Thinking of investing in a private mortgage REIT?
In recent years, this type of investment has gained popularity as an alternative option to traditional stocks and bonds.
However, as with any investment, private mortgage REITs have risks and considerations.
Each investor considering this option is responsible for performing due diligence on a fund before committing—and that involves asking its manager the right questions.
In this guide, we share the top five questions investors should ask a fund manager before investing in a private mortgage REIT.
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1. What is the fund’s investment strategy?
Each fund will have a unique strategy that balances risk and reward differently.
For example, some may operate with a higher-risk, higher-reward strategy, while others may take a more conservative approach.
The fund’s investment strategy outlines how it:
- Distributes its resources
- Selects the investments
- Manages risk
- Generates returns
Often, funds will either focus on income, growth, or a mix of both:
- Income-focused: Perfect for investors who desire a steady, predictable cash flow
- Growth-focused: Ideal for investors who want more high-risk or opportunistic investments
- Hybrid approach: Balances regular income with capital appreciation
Investors must understand their goals and risk tolerance before committing to a fund.
Follow-up questions to ask
Based on the fund manager’s answers, you may want to follow up with a few more detailed questions, such as:
- How do you select your mortgage investments?
- What are the expected returns?
For example, Marquee Funding Group, via Marquee Capital Fund 1, invests in a wide array of mortgage products and property types throughout the U.S., with an 8% annualized rate of return.
Check out our recently funded deals here.2. How is risk managed within the fund?
Private mortgage REITs naturally come with risks associated with the real estate market, economic conditions, or borrower default.
A well-managed fund has strategies in place to minimize risk as much as possible, including:
- Diversification: The fund spreads its investments across different loans, locations, and borrower types to reduce exposure to any single market.
- Due diligence: Property conditions and the borrower’s ability to repay are thoroughly evaluated to minimize the risk of default.
Follow-up questions to ask
Even the best-managed funds can run into issues.
To zero in on how the fund manager handles these issues, ask them:
- How do you handle defaults?
- How do you prepare for economic challenges or market downturns?
The answers to these questions can help you make the most informed decision.
3. What are the fees and costs associated with the fund?
Similarly to other types of investment funds, private mortgage REITs may have management fees or performance fees.
Others may have setup or transaction fees.
Consider how the fund’s fees could impact your investment, and compare fee structures with other funds to determine the best option for you.
Accredited status and minimum investments
In addition to the fund’s fees, it’s important to understand what it takes to qualify.
For example, investors must be accredited to invest in Marquee Capital Fund 1.
Accredited investors at least one of the following:
- Over $1 million in net worth (excluding primary residence)
- More than $200,000 in earned income in the past two years ($300,000 if combined with a spouse or equivalent) and the ability to maintain that income
The minimum investment for the fund is $50,000.
Follow-up questions to ask
Comparing one fund’s fees to another is helpful, but you may also want to ask point-blank:
- Are there any hidden fees?
Don’t forget to evaluate fees within the context of the fund’s performance—some fees may be well worth it for the quality of the fund.
4. What is the fund’s track record?
Asking about the fund’s historical performance will offer investors key insights into how well it has been managed over time—and how it has weathered past market volatility.
When evaluating a fund historically, consider the following:
- How consistently it has delivered returns
- Performance during past financial or global crises
- Return relative to risk
- Fund size and how it has grown over time
Follow-up questions to ask
Don’t be afraid to ask for specific examples of past investments and their outcomes, as well as:
- What is the fund’s default rate?
5. How and when can I access my investment?
Due to the nature of the investment, private mortgage REITs are less liquid than other investments, such as publicly-traded REITs.
You may be unable to withdraw your investment for a certain period to ensure the fund has enough capital to continue making long-term investments.
That said, instead of asking when you can access your investment, you may want to ask about the fund’s overall exit strategy and how distributions work.
Follow-up questions to ask
There are several great follow-up questions to ask the fund manager after they answer this question, including:
- Are there penalties for withdrawing early?
- How frequently are distributions made?
These questions will help you gain clarity on how the fund operates and your options in any scenario.
To learn more about private mortgage REIT distributions, read: How Do I Receive Private Mortgage REIT Distributions?
Start investing in Marquee Capital Fund 1
Marquee Funding Group provides full-circle servicing and adheres to the highest auditing standards. It has the same level of duty of care and fiduciary responsibility as publicly traded funds.
Our Fund limits investor exposure through a proven approach, including:
- Prudent underwriting that looks for the full story and true valuations
- Scrutinizing loan applications for the quality of collateral, verification of title, and borrower financials
- Loans screened and underwritten by licensed professionals that emphasize principal and yield preservation
- Diversification via a pool of mortgage-backed securities
Ask Marquee Funding Group anything—we’re more than happy to have a conversation that answers all these Fund questions and more.
Ready to dive into the world of private mortgage REITs? Start here.