Mortgage investments are not liquid. In other words, you cannot decide you want your money back one day and quickly convert your investment into cash, as you could with a municipal bond or shares in a blue chip company. You need to be willing to stick with your investment until the borrower pays off the loan, or, in case of default, until you have foreclosed and sold the underlying property. With Mortgage investing there is little chance for capital appreciation. For the most part the only returns that the investor will be entitled to will come from interest income generated from the loan. Directly investing in mortgages requires that the investor identify borrowers, assess deals on their merit, and conduct due diligence on the borrower and the property. This all requires a particular knowledge set that the investor must be acquire. Mortgage investing is not without risk. A small flaw in the documentation or due diligence of a mortgage investment could mean that an otherwise very safe investment becomes very risky. For example, litigation or title problems could cause problems if the borrower or some other party can make a credible claim that your mortgage instruments are not valid, or that they have some interest in the underlying property that is equally or more valid, the mortgage investor might need to battle to protect the investment. Mortgage investing is not for the faint of heart. Amateurs need to take particular care, and seek guidance from trusted experienced investors. That being said, there are tens of millions of valid mortgages owned by banks as well as hundreds of thousands owned by private investors. Creating a valid mortgage and accompanying note is not rocket science. By investing in a mortgage most of the above risks are greatly reduced, because your money will be invested in a diversified pool of mortgages by professionals with substantial track record in this industry.
