Personal Finance

Mortgage investment opportunities - Overheard real-estate agents

  • Last Updated:
  • Jan 14th, 2019 3:25 pm
[OP]
Sr. Member
Nov 9, 2017
567 posts
55 upvotes

Mortgage investment opportunities - Overheard real-estate agents

I once over-heard a "big shot" real-estate agent with "exclusive condo" deals talking to his partner about investing to provide mortgage to people in a group with ROI of 8% or so...apparently, the agent thought it's better to invest than to buy himself "speaking of the irony".
Anyhow, also looking at data one probably can't find more than 3-5% ROI on real-estate when considering a 10-year investment.

So, my question is what are the criteria for such lending practices?
I think he was talking about private mortgage.

- What are the risks?
- How easily or hardly is the cash available once invested?
- Where can one find these groups or opportunities?
- What is involved in doing this sort of deal alone? (i.e. someone lends $200,000.00) - is it more risky than being in a group?
- What are the costs when someone goes belly up and house has to be possessed?
21 replies
Deal Addict
Dec 18, 2006
1946 posts
351 upvotes
Markham
It makes sense from an ROI perspective to make a guaranteed 8-10% on it via being a private lender, vs. solely investing in RE - as doesn't matter the market, you'll always make money. I know several mortgage agents & fellow RE agents that do the same thing. Heck, Harold the Jewellery buyer does it as well.

With regards to ROI on RE - for anyone that has invested between 2008-2012 - the ROI has been more like 30-50%, not 3-5%, depending on the area and how early the property was purchased.

I don't see the "irony" in it. He has the money to run a lending business, most people don't.

Regarding the terms and conditions of the loans, it depends on each different lender. The equity/collateral required for the loan, penalties etc can vary significantly.
Jay Rana, Sales Representative
CENTURY 21 Titans Realty Inc. Brokerage
@RE4L.ca - Real Estate 4 Less
*Cash Back For Referrals & Purchases (conditions apply)*
Sr. Member
Jun 3, 2006
656 posts
52 upvotes
Markham
What you're asking about is a mortgage investment corporation (MIC). I'm somewhat familiar with the concept and will try to answer your questions...
What are the risks?
The risks will depend on the creditworthiness of the borrowers, the types of properties that the MIC will lend for, and the operations of the MIC. The returns will be commensurate with the level of risk. For example, some MICs will focus on people with poor credit, so they may charge the borrower 12-15% interest. These MICs will pay a higher ROI.
How easily or hardly is the cash available once invested?
They will often ask you to lock in your funds for a period of time. Similar to a GIC where returns are guaranteed as long as you're still invested.
Where can one find these groups or opportunities?
You can probably do a search for them online. I can refer you to one that I know if you're interested.
What is involved in doing this sort of deal alone? (i.e. someone lends $200,000.00) - is it more risky than being in a group?
Investing in a MIC actually puts you into a group. Hence, the risk on a property is spread out over many different people, depending on the size of the MIC.
What are the costs when someone goes belly up and house has to be possessed?
I'm not entirely sure on this one. My guess is that, depending on the priority of the MIC's mortgage vs any other mortgages on a property, the MIC will try to recover their money through a power of sale.
Deal Addict
Jan 15, 2017
2552 posts
1877 upvotes
Sounds to me to be a syndicated mortgage and not a MIC. A MIC is a corporation whose business is mortgage lending that raises its capital from shareholders, just as other corporations.

A syndicated mortgage is when one or more people invest in one mortgage. A simple search of FSCO and syndicated mortgages will yield numerous results of the risks and legality of these mortgages. Search Fortress Real Developments for more heavy reading on syndicated mortgages.
[OP]
Sr. Member
Nov 9, 2017
567 posts
55 upvotes
SW20 MR2 wrote:
Jan 11th, 2019 9:19 pm
What you're asking about is a mortgage investment corporation (MIC). I'm somewhat familiar with the concept and will try to answer your questions...



