Private mortgages are loans from an individual or company, rather than borrowing from a bank or other financial provider.
(Over 10 years)
(Over 10 years)
(Over 10 years)
This chart shows the impact of compounding - actual returns will be different. We've assumed the market interest rates will go up by an average of 5.5% respectively. We used real estate fund data from both FTSE NAREIT Real Estate Equity REITs and NCREIF total returns. All data is as of December 2018. Investing in real estate is considered risky and historical performance of real estate return data should not be considered as a guarantee for future performance.
Private lending, otherwise known as mortgage investing or mortgage lending, is an investment vehicle for those looking for passive, fixed returns that are backed by real estate. The money you invest is used as a loan to borrowers who aren’t able to obtain a mortgage from traditional lenders, like banks or credit unions.
The investments are typically done through specialized financing businesses, such as mortgage investment corporations, or MICs, which are companies designed specifically for private lending. Most MIC loans include residential mortgages (such as single family homes and condominiums), commercial mortgages (such as office buildings, healthcare facilities, and retail properties), and land mortgages (such as for new developments).
By owning shares of a MIC, you are investing in a company that manages a diversified and secured pool of mortgages. You would receive your income from any interest rates or fees charged to the borrower. This could include a fixed interest rate, financing fees, mortgage renewals, cancellation penalties, and other fees which would act as your cash flow bonuses.
Most private lending opportunities are not traded on a public exchange, like the Toronto Stock Exchange, and are sold to investors through MICs or investment banks. These are generally riskier investments since they are difficult to immediately value, so you must meet certain eligibility requirements prior to investing.
Real estate investing is risky, there is never a guarantee, and can result in the loss of invested capital.
Every company that manages a private lending fund makes bets on the right people for the long-term. The most common factors that guide their strategy are based on:
A strong private lending fund always starts with a seasoned management team with decades of mortgage investment experience.
The Type of Mortgage
First Mortgage is a mortgage registered in priority on the property. Second Mortgage is a mortgage registered in second priority on the property behind an existing first mortgage.
The Type of Lending
Individual Lending is an investment where a borrower is looking for first or second mortgage financing. Project Lending is an investment that is used towards larger-scale new developments.
Private lending funds are vetted through a rigorous due diligence review with a team of experts, including assessments of real estate properties, financial underwriting details, and the execution strategy.
All relevant due diligence materials and legal documents are sent to interested investors – who must make their own informed decisions. Companies will collect your funds and start your investment term.
How can you start?
Do your research
Make sure that you meet the eligibility requirements. You can read more here.
Pick a Lender you like
Review the prospectus, terms, and contact the company that you believe will succeed.
Invest a small amount
Plan to diversify, which means investing in small amounts to lower your overall portfolio risk.
Play the long game
Receive updates and enjoy passive returns until the completed term or re-invest.