehicle, perhaps a brief description would be helpful:

Many private mortgage loans are made to acquire or to renovate properties in transition. W Financial primarily focuses on loans secured by commercial, mixed-use or multifamily income-producing investment properties. Such bridge loans are typically made for one or two years to help an owner acquire, renovate, change the use of the property (for example from office to residential), buy out partners, or, in some other way, add value to a property. Both the borrower and the lender must be able to envision a viable exit scenario that will enable the repayment of the bridge loan by either refinancing or selling a property. In scenarios where the asset will not be producing any cash flow during the loan term (for example, due to construction or renovation), an interest reserve may be established.

A second category of bridge loans would include scenarios where time is the critical element and the private lender’s ability to react, underwrite and close a mortgage quickly makes them valuable to the borrower. Sometimes the bank loan that a borrower was counting on either takes too long to close or falls apart, causing that borrower to seek a private mortgage. Other times, an opportunity may present itself to a seasoned buyer who requires a closing within weeks, rather than the 2 or 3 month closing period typical with banks. In today’s hot real estate market, cash deals or deals without mortgage contingencies are not unusual. Private mortgage lenders are real estate professionals, not bankers. They view each transaction through the prism of their firm’s expertise, and as such they are not constrained by typical underwriting parameters.

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