Investors seeking real estate exposure can benefit from mortgage pool funds because they are a low-risk investment that moves independently of stock and bonds and offer a predictable monthly income.
The real estate secures mortgage pool fund loans.
They have referred to as hard money because they are not like other bank loans that rely on the creditworthiness of the borrower, the value of the underlying property is being considered in hard money loans.
The hard money loan terms range from a few months to three years because they are shorter than most mortgages, whereas conventional mortgages have 10- to 30-year loan terms.
Hard money loans are less susceptible to being affected by interest rate swings because of their shorter terms, meaning it is a more predictable and reliable cash flow.
There is a range of mortgage pool funds, some of them focus on specific property types, while others are more general.
These differences can affect risk and return, so it is important to examine and study the different mortgage pools before jumping in.
When choosing which mortgage pool fund to invest in, things to consider are the geographic focus of the portfolio, property type and lien position, underwriting criteria, liquidity, and management experience.