A lot of people ask me what do I do for money and how I became financially stress free. I always respond a lot of coffee and losing all my hair… But seriously, to get right to the point a large part of my portfolio is vested in mortgages. Whether it is a first or second mortgage your investment capital is tied to real property which is bias towards me as I am a real estate broker. But lets take a look at my personal theory on risk and return to understand my philosophy on investing.
Risk vs return has always been relative meaning that more risk should equal more reward. So theoretically if I am receiving a 10 percent return the risk on losing my money is equal to the return on investment. Now how do I beat the system and receive more return than risk? My answer to this question is reducing risk by hedging with knowledge about the investment and doing due diligence. This theory can be applied to any investment where you have more inside knowledge about the nature of what you are investing in. Lets take this into perspective with the mortgage investments.
My risk in mortgages is default situation if a client doesn’t pay their mortgage payment. I hedge against this to reduce risk by several factors:
- Being a realtor, I do not rely merely on appraisals from companies about valuation on homes. I have access to the MLS so I can do my own analysis on the market value of the home that needs the mortgage and access how long it would take to sell the home if in default.
- I make sure there is enough equity in the home if things go should go south, the equity in the home to pay my original investment and my fees for selling.
- The amount of the mortgage is not beyond my capability of supporting it while in the power of sale process should it happen.
- The term on investment which is usually one year so my money is not locked in for an excessive amount of time.
Now after all these factors that I have over the average investor in these types of investments and also that I can dictate the interest that I charge on my capital that I am lending I have a superior mathematical advantage and feel secure in the investment even with hundreds of thousands. It doesn’t mean it is a sure thing but I have the advantage of the house, much like the casino! And I am sure you’ve heard the maxim, “The house always wins in the end!” Contact us NOW to find out how to become the house and have the odds in YOUR favor!!