Investing in banks and companies that specialize in real estate finance is not recommended in this day and age. As the mortgage collapse and financial crisis have shown, there is too much fraud going on in the industry and it is difficult to know which real estate finance investment is backed by real assets and which is just a piece of paper.
If you're an investor looking for a high return on your next real estate finance investment, consider cutting out the middleman and doing the research and due diligence yourself. You can achieve that by buying real estate notes from home sellers at a discount, and either keeping them until maturity or reselling them at a profit.
What is a real estate note? When a home buyer can't come up with the full purchase price for his new home, the seller can offer to accept a note for the difference. This means that the buyer promises to pay the amount -- plus interest -- to the seller either in installments or in full after a certain period of time. Home sellers often need cash quickly so you can approach them and offer them your services. Tell them that you are a real estate finance investment specialist and that you're interested in buying their real estate notes.
But wait! Before you actually buy a note, you must do some research on the person that issued the note, i.e. the home buyer. Do they actually exist? What is their credit rating? Have they defaulted on a loan before? Have they burdened themselves with a lot of debt?
You can take some risks if the return you'll make is correspondingly high, but for the most part you should play it safe and only buy notes that have a high probability of being paid back. If you lose too much money you might not be able to make another real estate finance investment.
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