The Mortgage Industry for Investors
Even if you don’t want a home loan, the mortgage
industry may still be of interest to you. For savvy
investors, owning a piece of this huge market may be
a wise strategy. It’s not necessary to make mortgages
yourself to profit from them; many investors invest
in Real Estate Investment Trusts (REITs), which are
publicly-traded companies that own mortgages and other
real estate investments. Stock in a REIT can be easily
bought and sold on the public stock exchange. Because
a REIT is a pass-through entity, or a company that is
allowed to pass on profits to investors without corporate
taxation, it often delivers an attractive return on
investment. Currently, over 300 publicly-traded REITs
exist in the United States, with total assets of over
REITs offer some advantages over traditional stock
purchases, since unlike other stocks, they all pay dividends.
In addition, they do tend to yield a better-than-average
return when compared with various stock indices.
Investors may also choose to purchase stock in non-REIT
mortgage companies. The two most common investment vehicles
are holdings in Fannie Mae and Freddie Mac, the two
quasi-public companies that dominate the secondary mortgage
market, and are publicly traded on the NYSE as FNM and
Some more adventurous investors choose to take a more
direct approach, buying distressed properties, repairing
them, and then selling them to sub-prime buyers directly,
rather than through a bank—a strategy that comes
with high risks, but also potentially high rewards.
Often done in blighted areas in need of redevelopment,
this strategy places the investor, rather than the mortgage
company, in the role of note-holder, with the buyer
making payments directly to the investor.