Dallas attorney Joey Messina has a side business some might find surprising: He uses his own money to make mortgage loans to people who banks likely would avoid.
"I can't drive by and look at those [stocks and bonds]," says Mr. Messina, who is 35 years old. Plus, he says, investing in residential real estate earns "passive income that doesn't require much work from me."
He isn't alone. Across the nation, a number of mom-and-pop investors are pulling money out of their retirement accounts and safe, but low-yielding, savings to take on the risk of becoming "hard-money" mortgage lenders, who charge high interest rates to borrowers who have been rejected by traditional banks.
For example, I know of an investor who buys time-share condo's in Florida at bargain prices and then rents them on a weekly basis at top dollar to Snow Birds and sun-seeking tourists during the Winter months. He makes a much better return than just leaving his cash in money market accounts.
Hard-money mortgage lending represents just a tiny slice of the mortgage market, although the activity is growing rapidly. Guy D. Cecala, publisher of trade publication Inside Mortgage Finance, estimates hard-money loans will account for about 1% of the 5.5 million mortgages expected to be originated this year. But he says activity in that sector is up sharply from a few years ago, when very few hard-money loans were originated.
Source: The Wall Street Journal, July 21, 2011