You may have heard the term “Participating Mortgage” lately in conferences on real estate investment opportunities...but what, exactly, is a participating mortgage? And, more importantly, is it a good investment?
Participating mortgages have become more popular lately as investors who are frustrated by historically low returns in savings accounts and money markets, but who are unwilling to risk their funds in a very volatile stock market, look for secure investment opportunities that pay more than 1-2% annually.
As with traditional mortgages, an investor in participating mortgages lends money for the purchase of a home and receives, in exchange, a security interest (mortgage lien registered on title) for a specific real estate property, along with regular monthly payments at a given interest rate. The original investment is returned to the investor at the end of the loan term or upon the sale of the property. A participating mortgage, however, provides a greater benefit to the investor because it recognizes that the value of the real estate securing the mortgage loan may have increased over time. With a participating mortgage, when a property is sold, not only is the original capital paid back to the investor, but a portion of the profits realized from the increased value of the real estate as well. This profit sharing aspect, allows investors to capitalize on the appreciation of real estate without the responsibilities of finding a property, managing tenants, paying bills and maintaining the property.
Whether or not these investments are profitable depends almost entirely on whether or not the property securing the participating mortgage is acquired responsibly and at a reasonable price. Real estate investments in general have received a lot of bad press in the wake of the housing market decline, but the truth is that real estate remains one of the safest, most consistently returning long term investments available.
The key elements of participating mortgages are safety of capital, fixed monthly income, and profit sharing. If you think that participating mortgages might be a good fit for your investment portfolio, or are just interested in learning more about how they work, please feel free to contact me directly. I specialize in Las Vegas real estate investments and utilize participating mortgages for some of my investor clients.
Glenn Plantone
Wynn Realty
(702) 656-3264
gsplantone@gmail.com
www.glennplantone.com or www.vegasforeclosures.blogspot.com
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