Let’s imagine it’s three o’clock on a dark winter morning. You own a small residential triplex. Suddenly your phone rings; it’s one of your tenants calling to inform you that there’s been a leak from the apartment above and it’s pouring ice cold water down into their living room. Frantically getting up, you look up and call the number of a plumber with a 24-hour emergency line. As the phone rings, you begin to count up the damages in your head…
This is an all too plausible scenario many investment property owners can relate to at one point or another. Unquestionably, being an active real estate investor has many advantages and rewards however, it does entail an ongoing commitment from the property owner that comes with its headaches.
Now let’s imagine investing in real estate, but having zero responsibility for the day to day operations of being a landlord, property manager, renovator, etc. A cheque is literally being deposited into your bank account while you sleep. This sounds pretty great. If you are a busy individual that may not have the time or desire to participate in active real estate investing, or are considering some diversification to your existing portfolio, passive real estate investing may be a great alternative investment approach for you to consider. There are many types of passive real estate investing, but mortgage lending is one of the most desirable options among investors. Think of it as the closest way to invest in real estate, without actually owning the property yourself.
So, what exactly is mortgage lending? Well, it’s essentially “being the bank”. You (taking the position of the Bank), will lend your funds to another person (a borrower), and in return your investment will be secured on that borrower’s property as a mortgage. Not only do you have a real asset protecting your investment, but you will also earn a generous and predictable return for the period of time that your funds are invested.
How does this work? They key to a lucrative career in mortgage lending is finding a brokerage to work with that you can trust and build a long-term relationship with. Working with a brokerage that has a proven track record of facilitating mortgage investments is very important to averting risk.
Next, each mortgage investment is unique. It is imperative that you review all of the pertinent information regarding an investment opportunity, just as the Bank would review an application before they decide to lend to a borrower. You, as a lender, will review the property details, appraisal and information about the borrower such as their credit score, net worth and income. When you decide to invest in a mortgage, you will commit to lending your funds for a specified time period; typically, between 1-3 years. A lawyer will be responsible for managing the closing process, collecting the funds for the loan, and registering the mortgage on the property.
So, what are the benefits of mortgage lending? Well for starters, the returns! Typical mortgage lending rates for First Mortgages are 7%-10% per annum, where Second Mortgages often pay between 10-14% per annum. These returns are paid to investors on a monthly basis, so it is a great vehicle for those looking for cash flow! As also discussed, mortgage lending makes for a fantastic investment for those that have full time jobs or full time obligations and don’t have the time or energy to undertake active real estate ventures. Mortgage lending is passive, so you can invest and continue to go about your daily routine without the hassle or worry. And finally, another huge benefit to mortgage lending is the security of these investments! Having real property as your collateral, provides peace of mind to many investors that want to feel comfortable in their investment decisions!
To learn more about the benefits of passive mortgage lending, or how you can become a private mortgage lender, contact email@example.com