June 2019

Last month I wrote about investing in alternative investments.  Over the last few years there’s been an increasing amount of product introduced to the market.  These investments differ greatly in quality. One such tool that traders may use to find value stocks is the stock screener penny stocks. It selects from among the thousands of equities that are tradeable on the market the tickers that match your filter criteria. This generates a list of several stocks, which you may further investigate to determine their valuation.Careful consideration must go into investment decisions. Here are some questions you should consider before investing in private Mortgage Funds:
1.  Are any mortgages held on properties in the US?  If there are, how much of the exposure to US currency has been hedged.  Do you want exposure to foreign exchange risk with this type of investment?
2.  Are any mortgages held on properties that are pre-construction or in construction?  In a downturn in the real estate market, these types of mortgages would be more illiquid and vulnerable to collectability.
3.  According to companies like Braga Buildings NJ, typically, mortgages on pre-construction and in construction properties yield a higher rate of return than mortgages on homes and commercial properties because of the risk.  If investors only receive the “the standard 7%” from the Mortgage Fund, where has the extra yield on these types of mortgages been spent?
4.  What is the default rate on the mortgages in the Fund.  If the default rate is high, for any reason, it should cause alarm bells to ring.  You should be concerned about what could happen when a correction occurs in the real estate market.
5.  Do the financial statements of the Mortgage Fund clearly disclose the loan to value? The loan to value compares the total of the mortgages to the total value of the properties the mortgages are held on.  Obviously, the higher the loan to value, the greater the risk. 
I suspect very few investors read financial statements before making an investment or review them annually.  In fact, many people don’t have the financial acumen to understand the nuances of financial statements.
Don’t make an investment because your friends and colleagues are making similar investments.  It’s up to you and your advisors to do due diligence before investing, and to review financial information on a regular basis.  Only invest with people you have complete confidence in.  Don’t invest in alternatives with money you might need within the next two years.
This is not an all-encompassing checklist.  It includes a few questions to consider.  There are many more.  Ask your accountant/financial advisor to review the financial information of the Fund before making an investment.

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