In a recent interview, Shaun Cohen, President of EquityBuild Finance, the funding arm of EquityBuild, a real estate investment firm, Double Digit Returns from Private Mortgagesstated that investors in private notes with his company were enjoying 12% returns with no defaults.  Writing in Barron's on July 1, financial columnist Kopin Tan, reported in his piece, "The Market Starts Taking Its Medicine," that its the "worst year" for "investment-grade bonds since 1973."

Private mortgage notes are loans made by investors to those buying a property, much like a bond in many regards.  These mortgages are needed to fill in the broad gaps in real estate funding from traditional lenders such as banks, credit unions, and mortgage brokers.  While an individual can finance a single transaction, that is very risky.  Far wiser is for an individual investor to join with investors in a consortium that finances a wide variety of mortgages for  those buying real estate.

Off all the different types of real estate investing, private mortgage notes are the most like bonds.  Property is not owned, rather financed.  Money is lent just as buying the bonds of a compay is lending funds to that entity.  The terms for private mortgage notes vary in length too, just like a bond.

The terms of a private mortgage are another significant advantage, just like the high yield and low default rate.  So long as legal, the terms for a private mortgage note are completely up to the borrower and the lender.  If the lender desires a large amount of money in the future, there can be a balloon payment.  Should the lender anticipate the property will rise in value and want to profite, there can be provisions for equity participation, too.

Passive investing with a long term approach in private mortgage notes with EquityBuild Finance has a myriad of even more distinct advantages, too.  At 12%, the yield is much higher.  With zero foreclosures, the default rate is also lower than that for corporate bonds.  On both sides of the risk/reward equation, private mortgage notes have investment-grade bonds beaten.

To increase this advantage even more, private mortgage notes can be held in a retirement account, such as an individual retirement account (IRA).   As a result, the investment income from a private mortgage note is tax free.  If the private mortgage note is sold at a profit, the gains are tax free, too.

While nothing is impossible, it would be extremely difficult to beat the performance of investing in private mortgage notes with EquityBuild Finance.  A 12% return with zero defaults is superior.  At a return of 12%, the investment would double every six years.