Investing in individual mortgages may yield a higher return than investing in a fund. This is the preferred approach for very active investors who have deep knowledge of real estate investing. Each loan requires a great deal of analysis and due diligence on both the borrower and the property. Furthermore, when a loan pays off the money sits in cash until it can be redeployed. Investing in individual mortgages requires constant sourcing of deals so that when one loan pays off, the money can be reinvested quickly in another.
Investing in a professionally-managed fund is less time consuming and is often preferred by passive investors and those without deep real estate investment experience. A good fund manager will have the infrastructure and expertise to perform the requisite analysis and due diligence on the individual loans. An established fund manager will also be in a better position to source deals and ensure that money is continuously reinvested.
In either case, researching the “key person” who is creating the investment is very important‚ – In the case of an individual investment, that is the broker arranging the loan. In the case of a fund, it is the fund manager.
