How to "Be Your Own Bank" (B.Y.O.B)
By being your own bank you can not only do well when things are good but you can do even better when they are not. How?
By doing the opposite of how banks lend. Instead of overextending, you only lend a small amount relative to the true value of a property. This one of the best way to protect and grow your wealth.
During the last recession, nothing really affected this group. The property didn't suddenly burst into flames. The borrowers still had to live somewhere and the payments were affordable. For the few borrowers that did default, the lender wasn't affected since they still had equity in the home to protect their investment.
In fact, private lenders made a killing during the last recession. They were able to purchase properties for pennies on the dollar and then sell the property with seller financing (like land contracts) for much more.
Why invest in this space? If your investments can be affected by a tweet then you may not be as secure financially as you once thought. Investing in low balance mortgages can be one of the safest forms of investing. Especially, if your investment is secured by high valued real estate.
Currently, during the peak real estate boom cycle, we find existing loan opportunities to purchase. These loans include private lender loans and land contracts(CFD's) that were created during the last recession.
What we do differently is we acquire the loan secured by properties that have already appreciated, by focusing on loans that began in 2010 to 2014. The balance of these loans is very low compared to the properties current value.
The below graph demonstrates our plan.
These loans can be the safest investment during uncertain times since they have the largest amount of equity. In mortgage terms we are talking about the Loan to Value (LTV). Currently, the loans we have purchased on average are below 50% (LTV).
As the below illustration demonstrates, the lower the loan amount compared to the value the less risk to the lender and more value to the borrower.
courtesy of Home Equity Solutions
We invest in this space because we want to build a strong retirement that is immune to Wall Street and volatile market cycles.
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