The risks will depend on the creditworthiness of the borrowers, the types of properties that the MIC will lend for, and the operations of the MIC. The returns will be commensurate with the level of risk. For example, some MICs will focus on people with poor credit, so they may charge the borrower 12-15% interest. These MICs will pay a higher ROI.



They will often ask you to lock in your funds for a period of time. Similar to a GIC where returns are guaranteed as long as you're still invested.



You can probably do a search for them online. I can refer you to one that I know if you're interested.



Investing in a MIC actually puts you into a group. Hence, the risk on a property is spread out over many different people, depending on the size of the MIC.



I'm not entirely sure on this one. My guess is that, depending on the priority of the MIC's mortgage vs any other mortgages on a property, the MIC will try to recover their money through a power of sale.
Thanks for the details.

- What is the difference between MIC (non-registered) and (registered)? Is there is a registered one even?
- One of the MICs I looked up on google has an investment and operating policy of: Target loan to value ratio under 75% - What does this mean?
- Other than spreading risk across multiple investments (which makes sense) what are the other risks of running your own MIC? Is the paperwork / management that is expensive or finding mortgage brokers to borrow from you is hard?
- Do MICs insure their investment against bankruptcies of clients? or in general this sort of insurance is not available or not viable due to high costs?
[OP]
Sr. Member
Nov 9, 2017
567 posts
55 upvotes
y2jversion1 wrote:
Jan 11th, 2019 8:18 pm
With regards to ROI on RE - for anyone that has invested between 2008-2012 - the ROI has been more like 30-50%, not 3-5%, depending on the area and how early the property was purchased.
30%-50% annually you mean over 10 years? If it's over 10 years then it is the same 3%-5% per year that I said. If not, can you backup what you said by linking to research?
Deal Addict
Dec 18, 2006
1946 posts
351 upvotes
Markham
snowhite445 wrote:
Jan 11th, 2019 11:12 pm
30%-50% annually you mean over 10 years? If it's over 10 years then it is the same 3%-5% per year that I said. If not, can you backup what you said by linking to research?
I have not mentioned the word annually anywhere in my post and when you spoke about RE returns, you spoke over a 10yr term - which is the same as what I had done. I don't see the term "annual" in your post regarding RE.

Your original post:
snowhite445 wrote:
Jan 11th, 2019 5:24 pm
I once over-heard a "big shot" real-estate agent with "exclusive condo" deals talking to his partner about investing to provide mortgage to people in a group with ROI of 8% or so...apparently, the agent thought it's better to invest than to buy himself "speaking of the irony".
Anyhow, also looking at data one probably can't find more than 3-5% ROI on real-estate when considering a 10-year investment.

So, my question is what are the criteria for such lending practices?
I think he was talking about private mortgage.

- What are the risks?
- How easily or hardly is the cash available once invested?
- Where can one find these groups or opportunities?
- What is involved in doing this sort of deal alone? (i.e. someone lends $200,000.00) - is it more risky than being in a group?
- What are the costs when someone goes belly up and house has to be possessed?
Jay Rana, Sales Representative
CENTURY 21 Titans Realty Inc. Brokerage
@RE4L.ca - Real Estate 4 Less
*Cash Back For Referrals & Purchases (conditions apply)*
Member
User avatar
Jul 25, 2015
392 posts
159 upvotes
Burnaby, BC
Whatever you do with your Investment, make sure to hire a lawyer to oversee it. Also a securities check towards the person behind the Investment it's highly recommended in your case.
[OP]
Sr. Member
Nov 9, 2017
567 posts
55 upvotes
skeet50 wrote:
Jan 11th, 2019 10:04 pm
Sounds to me to be a syndicated mortgage and not a MIC. A MIC is a corporation whose business is mortgage lending that raises its capital from shareholders, just as other corporations.

