Private Mortgage Funds are great for Investors seeking Real Estate exposure. Private Funds investments move independently from Stocks and Bonds and have consistent and predictable income. Private Mortgage Funds make loans to seasoned real estate investors such as developers, builders, managers, operators, and landlords.




The loans are secured by real estate and those are referred to as “hard money” loans or “bridge loans”. Unlike most Banks, which primarily rely on the creditworthiness of the borrower, Private Money Lenders mainly consider the value of the underlying property.




Timing plays a huge roll when investing in Real Estate, and RE Investors prefer using Private Funds over traditional Financial Institutions because of their ability to fund their loans in few days rather than months.




Interest rates on Private Mortgage Funds vary by lender. In general, interest rates on Private Money are higher than on conventional financial institutions, typically ranging from 9.99% to 14.99%, depending on many factors but typically the asset-class (Commercial, Industrial, Multifamily, Self-Storage, etc.), and the loan-type (Refi, Cas-Out, Construction, etc.).




The higher interest rates earned by Private Lending Funds translate into attractive risk-adjusted returns for Fund Investors. However, Private Funds are different, for example, some might focus on specific regions and some others on property types. The differences between Private Funds can impact risk and returns so it’s important that investors do their due diligence. Here are a few of the key factors that Private Lending Funds may differ:






	
Geographic areas


	
Property type and lien position


	
Underwriting Criteria


	
Redemptions / Liquidity


	
Management Team


	
Reporting


	
Fund Structure 


	
Default Rate


	
Leverage


	
Fee Structure


	
Waterfall Distributions


	
Alignment


	
Preferred Return


	
Deal Size


	
Technology


	
Yield vs Preferred Rate 






When deciding investing on a mortgage fund, it’s important to look at the Fund and how it’s performed over the last years, however it is more important to evaluate the experience of the Manger of the Fund. It can be tempting to get tunnel vision and focus only on funds that brought stellar returns in recent years, but Managers plays a huge role while analyzing performance and risks. 




Savvy Investors run a process to select the best Private Lending Funds. They focus on the character and resources of the Manager, and not on Past Performance.




Make sure you select a Fund Manager (not a Fund) who have the character, and capabilities to overcome situations during a market shift. Managers must have a strong strategy for those days, seasoned asset management team, risk-management policies and procedures, a full understanding of the market their serve as well as clear competitive advantages.




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