Loan Investing

Remember when you gave your sister's son, Vinny, that $100 to start a paper route? Remember how you made Vinny repay the loan or lose his bike, the new one purchased specifically for the paper route? It's possible your interest in loan investing got started right there.

Many investors choose loan investing projects, which usually involve real estate. Loan investing is when individual investors financially secure third-party loans made by select financiers. The loans are secured with the mortgaged property and, often, these loans are known as private mortgage investment loans.

The two most common types of private mortgage investment are fractional and mortgage fund investments. Ownership, risk, and liquidity differ between these two types of loan investing.

The fractional investor plays the bigger role in the financed project. When fractional investing, there are a closed number of investors pooling resources to finance a specific project. Percentage of ownership, including risk, is determined by the number of pooled investors or by dollar amount invested.

Private mortgage loan investing, however, happens when many investors fund a lending institution, which divvies up the monies across the board as needed. Ownership and potential risk is valued in much the same manner as a share of stock where one investor's percentage of ownership and liability is the same as that of all other common investors.

As for liquidity, private mortgage investments are easier to buy and sell. There are often other investors waiting in line for a chance to purchase your investment position, again, quite similar to the way the stock market operates. On the other hand, the fractional investor cannot liquidate until a new, replacement, investor has been found to allow an uninterrupted flow of money into a specific project.