Thinking about investing in Mortgages as a diversification in your investment pool?
Here are 11 questions you must ask before investing in a Mortgage:
Question #1 – Where are the mortgages?
Many investment opportunities exist in depressed markets or markets that have little life in them. You should be looking to invest in emerging markets where real estate prices are still less than the average across Canada.
Question #2 – What types of mortgages do you invest in?
Many mortgage investment opportunities are restricted to one narrow segment of the marketplace. For example, they may be restricted to retirement homes or commercial developments only. This does not provide a wide, stable portfolio.
Question #3 – Who pays the mortgage broker or lender’s fees?
For most mortgages, the lender pays the commission to the broker who puts together the deal. You should look to invest in mortgages where the borrower is paying all the broker’s fees.
Question #4 – Do you use leverage?
Leverage can greatly increase the rate of return on a mortgage investment when wisely applied. Some mortgage investors either have no leverage or do not share the advantages of leverage with the investor.
Question #5 – How much leverage do you have?
Lending too much money can greatly increase the risk of an investment pool. Should the real estate market take a dip, those that are highly leveraged (2 to 1 or more) may not be able to respond quickly enough to the changing marketplace.
Question #6 – How big is your pool of investments?
Here is where size is not necessarily an advantage. Should the marketplace change, a smaller pool of money can be quickly redeployed to other areas.
Question #7 – What is the length of the term you provide to borrowers?
Conventional mortgages can be locked in for up to 7 years and 5 year mortgages are quite common. When a mortgage is locked in for this long it can be quite difficult for the lender to adjust should the real estate market change. Look for a lender who only grants shorter term mortgages. One year terms are ideal.
Question #8 – How much equity do you require in the property?
This is another way of saying how much money must the owner put into the project. Big banks and other first-tier lenders will often lend up to 95% of the value of the property. You want a lender that will typically only go as high as 80% of the value of the property and in rare cases 85%.
Question #9 – What is the management fee?
You should expect to pay a reasonable management fee to have your portfolio professionally managed. Things that are free are generally worth what you pay for them.
Question #10-What is the experience and diversity of the people running the business?
You should make sure your money is looked after by someone with many years of experience in the mortgage business. This should be combined with expertise in the legal field and the financial industry.
Question #11 – What is the expected rate of return?
Make sure the figures quoted are net of all management fees. You should expect to see returns of 9% or greater on a Mortgage Investment for a second mortgage.
Networth Mortgage Group would like to offer you the opportunity to learn more about investing in mortgages. At no obligation to you, we make available to you our Offering Memorandum and other investment materials. You can do this in several different ways:
1. Talk to Jim directly and see what your options are.
2. Visit our website at http://www.NetworthMortgage.com
3. Send us an e-mail at info@NetworthMortgage.com and we will reply with information for you to consider.
4. Give us a phone call and we will either talk to you by telephone or arrange to meet with you directly.