It is often said in Private Lending that the property secures your principal and the borrower secures your interest.
Underwriting mortgages can only take your investments so far, after that you need to ensure that the mortgage performs to the level you expect and has been agreed to. I would explain this just like buying a used car, you can do all the due diligence up front, get inspections, buy a reliable brand and model, and get a good price; but, if that’s where you stop and you don’t do any maintenance, no repairs and no oil changes, you’re not going to have a very dependable vehicle.
To fully administer a private mortgage you will need to perform the following duties:
- Collect Payments
- Maintain Mortgage Records
- Issue Mortgage Statements & Cost Of Borrowing Disclosure Statements
- Negotiate Renewals
- Create an accurate & up to date Amortization Schedule
- Verify Condo Fees & Property Taxes Paid
- Develop an Arrears Management System (NSF’s & Lates)
- Have a Protocol for Loan Defaults (Foreclosure & Judicial Sale)
- Verify Property Conforms to Bylaws
- Communicate With the Borrower
- Check & Confirm Borrower Is Not Engaged In Illegal Activity
- Hold Records for 3 Years
- Ensure Property Insurance Is Current & Paid
- Charge & Collect Fees
All of these duties can be done by an experienced investor and lender, but they are time consuming and are exceptionally costly if you get them wrong. These mortgages are sometimes in the hundreds of thousands of dollars and even millions, the interest rates often exceed 10%. Investors expect and often rely on the those monthly returns. I have 8 years of past experience in mortgages and delivered an average of 10.6% return to investors in a previous position and that return period included a global pandemic.
If you want to know more about how DMS handles arrears, defaults and general mortgage administration; feel free to book a consultation.