Trent Dalrymple

An investment not mentioned often enough is Hard Money Notes, and I would suggest sticking with individual 1st Mortgage Notes secured by real estate (not a pool or fractionalized interest, I'll explain why another time).  Many Mortgage Note investors have been real estate investors in their past lives but are now looking for a more passive real estate investment, they still like real estate but no longer want to be a landlord or rehabber.   

Purchasing the right Mortgage Note is the trick.  Do you want high returns with a security feature such as an investment property?  If so, then Hard Money 1st Mortgage Notes are what you should consider.  You can find individual Notes as small as $15,000, $20,000 or $30,000 all the way to $100,000, $200,000 and up.  Where you buy Notes and who you deal with will usually determine how stress free your investment turns out but the amount of documentation you have on the borrower and property means everything. 

I suggest receiving the following information before you buy:

•1. A current appraisal for the subject property (check the comps and other details).

•2. The Note seller/lender should have personally seen the property, its interior and the neighborhood.

•3. The title policy that insures you have 1st position, avoid 2nd mortgage Notes. 

•4. A recent credit report on the borrower you really want be involved with this borrower?

•5. Income documentation to prove your borrower has enough income to make the monthly payments.

The best you can do is put all of this together and weigh the positives against the negatives but the appraisal is the most important component in my view.  Let's face it, if the credit crisis and the sub-prime meltdown are not a perfect example of what not to do, I don't know what is.  Don't lend too much, with too little equity protection, without good credit and no proof of income, it's as simple as that.  You can find short term Notes in 1st position that generate over 12% yearly returns and more.  These days you shouldn't be higher than 50% loan to value, not now anyway.  If the borrower fails to pay on the loan, you will have to foreclose.  If they let the insurance and/or taxes lapse you'll have to pay those expenses to protect your investment and if you lend through your Self-Directed IRA, all costs must be paid through your IRA.  In the end, the worst situation would be that you or your IRA now own a property that you can rent out or sell.  If you do your homework, 1st Mortgage Notes can be a lucrative investment to add to your self-directed IRA or your personal investment portfolio.  

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