In this article we will be discussing why investing in private mortgage REITs has become such a popular alternative investment. In recent years, many investors have been exploring this option for a variety of reasons. We will break down the key factors that make a private mortgage REITs an attractive investment choice, including the potential for higher returns, consistent monthly income, the security of real estate, liquidity, the ability to use retirement funds, and the 20% qualified business income tax deduction.
The Potential to Earn Higher returns
One of the primary reasons investors are increasingly drawn to private mortgage REITs is the potential for higher returns, especially in an environment of rising interest rates. As central banks raise interest rates to combat inflation, investors often seek alternatives that offer higher returns to traditional fixed-income investments. Private mortgage REITs can provide these higher yields while still maintaining a level of security.
Earning Consistent Monthly Income
In addition to the potential for higher returns, private mortgage REITs also offer consistent monthly income. When you invest in this asset class, you typically receive monthly or quarterly dividend payments. This steady income stream can be a reliable source of passive cash flow, providing financial stability.
Security of Real Estate
Real estate, whether single family or multi-family, is historically known for its stability and the security it provides. When you invest in private mortgage REITs, the REIT (Real Estate Investment Trust) has a secured interest in a tangible asset, which is the property itself. In the event of a loan default, the REIT has a claim on the property, offering an added layer of security compared to some other investments.
Investing directly in real estate can be a great investment for cashflow. However, investing in real estate is illiquid and requires property and tenant management. Investing in private mortgage REITs, on the other hand, can be a much more passive investment and is more liquid. Another advantage of the private mortgage fund is that investors can start with a smaller investment when compared with investing directly in real estate, and you have more flexibility to add to your investment as additional funds become available. When it comes to liquidating your investment, withdrawing funds from a mortgage fund is easier than selling a real estate asset.
Ability to Use Retirement Funds
Another advantage of investing in private mortgage REITs is the ability to use retirement funds for these investments. Some investors choose to use self-directed IRAs (Individual Retirement Account) or 401(k)s to invest in private mortgage REITs, allowing them to grow their retirement savings while enjoying the benefits of consistent income and potential tax advantages. Additionally, larger brokerages such as Charles Schwab and Fidelity Investments have begun to offer private mortgage REITs within their alternative investment programs due to increasing demand from high-net-worth clients.
In conclusion, investing in private mortgage REITs has gained popularity due to its potential for higher returns in a rising interest rate environment, consistent monthly income, the security of real estate assets, improved liquidity compared to traditional real estate ownership, the option to use retirement funds for investment, and the potential tax benefits through the 20% QBI deduction. However, it is important to note that like any investment, private mortgage REITs carry their own set of risks, and it is crucial to conduct thorough due diligence and seek advice from financial professionals before making any investment decisions.
Brock VandenBerg is the President of TaliMar Financial and Fund Manager of TaliMar Income Fund I. Mr. VandenBerg started investing in individual trust deeds in 2008, providing capital to real estate investors taking advantage on the housing crisis. He soon brought in outside investors to share in this lucrative opportunity to earn above market returns. After funding over $375 million in short-term loans and attracting over 500 investors, Mr. VandenBerg launched TaliMar Income Fund I in 2021 to offer investors a much more efficient way to invest in individual trust deeds. Currently, TaliMar Income Fund I invests on behalf of over 220 individual investors with over $60 million in assets under management.