Investing

Private mortgages - good investment?

  • Last Updated:
  • Sep 22nd, 2017 7:19 pm
[OP]
Deal Fanatic
Feb 1, 2006
9524 posts
656 upvotes
Muskoka

Private mortgages - good investment?

Anyone here holding private mortgages? Looks like a decent way to get a higher return than HISA's, without too much risk, but maybe I don't know enough about them. I assume you will likely be a second position mortgage behind a conventional mortgage, and that you will get a higher return than a standard mortgage rate, to compensate for the added risk.

As long as the owner has enough equity to cover drops in housing market, risk should be minimal, as default would mean foreclosure, and the first and second lenders would be paid out.

Anyone know more info?

Disclosure - I am about to be holding a short term private mortgage for a friend on a house I just sold, but downpayment was 50% on it, and I am in first position (only lender). It got me thinking about getting a higher return on my money in future (I gave him a near bank loan rate). I realize there is no free lunch, higher reward must mean higher risk.
15 replies
Deal Addict
Jul 27, 2017
1870 posts
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GTA
"A friend"... can you deal with that in the event something goes off the rails?

Nothing wrong with private mortgage investments. In the case of your friend, just make sure it's all done proper through a lawyer

At the rate of return %? is similar to what your friend would get from a mortgage lender/bank/, so is it worth doing?

There are alternative mortgage investments through mortgage investment corps that are listed on the TSX as well as private corporations yield in the 8% range.

google is your friend. Look under MICs or Mortgage investment corporations

disclaimer: we have held first as well as second mortgages in the past with zero issues.
Deal Addict
Dec 3, 2014
1240 posts
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Ontario
Terrible investment. With rapidly dropping home prices, foreclosure and a low selling price by auction the chartered banks will take their money and you'll be left with zero.
Deal Expert
Aug 2, 2001
15842 posts
6015 upvotes
When I did this I took part in a Mortgage Investment Corporation. You invested in a pool of mortgages to spread your risk and this particular company had three pools: first mortgages, second mortgages, combo of first/second mortgages. Here is the company that I had previously invested with:
http://www.carecanacorp.com/products-ma ... vest-funds

I had invested when the return was 6-10% (depending on fund). Looking now the return looks much, much lower. I am almost doubting my calculations as I swear I am seeing results of 2.x% for 2016 in the first mortgage fund. So I am assuming my math is wrong.

Here is a breakdown they offer to give more detail on it:
http://www.carecanacorp.com/images/docu ... riesA1.pdf

This may be a better offer compared to investing in individual mortgages because loses are more easily absorbed with owning 10 mortgages versus 1.
[OP]
Deal Fanatic
Feb 1, 2006
9524 posts
656 upvotes
Muskoka
porticoman wrote:
Sep 20th, 2017 5:10 pm
"A friend"... can you deal with that in the event something goes off the rails?

Nothing wrong with private mortgage investments. In the case of your friend, just make sure it's all done proper through a lawyer

At the rate of return %? is similar to what your friend would get from a mortgage lender/bank/, so is it worth doing?

There are alternative mortgage investments through mortgage investment corps that are listed on the TSX as well as private corporations yield in the 8% range.

google is your friend. Look under MICs or Mortgage investment corporations

disclaimer: we have held first as well as second mortgages in the past with zero issues.
With 50% down, not too worried about repayment. Definitely we both have lawyers.
[OP]
Deal Fanatic
Feb 1, 2006
9524 posts
656 upvotes
Muskoka
TrevorK wrote:
Sep 20th, 2017 10:09 pm
When I did this I took part in a Mortgage Investment Corporation. You invested in a pool of mortgages to spread your risk and this particular company had three pools: first mortgages, second mortgages, combo of first/second mortgages. Here is the company that I had previously invested with:
http://www.carecanacorp.com/products-ma ... vest-funds

I had invested when the return was 6-10% (depending on fund). Looking now the return looks much, much lower. I am almost doubting my calculations as I swear I am seeing results of 2.x% for 2016 in the first mortgage fund. So I am assuming my math is wrong.

