How Liquid are Mortgage and Trust Deed Investments?
One of my favorite investments is residential mortgages and trust deeds. They are among the most passive investments available in the market today. In addition, unlike stocks and most other paper investments, they are backed by physical real properties.
But what if you need to sell them? Even though the average term of a mortgage in the U.S. is less than 7 years, life happens: career issues, financial issues, relationship issues, and health issues may suddenly pop up. Or you may decide to liquidate your mortgage to pursue other investments.
The good news there is a strong market for mortgages and trust deeds. Unlike a stock that is traded at a fixed price on an exchange, you have some degree of control in what price you are willing to accept when selling your note. That said, there are several factors that can affect the value of your mortgage or trust deed such as:
- History of payments
- Property type
- Down payment amount
- Equity available
- Interest rate on the promissory note
- Term-length of the promissory note
- Current market interest rates
- Supply and demand of lenders
Depending on market conditions and factors noted above, you may or may not be able to sell it for more than the principal balance of the mortgage or trust deed.
When selling your mortgage or trust deed, it’s important to work with a reputable broker that has deep experience handling private lending transactions. The property associated with the mortgage or trust deed can be appraised and inspected and the broker can help you determine the fair market value of your mortgage or trust deed.