A syndicated mortgage is when one or more people invest in one mortgage. A simple search of FSCO and syndicated mortgages will yield numerous results of the risks and legality of these mortgages. Search Fortress Real Developments for more heavy reading on syndicated mortgages.
MICs, I understand, are scrutinized more (must be audited annually) I am assuming that Syndicated mortgage (which may not have a mandate to audit at all)? If you know the major and/or detailed differences, can you please lay them out? To me they both seem to answer my question but the beast seems to lie in risk and I am assuming that syndicated mortgage pays less since it's a smaller MIC with less power?!
Deal Addict
Jan 15, 2017
2552 posts
1877 upvotes
snowhite445 wrote:
Jan 11th, 2019 11:41 pm
MICs, I understand, are scrutinized more (must be audited annually) I am assuming that Syndicated mortgage (which may not have a mandate to audit at all)? If you know the major and/or detailed differences, can you please lay them out? To me they both seem to answer my question but the beast seems to lie in risk and I am assuming that syndicated mortgage pays less since it's a smaller MIC with less power?!
A MIC is basically the organizational structure of a mortgage lender. It's a mortgage lender that is making multiple mortgages to multiple home owners. It is in the mortgage lending business. As a mortgage lender, a MIC is free to set its own lending criteria. Many MICs are local entities so they specialize in the local market. This, of course, is a double edge sword in that while on the one hand they become quite knowledgeable on the local lending market, and downturn in the local economy or market can leave the MIC heavily exposed. In the mortgage industry, MICs are generally referred to as "B" lenders, with "A" lenders being the major banks and larger mortgage monolines.

Your statement, "...investing to provide mortgage to people in a group..." is what indicates to me that this is a syndicated mortgage. With a MIC, investors buy shares in the company and the money is pooled to conduct mortgage lending to multiple individuals. Investors own company stock, not household mortgages. With a Syndicated Mortgage, investors pool their money to buy a mortgage, which is the same as providing one mortgage to people in a group.
Jr. Member
Aug 27, 2018
172 posts
162 upvotes
y2jversion1 wrote:
Jan 11th, 2019 8:18 pm
It makes sense from an ROI perspective to make a guaranteed 8-10% on it via being a private lender, vs. solely investing in RE - as doesn't matter the market, you'll always make money. I know several mortgage agents & fellow RE agents that do the same thing.

Jay R
CENTURY 21 Titans Realty Inc. Brokerage
RE4L - Real Estate 4 Less
Do you actually work for this company? Aren't you worried about people taking you seriously?
Member
Jun 6, 2016
361 posts
248 upvotes
Scarborough, ONT
snowhite445 wrote:
Jan 11th, 2019 5:24 pm
I think he was talking about private mortgage.

