Private mortgage investors should expect that a significant portion of borrowers will pay late, and the way lenders handle that reality can make or break the investment experience, according to industry executives.
H. Jack Miller, President and CEO of Gelt Financial LLC, says that in a typical private lending portfolio, about 10% of borrowers are habitually late on payments. This is not a signal of impending default, but a structural characteristic of the asset class. “About 10% of our borrowers are slow pay,” Miller said. “That doesn’t mean they’re in foreclosure – they just may always pay late. That’s just their personalities.”
The distinction is crucial for investors. An investor who expects every payment on time will interpret a late payment as a red flag, potentially leading to panic or poor decisions. An investor who understands that late payments are normal and priced into the loan structure can respond calmly, especially when the collateral backing the loan is strong.
Miller emphasizes that slow pay is manageable because Gelt Financial uses conservative loan-to-value ratios. The firm’s maximum LTV is 65%, but effective valuations bring the average closer to 50-52%. This means that even if a borrower stops paying entirely, the investor is positioned to recover principal through foreclosure or property sale, though it may take time. “Because our LTV is lower than 65, they’re going to wait to the end. They’re going to be paid very handsomely for it,” Miller said.
Miller is also candid about which investors should avoid private lending altogether. If an investor needs monthly interest income to cover living expenses, the asset class is a poor fit. “If you need the interest to live on, forget it. Don’t invest with us. We’re not the right fit,” Miller said. “Because if a borrower stops paying, it may take six months or a year before we get the money.”
This kind of upfront screening is uncommon in a market where platforms often focus on growing their investor base. Miller argues that mismatched investors create operational and reputational problems that outweigh the benefits of additional capital. His current investor base of about 130 active investors, built through referrals, skews toward IT professionals, retired fund managers, and real estate investors – people with financial sophistication and diversified income sources.
To manage investor anxiety, Gelt Financial provides real-time transparency rather than reassurance. Investors have 24/7 portal access to loan documents, borrower payment status, and closing materials. When a borrower misses a payment, investors are notified the same day. When a loan pays off, capital is distributed immediately. “As soon as it happens, they’re getting notified. God forbid a borrower dies, property burns down – they’re getting notified pretty much the same day or instantly,” Miller said.
This transparency contrasts with what Miller sees at competitors. “Their competitors don’t make the paperwork available to them. They don’t return their calls when there’s a problem. They return their calls when there’s good news, but when there’s a problem, everyone disappears or suddenly you’re playing phone tag,” he said.
Consistency in operations is another trust signal. Gelt Financial has followed the same routine for about 20 years: distributions on the 20th of each month, with investors receiving funds on the 21st. “The fact that it’s been done this way for 20 years, that the 20th of the month, the money goes out, they get it on the 21st – it’s very reassuring,” Miller said.
Miller also shares the firm’s worst periods with prospective investors, including taking back over 200 properties during the Great Recession. He says investors respond better to disclosed risk than to discovered risk. “I go out of my way to tell them the bad stuff,” Miller said.
For investors evaluating private lending platforms, the critical questions are not about advertised returns. They are about what happens when a borrower stops paying: how quickly the investor is notified, what documentation is accessible, and whether distributions follow a predictable schedule. Choosing a lender that prioritizes transparency can make the difference between a manageable inconvenience and a financial crisis.