Here is a breakdown they offer to give more detail on it:
http://www.carecanacorp.com/images/docu ... riesA1.pdf

This may be a better offer compared to investing in individual mortgages because loses are more easily absorbed with owning 10 mortgages versus 1.
Thanks! I remember you posting about this years ago. Have to look into this more, would need at least 5-6% to make it worthwhile.
Deal Addict
Jan 20, 2016
2023 posts
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Houston, TX
Bullseye wrote:
Sep 21st, 2017 4:44 am
Thanks! I remember you posting about this years ago. Have to look into this more, would need at least 5-6% to make it worthwhile.
damn, TD has 10% CAGR, 4% yield with 10x less risk than private lenders, bunch of stocks have 6+% yield and still less risk. I could understand chasing 10+% yield and risk associated, but 5-6% and private lending through a friend...a recipe for disaster
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Deal Addict
Aug 27, 2009
1294 posts
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Oakville
With a completely private mortgage like the OP is considering there's the possibility that the lender may not declare the interest as income. Without paying taxes the effective rate of return can essentially double if in a 50% marginal tax bracket.
[OP]
Deal Fanatic
Feb 1, 2006
9524 posts
656 upvotes
Muskoka
asa1973 wrote:
Sep 21st, 2017 9:38 am
damn, TD has 10% CAGR, 4% yield with 10x less risk than private lenders, bunch of stocks have 6+% yield and still less risk. I could understand chasing 10+% yield and risk associated, but 5-6% and private lending through a friend...a recipe for disaster
I hold plenty of bank stocks. Too much, probably. Trying to diversify and get a higher safe income stream. Private mortgages seem pretty safe, as long as there is enough skin in the game by the buyer.
Deal Expert
Aug 2, 2001
15842 posts
6015 upvotes
Bullseye wrote:
Sep 21st, 2017 4:44 am
Thanks! I remember you posting about this years ago. Have to look into this more, would need at least 5-6% to make it worthwhile.
When I invested with Carevest I think they had a pool of 20-30 mortgages in each fund which gave me the peace of mind that if one collapsed it wouldn't hurt much. I think the challenge now is how low interest rates are - while they typically finance those that cannot get financed through traditional means, their interest rates are not pawn shop interest rates.

I have not looked at them - but there are some mortgage investment corporations that trade on the TSX. Here is an example (I make zero claim it's good or bad): https://finance.google.ca/finance?q=TSE:TMC and https://finance.google.ca/finance?q=TSE ... jAGqhZ-gCg

This is why I think I'm reading Carevests distributions wrong - both these companies claim distributions around 8%. I would have thought Carevest would be much closer to them than my calculation of 2.x% (I'm still convinced I am wrong - that's way too low).
Deal Addict
Jul 27, 2017
1870 posts
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GTA
TrevorK wrote:
Sep 21st, 2017 10:23 pm


This is why I think I'm reading Carevests distributions wrong - both these companies claim distributions around 8%. I would have thought Carevest would be much closer to them than my calculation of 2.x% (I'm still convinced I am wrong - that's way too low).
I also checked Carevests website to look at the funds. Seems 2.5% - 3% to be the average return?

http://www.carecanacorp.com/products-ma ... d-mic-fund

There was a review done on them earlier this year

https://www.alexisassadi.net/2017/03/02 ... enior-mic/

The two MICs that I looked at on the TSX are FN & MKP
Deal Addict
Jul 27, 2017
1870 posts
721 upvotes
GTA
For information purposes only an article on 20 MIC's

https://www.alexisassadi.net/2015/09/08 ... in-canada/

I opened up the Vanguard MIC (thinking it was the Vanguard ETF folks) to see what it was offering

average 8% return YOY, makes you wonder how many of the private as well as TSX listed MICs achieve these returns

http://vanguardinvestment.ca/index.php

http://vanguardinvestment.ca/investors/
Deal Addict
Jan 20, 2016
2023 posts
993 upvotes
Houston, TX
NASDAQ:NYMT
Div/yield 0.20/13.01
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Deal Addict
Jul 27, 2017
1870 posts
721 upvotes
GTA
asa1973 wrote:
Sep 22nd, 2017 10:31 am
NASDAQ:NYMT
Div/yield 0.20/13.01
+1 that works, as does

http://etfdb.com/type/sector/real-estat ... age-reits/

https://www.fool.com/investing/2017/04/ ... reits.aspx

The MIC's trading on the TSX paying 8%, I still don't get how they do it especially after the HCG fiasco.

Don't know if anyone on RFD is into this type of investment?
Deal Addict
May 31, 2007
4996 posts
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asa1973 wrote:
Sep 21st, 2017 9:38 am
damn, TD has 10% CAGR, 4% yield with 10x less risk than private lenders, bunch of stocks have 6+% yield and still less risk. I could understand chasing 10+% yield and risk associated, but 5-6% and private lending through a friend...a recipe for disaster
Exactly. A good piece of advice I read once is if you don't need to take any more risk, don't.

If OP already has a lot in stock market + paid off home, I believe giving mortgage to a friend is risk you don't need to take.

Even just investing the proceeds in a balanced portfolio will give you stress free 'zen " no conflicts or hardships when your friend suddenly can't pay.

You know people go through hardships like disability, divorce, job loss, etc. You are now accepting all that. House is illiquid and foreclosure might take a long time and be very expensive.

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