The general approach to buying a home involves heading to the bank/credit union and securing a mortgage. The amount varies from person to person unless they can outright purchase the property. For everyone else, a mortgage is necessary whether it’s a traditional residential property or a larger commercial asset. However, when regular lending institutions aren’t possible, it’s time to look into obtaining a loan through another source. Here in lovely Tampa Bay, one has to look at all resources when developing a strategy. So lets dig deeper into this subject.
This is one of my favorite sources and this is very common in Florida. The source is called a non-bank lender or a mortgage investment entity (MIE). It sounds fancy and complicated but it really is not.
What does a Mortgage Investment Entity do?
An MIE is responsible for offering mortgages through pooled funding from investors. The funds are passed onto eager loanees to help with their property purchase while investors making money off the interest. The MIE investor doesn’t own the property but simply receives a shared portion of the returning loan payments plus interest. It seems like the property value in Tampa is always going up, so with this choice in a real estate investors arsenal one can do more in the good o’ state of FL.
In general, all funding comes through the pooled investors’ money. It’s important to note borrowers that are unable to receive funding from traditional sources come to MIEs for loans. These loans are usually tagged at a higher interest rate due to the added risk profile. Most borrowers coming to MIEs are prepared to take on high-interest loans. The application process for these loans is not as rigorous as traditional sources making it an easier bet for property buyers.
MIEs can help fund different types of properties including townhouses, detached houses, condos, commercial properties (industrial buildings, retail stores) or land purchases. All income generated by the MIE comes through interest payments, renewal fees, financing fees, potential cancellation penalties, and other related charges.
The MIE is often managed by a certified specialist that is responsible for approving loan applications as they come in. This manager is also responsible for assessing risk and understanding how the portfolio of assets has to be managed as funding comes in. This can include removing previous mortgages from the portfolio. For borrowers, all payments are made directly to the manager of an MIE along with potential fees that come with the process. Investors are able to maintain a hands-off approach as the manager does everything.
Investors are able to get into the world of MIEs through a listed security (shares/limited partnership/trust units).
Please note, all value associated with the MIE comes from the number of borrowers and potential income.
The MIE comes along with a number of expenses but successful ones are able to cover it with interest payments. Additional fees include management costs for the active manager.