Private mortgage lending offers accredited investors an alternative to volatile equities and low-yield fixed income, but it comes with a structural characteristic that many investors are not prepared for: late payments. According to H. Jack Miller, President and CEO of Gelt Financial LLC, roughly 10% of borrowers in a typical private lending portfolio are slow to pay at any given time. This is not a sign of impending default but a habitual pattern that investors need to understand before committing capital.
Miller argues that most investors entering the space are unprepared for this reality, and lenders who fail to communicate it upfront set their investors up for misplaced anxiety and poor decision-making. “About 10% of our borrowers are slow pay,” Miller says. “That doesn’t mean they’re in foreclosure – they just may always pay late. That’s just their personalities.” The distinction matters because an investor who expects consistent, on-time payments will interpret a late payment as a signal of impending loss, while an investor who understands the structural nature of slow pay will respond differently.
The cash flow interruption risk is real and should be disclosed clearly, but it is manageable when the underlying collateral is sound. Gelt Financial’s maximum loan-to-value (LTV) ratio is 65%, but Miller says conservative property valuations bring the effective average closer to 50-52%. At that level of collateral coverage, 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 says.
Miller is equally direct about which investors should not be in this asset class. If an investor needs monthly interest income to cover living expenses, private mortgage lending is the wrong fit. “If you need the interest to live on, forget it. Don’t invest with us. We’re not the right fit,” Miller says. “Because if a borrower stops paying, it may take six months or a year before we get the money.” This explicit screening is uncommon in a market where most platforms focus on growing their investor base. Mismatched investors create operational and reputational problems that outweigh the benefit of additional capital.
The investors Miller describes as well-suited are those with capital they can afford to leave deployed for an uncertain period – people who treat monthly distributions as supplemental income rather than primary income. His current investor base of approximately 130 active investors, built almost entirely through referrals, skews toward IT professionals, retired fund managers, and real estate investors.
Miller’s approach to managing investor anxiety centers on immediate information access rather than reassurance. Gelt Financial provides investors with 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 says. This transparency converts an anxiety-producing unknown into a manageable known.
Miller says investors who work with competitors report a consistent gap. “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 says.
Gelt Financial’s operational approach – same-day problem notification, monthly distribution on a fixed date (the 20th of each month, with investors receiving funds on the 21st), and full document access through a live portal – has been in place for approximately 20 years. The consistency of that routine is itself a trust signal. “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 says.
Miller also goes out of his way to walk new investors through the firm’s worst periods, including taking back over 200 properties during the Great Recession, because 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 says. For investors evaluating private lending platforms, the questions that matter most before committing capital are not about advertised returns but about what happens when a borrower stops paying: how quickly the investor is notified, what documentation they can access, and whether distributions follow a fixed schedule or arrive unpredictably.
