In today’s post, I want to introduce you to a passive income stream that can help you earned fantastic fixed returns without the hassles of renting or buying and selling a property.
People usually refer to rental income as passive income. However, from my own experience, rental income is not as passive as you might think.
According to Investopedia, passive income is earnings derived from and enterprise in which a person is not actively involved.
So let me introduce you to a genuinely effortless passive income stream: Private Mortgage Lending.
Before we begin diving into the private lending’s ins and outs, it is worth mentioning that you need access to cash to make a decent income investing in mortgage lending. I meant to access it. It doesn’t have to be yours. A little more on this later.
How does it work? Active real estate investors need to access capital to develop their projects like renovating a property, land development, building a new subdivision, etc. Funding this project through traditional institutions like banks, is not possible sometimes. That’s when they have to turn to private lenders for capital.
Private mortgage lending can give you anywhere from 8 to 16 percent of return on investments annually. That is a better performance than the stock market, and it is a warranty return!!!
I have worked with Profund Mortgages before, so that’s the reference I will use. Other mortgage business offering private lending might work differently.
I don’t see it necessary to explain the process of getting a loan from the borrower’s side because it’s not the subject of this post. For that reason, let’s move forward to the point after which Profunds approve the loan.
Passive income from mortgage lending. The process
The following is what you so should expect to happen if you decide to invest. The process goes like this:
The private lending business sends a request for funds to their network of private investors like you and me to create a group or syndicated mortgage. ( Syndicated mortgage is when two or more investors join to lend their money collectively). They send all the details of the offering
If you decide to invest, you request further information from them. That’s when Profunds send you the borrower’s personal and financial information. Anything from their credit report to the source of wealth, cash, bank account, and everything that would help you as a lender make an informed decision about the borrower’s ability to repay the loan.
Profunds make an outstanding job qualifying buyers. However, it’s still up to you to decide whether it’s a good match for you or not.
One of the critical factors to assess the risk of an investment is the loan to value ratio. They will provide you with this data. The higher this ratio, the riskier the investment is because there is little equity in the property. As a result, in case of default, the lenders (you and the groups of lender funding the mortgage) may find it challenging to sell the property for enough money to recover your funds.
Depending on what type of mortgage you want to participate in, the mortgage company might have to qualify you as an investor.
Profund will assess your financial standing, risk tolerance, and objectives to make sure you align with the project you want to invest in. If you don’t meet their assessment criteria, you can only put up to 60 thousand and for 12 months.
You will have a lawyer to represent you at no cost to you. At this stage, you have to sign all the paperwork that the lawyer will prepare for you.
After all the legal aspects have been sorted out, it’s time to deposit the funds on the lawyer Trust account.
Now is time to enjoy your truly effortless passive income. You should expect two kinds of profit from these investments; one is the interest rates that it is usually between 8 to 16 percent. And the other one is the lender’s fee, which is a fee paid at the end of the lending term.
When the lending term ends, you can decide to reinvest if the borrower asks for an extension or can get your money back.
How to get money to generate passive income if you don’t have cash on hand.
If you think you don’t have any money, just think again!.
Leverage is one of the most potent strategies if you want to build wealth or create different sources of passive income. Do not overestimate it.
For example, assuming you have a line of credit or have equity sitting in your house, you can use it to generate passive income through private lending.
Lines of credit have a little interest. In the following graphic, you can see how the prime rates of Canada have behaved over time. The Prime Rate along with the target overnight rate is the base of the interest rate that banks apply to their lending products.
For instance, if you participate in a syndicated mortgage with a total annual return of 15 percent. Let’s say you have a line of credit with a 7 percent interest. If you use the funds from the line of credit, you still make 8 percent of return on a money you don’t own. Isn’t that great!!
Pros and cons of private lending.
The most significant advantages I see you can benefit from mortgage investing are:
You can participate in big lending projects without having a massive amount of cash, as a result, you benefit from the high returns private lending offers.
The risk associated with this investment is relatively low since you are registered in the title of the property or properties. In the case of defaults, you can get your money back once everything is sold.
You don’t have to be an expert in real estate or have any experience at all. You have the best experts working for you to make sure each project succeeds without any setbacks.
Enjoy truly effortlessly passive income.
If you borrow money to invest, you can claim the interest you pay to generate income.
No closing cost or any other cost whatsoever.
On the other hand, the most significant disadvantages are:
Lack of liquidity, that is, your funds are locked until the end of the project. So be aware of this since you can’t withdraw your money until the preset term.
At the end of the term, you have to look for another investment project if the mortgage you invested in reached the end.
Profunds Mortgages review.
When I first discovered Profunds mortgages in 2015, I wish I had found someone giving their opinion on the company. To make it clear for you, I am writing this review to give you confidence and assurance that you are dealing with a trustworthy amazing company. Certainly, they will help you make passive income while you sleep.
And sleep, you will. No worries, At least in my experience, I never had a complaint, and they were transparent and quick to answer any of my questions. And I asked a lot!! At least all the beginning went I didn’t know what I was doing.
Things have changed a little bit now with the new regulation about being an accredited investor to qualify for certain mortgage investments. And that rule has slowed down some investors; however, you can still find great opportunities to invest within the group of companies Carmen Campagnaro runs.
To conclude, private mortgage lending can be a great vehicle to generate passive income from real estate. You don’t need to be an expert. However, anyone with cero experience to a seasoned investor can benefit from the fantastic returns.
You feel free to register with Profunds Mortgages to get direct access to their next investment opportunity. I have invested with them before, and I recommend them 100 percent.
Let me make a disclaimer. I don’t receive any commission nor any remuneration. I just want to share with you something fantastic I discovered once by chance. As a result, I was able to make the downpayment for my second house.