Why Mortgage Investing Should Be Part of Your Portfolio

Real estate has been a proven investment for thousands of years, and it’s easy to understand why: it’s the ultimate security, lending against and backed by a physical piece of property, and delivering steady income when done properly. While there’s nothing wrong with having some of your funds in the stock market, you’re essentially backed by a piece of paper and a company’s future promises. As anyone who owned stocks in the early 2000s or 2007–08 knows, there are ever-present risks of volatility—especially with many experts expecting a pullback from record highs. Worse yet, handing your money over to “the experts” offers no guarantee of coming out ahead of the game: Over the last 15 years, 92.2% of large-cap mutual funds did worse than a basic S&P 500 index fund. If you think CDs offer a better, safer option, you need to consider that you’re actually losing against inflation with current rates around 2%.


So, let’s discuss a few of the different ways to invest in real estate:

  • Buy shares in a real investment trust (REIT). There are a variety of options as far as the types of real estate you can invest in, and REITs are traded much like stocks, and are therefore quite liquid. However, they suffer from the same downsides as stocks—the yields are variable, and the underlying securities can turn south quickly, as we saw with retail REITs earlier this year.
  • Buy investment properties. Purchasing real estate is the easy part. Being a landlord is the hard part: Securing and losing tenants, midnight calls about broken pipes and HVAC units, property damage, and more. Moreover, there’s no guarantee of price appreciation when it comes time to sell.
  • Invest in mortgages yourself. While it sounds appealing, this can be very dangerous, if you don’t have professionals handling the details such as hazard insurance, proper title insurance, credit underwriting, and negotiating the deal. And that’s not even considering the legal implications of privately lending money.
  • Invest with a mortgage investment company. Working with a professional firm offers the best of all worlds. You get a predictable interest rate, not a flexible one, and monthly payments. (Depending on the specific deal, rates can be as high as 11%) There are opportunities to invest in the types of properties that appeal to you most, whether single-family or multifamily homes, or commercial real estate. But, most important, you have professionals doing the due diligence on the property itself as well as the borrower.


That’s a basic look at the lay of the land in mortgage investing. In upcoming articles, we’ll dig deeper into the topics of why mortgages are a safe option, as well as why 11% returns aren’t too good to be true.

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