Private Mortgage Investing Simplified
If you are looking for different ways to invest your money, the mortgage market is a place that more and more investors are considering. Amansad Financial has access to institutions with a number of clients who are looking for mortgage loans from creative sources, and we can also connect you with more secure mortgage-based investments if you are looking for a place for your money. (Investing in Mortgages)
We have quite a few clients in Canada who have enough cash on hand to make a 30 percent down payment on a property — or even higher — but lack the credit scores to get approval through conventional sources. Some of them are looking at properties that are listed at significantly less than their appraisal value, meaning that you can lend 70 percent of the purchase price to our client while only placing 50 percent LTV (loan-to-value) in the house. That gives you extra security in case the borrower ends up defaulting, because even if you have to foreclose and sell, you are much more likely to gain a solid profit in that instance.
Investing in real estate
Another way to invest in mortgages in Canada involves snapping up residential and commercial properties that are undervalued. You either pay for the property outright or get a mortgage on it yourself. Then, you either find new tenants or take over property management for the tenants who are there. If you have some money to put into property improvements, you can find tenants and then flip the property at a profit, getting your down payment back, satisfying the mortgage, and getting even more to boot. If you are the owner and want to write the paper for a purchaser, you can carry the loan. The risk, of course, is that the borrower defaults, and you have to carry out foreclosure proceedings on your own. However, if you find a solid borrower, you have a guaranteed revenue stream on a property that is going to end up working better than renting. A buyer is likely to treat your property much better than a renter, because he or she views it as property rather than a place to occupy.
The Arm’s Length Mortgage
A mortgage that you hold within your registered retirement investment account (RRSP) is called an “arm’s length mortgage.” There is also the Non-Arm’s Length Mortgage, which means you put your own RRSP funds to work to fund a property purchase for yourself or a relative. However, Amansad Financial has access to the financial institutions in Canada that permit you to fund the real estate purchase of someone you don’t know. The Arm’s Length Mortgage is particularly popular in Western Canada. Here’s how it works: you put your RRSP funds into somebody else’s property. This can be used for residential, commercial or industrial properties, as well as recreational property or vacant land. It can serve as the first, second or third mortgage. However, for it to be Arm’s Length, the borrower can’t be your spouse, any relative, or your in-laws. You lend to an investor who will pay you back in interest and principal at an agreed point in time. The mortgage gets registered against the property to give you security for your money. This is one of the most flexible strategies for using your RRSP money.
Funds in a mortgage investment corporation
This gives you significantly more security than investing in just one mortgage, because the mortgage investment corporation (MIC) takes your investment and diversifies it among an entire secured pool of mortgages. You can use these for a variety of investment accounts for investing in mortgages, including RRSPs, RRIFs, TFSAs and RESPs, according to the Income Tax Act. The profile for a typical MIC includes everything from development and commercial mortgages on new construction to second mortgages on residential properties. Before the MIC invests in any property, it goes through a thorough analysis. The LTV for an MIC loan generally won’t exceed 85 percent and is usually closer to 60 percent, giving the fund more security than a conventional loan, which ranges from 80 to even 100 percent of the loan. Investment returns generally fall between 6 and 12 percent, depending on the investment strategy and the type of the share.
No matter what strategy you want to use with Investing in Mortgages, the current market trends mean that mortgages are just going to continue to become more attractive vehicle.