No. of Recommendations: 1
Mark,

Good points.

We are definitely not talking about A quality credit risk in such cases. There needs to be a higher rate of return as there could be a default.

Is the spread between 2% as a bank and 8% for a private mortgage more than compensating? If the LTV on the loan is low enough the equity in the property provides added protection or added profits in a foreclosure.

On the issue or early pay-off, if you are buying at a discount to par then an early payoff will increase the overall return rather then the risks CMO investors are taking (if they buy at par or above).

Side note: I buy and hold property for the long term gains. Hence I am comfortable with the risks of owning property and the potential market volatility. Property management is not fun so being the lender might have a good bit of the upside if the market goes flat or dips without the property management risks.

I have not bought notes before so no direct experience there.

John


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