- What are the risks?
- How easily or hardly is the cash available once invested?
- Where can one find these groups or opportunities?
- What is involved in doing this sort of deal alone? (i.e. someone lends $200,000.00) - is it more risky than being in a group?
- What are the costs when someone goes belly up and house has to be possessed?
Former Realtor here. You're correct, he's talking about private mortgages - My old boss used to do this all the time. He also preferred it over buying / selling houses, because if you're careful, the returns were basically guaranteed vs playing the real estate market, and with the amount of free cash he had, 10% return was amazing and making him very wealthy.
Mortgage brokers constantly deal with people who need access to money - Maybe they want a HELOC but the bank won't give it to them, maybe the bank won't give them quite enough to buy the house they want, maybe they they own a house but have bad credit and the bank won't give them money, etc.
The mortgage broker will look at their situation, why they need the money, etc., and if the situation doesn't look too risky, someone can extend them a private second mortgage, usually at 8-12% depending on circumstances, risk, etc.
To answer your questions: The money is usually invested for a defined period (1 year, 2 years, etc.), and it's not accessible during that time. Ask a mortgage broker where to find these groups. Yes it's less risky technically to be in a group, because risk is spread over multiple borrowers vs 1, BUT, whoever is organizing the group (mortgage broker maybe) will take a cut so you're making less. The costs of repossessing a house are minimal, however this is rare. Private lenders are like banks, they work with the person to make the payments / work something out, they're not in the repo business. And the risks? Risk occurs when the person goes bankrupt AND the market goes down during the lending period. In this situation, the bank gets their money before you do... If the market went down enough that the house is underwater, the bank gets what they can, and you're basically screwed. Also, the process of someone going bankrupt / a house is repossessed is LONG. If this happens, your money could be tied up for months or years, and you just have to wait until everything is sorted out.
I would exercise caution if looking into this investment, and really research the process / risks. Yes the returns can be great, but there are obviously risks. If there was no risk, people would be lined up around the block to do this @ 8-12% returns. You must REALLY trust the mortgage broker who hooks these deals up, as they are essentially vetting people for you when the bank said no, and the bank said no for a reason. A rooky mortgage broker could @%#$ everything up and you lose everything. Also keep in mind, the mortgage brokers keep the juiciest opportunities (lowest risk) for themselves, friends / family and their real estate buddy friends. You not being in the industry, and seeking out these groups, means you're already being handed a riskier group of borrowers than they are.
As Warren Buffet says, never invest in something you don't understand... This applies double when considering private mortgages as investments.
EDIT: Re-read my post and realized I said private "mortgages". We're talking about private second mortgages - Lending to people who already have existing mortgages, hence the higher risk / higher ROI as the bank still has first rights to the house in case things go bad.
[OP]
Sr. Member
Nov 9, 2017
567 posts
55 upvotes
Alex383 wrote:
Jan 12th, 2019 12:19 pm
Former Realtor here. You're correct, he's talking about private mortgages - My old boss used to do this all the time. He also preferred it over buying / selling houses, because if you're careful, the returns were basically guaranteed vs playing the real estate market, and with the amount of free cash he had, 10% return was amazing and making him very wealthy.
Mortgage brokers constantly deal with people who need access to money - Maybe they want a HELOC but the bank won't give it to them, maybe the bank won't give them quite enough to buy the house they want, maybe they they own a house but have bad credit and the bank won't give them money, etc.
The mortgage broker will look at their situation, why they need the money, etc., and if the situation doesn't look too risky, someone can extend them a private second mortgage, usually at 8-12% depending on circumstances, risk, etc.
To answer your questions: The money is usually invested for a defined period (1 year, 2 years, etc.), and it's not accessible during that time. Ask a mortgage broker where to find these groups. Yes it's less risky technically to be in a group, because risk is spread over multiple borrowers vs 1, BUT, whoever is organizing the group (mortgage broker maybe) will take a cut so you're making less. The costs of repossessing a house are minimal, however this is rare. Private lenders are like banks, they work with the person to make the payments / work something out, they're not in the repo business. And the risks? Risk occurs when the person goes bankrupt AND the market goes down during the lending period. In this situation, the bank gets their money before you do... If the market went down enough that the house is underwater, the bank gets what they can, and you're basically screwed. Also, the process of someone going bankrupt / a house is repossessed is LONG. If this happens, your money could be tied up for months or years, and you just have to wait until everything is sorted out.
I would exercise caution if looking into this investment, and really research the process / risks. Yes the returns can be great, but there are obviously risks. If there was no risk, people would be lined up around the block to do this @ 8-12% returns. You must REALLY trust the mortgage broker who hooks these deals up, as they are essentially vetting people for you when the bank said no, and the bank said no for a reason. A rooky mortgage broker could @%#$ everything up and you lose everything. Also keep in mind, the mortgage brokers keep the juiciest opportunities (lowest risk) for themselves, friends / family and their real estate buddy friends. You not being in the industry, and seeking out these groups, means you're already being handed a riskier group of borrowers than they are.
As Warren Buffet says, never invest in something you don't understand... This applies double when considering private mortgages as investments.
EDIT: Re-read my post and realized I said private "mortgages". We're talking about private second mortgages - Lending to people who already have existing mortgages, hence the higher risk / higher ROI as the bank still has first rights to the house in case things go bad.
Thanks for the detailed post.
Given this could be a risky investment, what are reasonable loan to value ratio one should consider if they were offered an opportunity?

