You can still Rent and Profit from Real Estate with Private Mortgage Notes

One of the never-ending debates in investing is whether renting or owning is best in real estate.  Much of that obviously depends on the local market and specific conditions such as property taxes, duration of the stay, and many more considerations.  With private mortgage note financing it is possible to rent your home, if you wish, and still profit from investing in real estate.

Investing in real estate

A private mortgage note is a loan from an investor or group that finances the purchase of a property.  An individual can provide a private mortgage by themselves or participate with a consortium of investors in a pool.  A single property can be financed or many can be funded through to pool to diversify the investment capital.  There are many ways to profit from private mortgage notes.

The returns can be very high, particularly when compared with others in today's low interest rate environment.  Shaun Cohen, President of EquityBuild Finance, the funding arm of EquityBuild, a real estate investment company, reports that a 12% annual return has been posted with private mortgage notes.

In addition to the high return, private mortgage notes provide a great deal of flexibility.  The terms can be worked out between the lender and the borrower.  That allows for the party providing the private mortgage to structure the note so as to meet their needs at that time and in the future.

A private mortgage note, properly structured, can also allow for the financier to gain if the property rises in value.  That is what is known as an "equity kicker."  When the real estate with the mortgage attached to it rises in value, the private mortgage note will have terms in it the needed terms so that investor gains, too....all perfectly legal.

The same can happen if a rental property is financed.  The investor providing the mortgage could base the payment terms on the amount of rent being collected.  When the rent being charged increases, so would the mortgage payment.  This could also happen if interest rates rise.

The ultimate flexibility with a private mortgage note is that there are none of the responsibilities of property ownership.  All rental real estate entails a degrees of administrative and managerial responsibilities: finding tenants, making repairs, keep the property in top condition, etc...

For a private mortgage note, all that is required is that the scheduled payment is received.  That is a very attractive feature for any investment!  Removed are all of the burdens of owning and managing rental real estate.

Even if you never want to own real estate itself, it should always be part of an investment portfolio.  History proves that: over the last two centuries, about 90% of the world's millionaires have been produced from real estate profits.  Over the course of The Great Recession, as stocks and bonds fell, rental income actually rose in the United States.  Obviously, history proves that owning real estate should be a major part of an investor's portfolio.

There is much to be said for owning real estate as an investment.  Private mortgage note financing allows for an investor to profit from the appeal of real estate without owning a property.  It is very difficult to beat the flexibility that a private mortgage note offers as an investment.  It is even more difficult to top the double digit returns posted by Cohen with EquityBuild Finance in private mortgage note investing.