Hi all
Has any one in the forum invested in 2nd mortgages? Or know of any one that has?
I have been offered to invest in providing second mortgages at 15-25% returns?? Sounds good in theory. Could finance further cash deposits for me.
I am interested in hearing any comments.
Regards Bear
Only thing I would be wary of is that you can potentially loose your entire investment.
Say the buyer defaults on the primary mortgage, the bank/lender holding this mortgage has the right to reposess the property and sell it to recoup it’s investment. Anything left over goes to the person holding the second mortgage. If nothing is left over you loose your money. At least that is how I understand it works.Likewise, should the buyer default on the secondary mortgage (with the higher interest rate), there is not much you can do legally to recoup your money (ie I don’t think you can reposess). Someone correct me if my understanding is wrong.
Guess higher return means higher risk.
Bear
As Eigentum writes higher the return higher the risk.
Whilst with a registered 2nd mortgage you do have the rights to execute your powers as mortgagee in possession in the event of default you will then have 2 choices”
1) Sell the property under your powers and repay the first mortgagee. You will get whats left.
2) Repay the first mortagee and become the prime mortgagee on the property. Whilst you might have slightly more security now this will still mean you have have arrears and will have to reschedule the loan over a longer term.
All in all is it worth the risk when you get similar returns in wrapping or adopting a buy & hold strategy.
Cheers Richard
[email protected]There is no such thing as a problem.
Just a solution waiting to be foundRichard Taylor | Australia's leading private lender
Id gladly give you 15% Bear1964, with a second mortgage as security[
] [email protected]The only way to make good money in 2nd mortgages is to buy & sell discounted paper. You can make quite a healthy living out of it. Buy discounted paper eliminates a lot of the risk associated with 2nd mortgages. Not really a strategy I would recommend for the beginner.
Thanks QLD’s007
Good advise u give, but I am in South Australia and wraps here are illegal. I’m thinking about investing interstate but to get a feel for it 1st mite be best staying local, don’t u think?
I’m just trying to come up with a way to get deposits instead of 100% of the value on the investment property being charged interest with equity on the family home for a deposit, that way its difficult to find a suitable +VE property.
I’m all ears for other suggestions. I am also considering selling up the family home, but having 4 kids and a stepson, and taking schooling into consideration etc it’s a hard decision to make.
Regards Bear
Hi insider,
I dont understand what you mean by “Buy discounted paper”
Could u please explain this term for me?
Regards Bear
[email protected]
The only way to make good money in 2nd mortgages is to buy & sell discounted paper. You can make quite a healthy living out of it. Buy discounted paper eliminates a lot of the risk associated with 2nd mortgages. Not really a strategy I would recommend for the beginner.Exmaple – We buy a 2nd Mortgage (paper) for $20K yielding 15% which is $3000.00 pa. Now lets say we managed to pick the note up for $5K?? We are now making $3K on $5K or 60% + we get paid a our balloon payment in 5 years of $20K which = 300%
We could alternatively sell the note for $15K to an investor which would bring the yield up to 20%. We make a quick 200% profit.
Now I ask you this. How many of these can go wrong and we still make money?? It is all about managing risk.
Hey Insider
Thanks for the explanation!
However i am none the wiser , keeping in mind this is a toatlly new world for me .LOL
I would love to learn more about what your speak of tho either on the forum or personally.
I can be contacted at [email protected]
Thanks again
Regards Bear
Hey Bear
One strategy I have learnt that maximises your cash, and lets you stay in the same house is this:
Sell your house to an investor, with a (say) 5 year lease, with options for yourself to have further leases – also giving you the ‘get out clauses’ but not the landlord. Find somebody who wants to negative gear – or just sell ‘with tenant’. Some people (including re agents) think that just because there is a tenant in place it is a great deal.
With the cash you get, you could even prepay a year’s worth of rent, and then invest the rest of the money so that it can earn you the next years worth of rent, and of course improve your position financially.
On the second mortgage investments, we’re actually looking at ones at the moment that give a 30% per annum return. We are doing serious amounts of due diligence, including getting adequate security to cover our capital. I think that’s the key in any investment like that. Make sure you know who you are dealing with, and that they have adequate assets to back up their guarantees outside of the project you are investing in.
Cheers
Mel“The rate of return will decide if you eat well or sleep well”
My brother has on his office wall
(1) Tzarist Russian rouble bond dated 1916
(2) Sun Yat Sen chinese loan bond 1942
(3) Kingdom of Romaina Bond 1938
(4) Australian Savings bond 1985ALL government guaranteed! Nowhere need second mortgage quality! They are government guaranteed!
Three of the four governments no longer honour the guarantee
At the risk of repaeting myself
“The rate of return will decide if you eat well or sleep well.”
Good luck with your second mortgages. Have you adequate sleeping pills?
Don’t need sleeping pills. As I said, it comes down to your research, and making sure that there are enough assets to back up the guarantee.
They are short term loans, and all other activities being undertaken by borrower are also considered in our research.I’ll go to sleep counting my money!
Cheers
MelI suppose you would not invest in 2nd mortgages through Macquarie Bank, not without sleeping pills anyway? You can get capital guarantees from companies like Lend Lease – do you think they’re going bust in a hurry?
We are doing the same research that they do, and in fact some of the people we are talking to also borrow from Macquarie, but get slugged up to 45-50% interest, so I guess our 30% is a bargain.Cheers
MelSaying 2nd mortgages are risky is stereotyping. Some are, some aren’t!
Take this into consideration:
The new 100% home loans with ST George and Pepper
How risky is this to the banks? Why are they doing this?Why do Stgoerge and many other lenders do 2nd mortgages?
Why did Liberty start off, doing 2nd mortgages and is now one of the biggest, if not the biggest, non-conforming lender in the market?
There are many other analogies, I could present, and it just comes down to: Research, research who you are investing in. Make sure there is adequate security, for example – take security over vehicles, if needed. Make sure your rate is worth the risk.
All in all, this type of investment, can be safer than the 1st mortgage, when you have added security/equity, and you receive a better rate. Also, these investments are generally only 12 month terms at IO, and with the current property markert, clients are refinancing in 6 months with investors rolling their funds over to another 2nd mortgage that suit their needs.
Hey insider
Thanks for the informative reply, I’ve heard of this sort of thing but never known where to find them… Do you have any sort of contact or website that specialises in this sort of thing?
I am interested in finding out more, because having a lot of money tied up in my properties can be a nuisance sometimes, and I’ve heard this type of thing suggested as a way to pull that equity out.Keep smiling
FelicityHi all!
I actually of a few people and a few developers who are doing 2nd mortgage lending or what they call mezzanine finance. It is very risky and if the person borrowing off you do not have any assets. You can lose all of your money.
What my friends did was they saw a solicitor that has a bit of knowledge about it and got a contract that if anything goes wrong they have a bight on the assets of the developer.
Very risky but can get great returns…
The higher rish the higher the profits!Cheers
Carlo10
Carlo10
Also, what they will do, is a joint venture with the developer and split profits accordingly. Not that risky when you know what’s going on and especially the developer.
] 
The topic ‘Investing in 2nd mortagages’ is closed to new replies.