Let's the house value is $800,000.00 and owner wants $300,000.00 as second mortgage to renovate (gut it out) and has $200,000.00 equity in the house. Given these numbers, would it be sound to give $300,000.00 at let's say 8%?
AND if the guy goes belly up what what is the likely number that comes out of this when the bank takes control and sells it? (I am assuming I will not have a say whatsoever in this and bank will do all the work and will sell to highest bidder they find and then take their $600,000.00 and give me the remaining which maybe $100,000.00 or whatever...).

In this case, the worst scenario is that the owner goes belly up right away with my $300,000.00 without the renovation. Which brings me to do people provide second mortgage like a progress pay? or upfront as one shot to whoever asks? If the latte is correct then they must not be giving loans to a property that has very low equity?!
[OP]
Sr. Member
Nov 9, 2017
567 posts
55 upvotes
Alex383 wrote:
Jan 12th, 2019 12:19 pm
Former Realtor here. You're correct, he's talking about private mortgages - My old boss used to do this all the time. He also preferred it over buying / selling houses, because if you're careful, the returns were basically guaranteed vs playing the real estate market, and with the amount of free cash he had, 10% return was amazing and making him very wealthy.
Mortgage brokers constantly deal with people who need access to money - Maybe they want a HELOC but the bank won't give it to them, maybe the bank won't give them quite enough to buy the house they want, maybe they they own a house but have bad credit and the bank won't give them money, etc.
The mortgage broker will look at their situation, why they need the money, etc., and if the situation doesn't look too risky, someone can extend them a private second mortgage, usually at 8-12% depending on circumstances, risk, etc.
To answer your questions: The money is usually invested for a defined period (1 year, 2 years, etc.), and it's not accessible during that time. Ask a mortgage broker where to find these groups. Yes it's less risky technically to be in a group, because risk is spread over multiple borrowers vs 1, BUT, whoever is organizing the group (mortgage broker maybe) will take a cut so you're making less. The costs of repossessing a house are minimal, however this is rare. Private lenders are like banks, they work with the person to make the payments / work something out, they're not in the repo business. And the risks? Risk occurs when the person goes bankrupt AND the market goes down during the lending period. In this situation, the bank gets their money before you do... If the market went down enough that the house is underwater, the bank gets what they can, and you're basically screwed. Also, the process of someone going bankrupt / a house is repossessed is LONG. If this happens, your money could be tied up for months or years, and you just have to wait until everything is sorted out.
I would exercise caution if looking into this investment, and really research the process / risks. Yes the returns can be great, but there are obviously risks. If there was no risk, people would be lined up around the block to do this @ 8-12% returns. You must REALLY trust the mortgage broker who hooks these deals up, as they are essentially vetting people for you when the bank said no, and the bank said no for a reason. A rooky mortgage broker could @%#$ everything up and you lose everything. Also keep in mind, the mortgage brokers keep the juiciest opportunities (lowest risk) for themselves, friends / family and their real estate buddy friends. You not being in the industry, and seeking out these groups, means you're already being handed a riskier group of borrowers than they are.
As Warren Buffet says, never invest in something you don't understand... This applies double when considering private mortgages as investments.
EDIT: Re-read my post and realized I said private "mortgages". We're talking about private second mortgages - Lending to people who already have existing mortgages, hence the higher risk / higher ROI as the bank still has first rights to the house in case things go bad.
Thanks for the detailed post.
Given this could be a risky investment, what are reasonable loan to value ratio one should consider if they were offered an opportunity?

Let's the house value is $800,000.00 and owner wants $300,000.00 as second mortgage to renovate (gut it out) and has $200,000.00 equity in the house. Given these numbers, would it be sound to give $300,000.00 at let's say 8%?
AND if the guy goes belly up what what is the likely number that comes out of this when the bank takes control and sells it? (I am assuming I will not have a say whatsoever in this and bank will do all the work and will sell to highest bidder they find and then take their $600,000.00 and give me the remaining which maybe $100,000.00 or whatever...).

In this case, the worst scenario is that the owner goes belly up right away with my $300,000.00 without the renovation. Which brings me to do people provide second mortgage like a progress pay? or upfront as one shot to whoever asks? If the latte is correct then they must not be giving loans to a property that has very low equity?!

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