"Can You Trust Private-Equity Returns" was the headline for a recent article in The Wall Street Journal by Joe Light.  It seems that investors have discovered, to their chagrin, that their private equity assets were not worth as much as expected.  That will not happen for those investing in private mortgage notes.

For private equity investments, many times it is not known what an asset is worth until is is actually sold.  That price can be far different than the one reported on paper in previous statements.  The markets can be very illiquid for private equity investments, as noted by Light in his piece in The Wall Street Journal.  The private equity community is so concentrated that when it is known that a group is looking to sell, others will take measures to force the prices down as low as possible for the assets hitting the market.  That makes for greater profits for the competing groups, who then buy the assets when the prices fall far enough.

For private mortgage notes, the market is much more amendable to selling.

Private mortgages result from those other than traditional lenders such as banks, credit unions, or tellers financing the purchase of real estate.  An individual can provide a private mortgage for the purchase of a single property.  But it is far better for those who are passive investors with others in a consortium that finances the purchases of a number of properties.  That provides diversity in the asset base, which is critical in the vital risk management function of investing.

A major factor that results in the high levels of liquidity for private mortgage notes is the double digit yields.  EquityBuild Finance, the funding arm of EquityBuild, a real estate investment firm, reports yields as high as 12% or more for its private mortgage notes.  In a low interest rate environment where yields for bonds and bank accounts are 1-2%, this superior return makes for ready buyers for a private mortgage note.

Placing the private mortgage notes in a retirement account can make the returns ever better.  Assets held within a retirement account such as an Individual Retirement Account (IRA) are tax free.  That means the investment income from a private mortgage is tax free.  Should the private mortgage be sold for a gain, there are no taxes on the profits from this high yield real estate investing.

Performing due diligence before lending the money for a private mortgage will also make the note easier to sell.  That is another reason to passively invest with a group like EquityBuild Finance.  As seasoned investors, EquityBuild Finance lends to only the most promising borrowers.  Jerry Cohen, the President and Founder of EquityBuild, has participated in more than 1000 real estate transactions as a principal since 1984.  

The length and breadth of that record is a tribute to the quality of the transactions Cohen will enter as a principal, which is comforting to those investing in private mortgage notes with EquityBuild Finance who might seek to sell in the future.