Private Mortgage Pool Funds are a great way to manage risk, add diversification and current income to any RE portfolio. Investing in private RE funds gives the investor the opportunity to be exposed to RE and enjoy the benefits without being a developer, builder, landlord or operator of RE.
For investors who feel overwhelmed by all the choices, we recommend looking for the following key factors that distinguish great mortgage pool funds:
One of the benefits of investing in private lending funds is diversification. Diversification plays a huge role in considering investing in Private Lending Funds. Fund Managers have the capabilities to diversify loans by geographical areas, and asset types (Residential and Commercial) such as Single-Family, Multi-Family Townhomes, Garden Homes, Condominium, Retail, Light Industrial, Warehouses, Self-Storage, Apartments, and Commercial Plazas.
Diversification can lower risk when compared with only investing in a single asset. The effects of a poorly performing asset are muted by other better performing ones, and if the market for a specific asset-type tanks, the other asset classes may hold up better.
The difference between lending on a case-by-case basis (acting as a Hard Money Lender) vs investing in a private fund (mortgage pool) is simple: “Deal Flow”
Finding and evaluating loans takes time, and it requires a great source of networking to bring deals to the table in a constant manner. Private funds offer both; the current flow to get multiples deals at once, and the capabilities to underwrite them efficiently.
Also, some loans may require large amounts of capital investment for the individual investor. An example would be a large mixed-use ground-up development project. These investments typically require large equity contributions, but by participating in a fund, the accredited investor with $100-150K can also join those investments.
Another scenario where a fund structure makes sense is by making multiple investments at once, where risk is spread out over multiple asset-types and diverse locations. These types of investments are best accessed through private funds.
Besides laws and regulations, keeping records of payments may be time consuming. In the event of borrower default, the fund manager handles the entire workout process at each stage of the process; from default/foreclosure to the marketing and sale of the asset. Fund managers will hire an attorney to handle all legal matters and depending on the conditions of the asset, a general contractor might be retained. Property management, maintenance, insurance and marketing will be taken care of by the fund manager until the disposition of the asset has been satisfactory completed.