Investing

Capital Direct - Investing in Mortgages - 8.7% yield?

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  • Jan 9th, 2019 4:55 pm
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[OP]
Jr. Member
Jan 22, 2012
151 posts
75 upvotes
Vancouver

Capital Direct - Investing in Mortgages - 8.7% yield?

Has anyone had an experience investing with Capital Direct? Any feedback?

Apparently they have yielded 8.7% over the past 7 years for their investors. I am thinking about setting up a TFSA account with them with 10k and reinvesting the quarterly dividends as a "test."
14 replies
Newbie
May 11, 2007
46 posts
7 upvotes
Sounds like a Ponzi scheme. If I get a Mortgage, the rate is 3 to 4% so when somebody tells you your yield is 8.7%, I smell fish.
Deal Addict
Sep 6, 2010
1653 posts
392 upvotes
Vancouver
Ya I see those commercials and it doesn't pass the smell test.
Member
Apr 12, 2009
343 posts
38 upvotes
What they are doing is investing your money in mortgages. They probably lend on on 1st and 2nd mortgages to people who do not qualify for the 2-3% you get.

Sometimes it's the type of property, the credit or the income that is off. You would need to look at what their book loan to value and credit risk is.

Many mortgage investment corporations are getting that kind of return.
Jr. Member
Nov 19, 2015
120 posts
22 upvotes
I have a feeling they are leveraging investors' money. Typical commercial rates right now vary from 4-6.5% from what I can find (nearly impossible to find numbers). So if they are leveraging 2:1 I can see an 8.7% return.

For example, I own MCAN Mortgage Corporation (TSE:MKP), which loans out on many types of mortgages. Their return on equity is >11% and their current dividend yield is 9.39% at a 78% payout ratio.
[OP]
Jr. Member
Jan 22, 2012
151 posts
75 upvotes
Vancouver
Well I don't believe it's a scam. With peer to peer type loans and 2nd, 3rd mortgages interests rates are a lot higher. Far as they say all the mortgages they give out are secured by homes for people who have bad credit or already are too leveraged out for a typical bank. I think if you inquire about rates they can be 12-13% and with that they have room for defaults, a profit for themselves and what they pay you out.

More so just looking to see if anyone has invested with them and what their experience was like.
Deal Expert
Aug 2, 2001
15251 posts
5510 upvotes
balbas662 wrote:
Feb 19th, 2016 2:24 pm
Well I don't believe it's a scam. With peer to peer type loans and 2nd, 3rd mortgages interests rates are a lot higher. Far as they say all the mortgages they give out are secured by homes for people who have bad credit or already are too leveraged out for a typical bank. I think if you inquire about rates they can be 12-13% and with that they have room for defaults, a profit for themselves and what they pay you out.

More so just looking to see if anyone has invested with them and what their experience was like.
I have no experience with the company you were dealing with, however did deal with Carevest and their MIC fund. They would actually provide each investor a list of all the mortgages in your portfolio, whether it was first or second, and what the interest rate was. There was quite a big variance in the rates charged to each client. Therefore, I would inquire with them as to a listing of the mortgages that are included in your investment and what the details of each are (first or second, etc.).

Some of the mortgages Carevest would invest in were also pre-construction mortgages. To the best of my knowledge, these are typically at high rates even in today's environment.
Newbie
Jan 21, 2017
20 posts
Toronto, ON
thebigmacd wrote:
Feb 18th, 2016 8:07 pm
I have a feeling they are leveraging investors' money. Typical commercial rates right now vary from 4-6.5% from what I can find (nearly impossible to find numbers). So if they are leveraging 2:1 I can see an 8.7% return.

For example, I own MCAN Mortgage Corporation (TSE:MKP), which loans out on many types of mortgages. Their return on equity is >11% and their current dividend yield is 9.39% at a 78% payout ratio.
Are the distributions from TSE:MKP considered interest income or are they eligible dividends that are subject to a dividend gross up?
Jr. Member
Nov 19, 2015
120 posts
22 upvotes
phoenixstar wrote:
Feb 20th, 2016 4:31 pm
Are the distributions from TSE:MKP considered interest income or are they eligible dividends that are subject to a dividend gross up?
They are not eligible. I hold MKP in my TFSA.
Member
Jan 10, 2016
328 posts
42 upvotes
Markham, ON
I think those 8.7% distributions, not earnings. I am sure they are advertising it as tax efficient as well.
Newbie
Jan 8, 2019
1 posts
I wouldn’t trust Capital Direct in Mississauga.
I took out a second mortgage with them. About a month later they sold my mortgage to Sunningdale Investments in Etobicoke, ON.
Sunningdale Investments is basically one guy working out of his apartment. He’s very disorganized and very unprofessional in the look and wording of his correspondences. So much so that I thought that it was scam.
As well in the first month or so he charged me over $1,100 just in fees. He charges $165 to send one email.
So I actually owe more on the second mortgage now than when I took it out.
The only information that I got from Capital Direct about the transfer was a photocopy of the title. There wasn’t any letters or anything with Capital Directs letterhead.

Dave
Deal Fanatic
Jan 27, 2006
9538 posts
3506 upvotes
Vancouver, BC
g4dragon wrote:
Feb 18th, 2016 6:03 pm
Sounds like a Ponzi scheme. If I get a Mortgage, the rate is 3 to 4% so when somebody tells you your yield is 8.7%, I smell fish.
These types of firms don't have 'regular' mortgages... they do the equivalent to payroll loans but for housing instead of payroll (ie short term relatively high amounts using real estate instead of a paycheque). So, the rates that they charge is much higher than the standard 5 year.

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