Recent articles in The Wall Street Journal, Financial Times, and other industry publications have reported that investors are selling off dividend paying stocks due to interest rates rising.  This is happening as investors are moving over to bonds, which become more attractiveprivate mortgage note investing when interest rates increase as that results in the yield of the security going higher.  No matter what happens with interest rates, private mortgage notes are a more attractive asset than dividend paying stocks.

The great thing about investing is that it is done to make money.  As a result, it is easy to quantify the appeal of an asset.  At present, the average dividend yield for a member of the Standard & Poor's 500 Index is around 2%.  For private mortgage note investing, the returns are often in double digits.  Shaun Cohen, President of EquityBuild Finance, the funding arm of EquityBuild, a real estate investment firm, reports that his firm has registered an average annual return of 12% for private mortgage note financing.

There are other advantages to private mortgage notes, which are loans from investors to property buyers.  An individual investor can finance the purchase of a single property, or join with others in a pool that funds the acquisition of a wide variety of properties.

Other major advantages of private mortgage notes in addition to the superior return are the flexibility and control.  The terms of a private mortgage note are worked out between the parties to the transaction.  The lender and the borrower can put whatever terms they want in the contract, so long they are legal.  

That is not the case with dividend paying stocks.  The investor buys the stock as it is selling to the public.  This obviously results in very little flexibility for the investor putting up the money.

But for a private mortgage note, there is complete control by the investor.  A dividend is only paid when the board of directors approves it.  A dividend can be reduced or ended at any time by the management of the company.  If that happens, the only realistic option that the owner of the stock has is to sell.  If the dividend was just reduced or ended, then most likely the company is in trouble, when means the stock price has plunged. That means a loss when it comes to selling the dividend stock.

For the owner of a private mortgage note, however, there is complete control.  

The payments can be structured to best serve the needs of the funder of the private mortgage.  If the party making the loan wants to participate in any rise in value of the property being financed, there can be an equity clause in the private mortgage note.  The unique flexibility of the private mortgage note results in a tremendous amount of control for the owner of it.

With interest rates rising, so will the yields on private mortgage notes.  That is another advantage over dividend paying stocks: rising interest rates mean rising private mortgage note yields.  To profit from future increases interest rates, the private mortgage note can be a floating rather than fixed rate instrument.

More flexibility, more control, and more income make a private mortgage note more attractive.  No matter what happens with interest rates, a private mortgage note can profit.  As the heavy selling is demonstrating, that is certainly not the case with dividend paying stocks!