Mortgage Backed Securities.
- Thread starter Bindy25
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This is a complex topic but long and short...they can be a secure way to invest with a consistant return. Want to know how banks make a good portion of their profits? Mortgages!
Lots of land minds!! Be sure you understand foreclosures!
Best advice I can give is read Greg Habstritt's RRSP Secrets book. He goes into great detail on the subject. If you happen to be going to the Canadian Real Estate Magazine Investor Forum in Vancouver you will get a free copy of it.
Lots of land minds!! Be sure you understand foreclosures!
Best advice I can give is read Greg Habstritt's RRSP Secrets book. He goes into great detail on the subject. If you happen to be going to the Canadian Real Estate Magazine Investor Forum in Vancouver you will get a free copy of it.
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Not a bad idea .. in principle. However, like any business, it depends on the operator, and the loan-to-value, the class of assets, whether it is construction or existing asset, what position the mortgage is in (1st, 2nd, 3rd, ..).
I did two syndicated investments: one was paid out as promised with about a 12% annual return in about 2 years. On the second one I am now waiting for 3+ years on a $50,000 investment in a mortgage on 3 pieces of Kelowna land that were advertised as "65% LTV" and now the land value is around 50% .. so likely my mortgage will be cut down by 20% in addition to the lost time and interest that was meant to be 12%/year !
Proceed with caution. Analyze like any investment !
Feel free to read these two posts here on "guaranteed returns" and on mistakes to avoid investing in real estate syndications in general.
I did two syndicated investments: one was paid out as promised with about a 12% annual return in about 2 years. On the second one I am now waiting for 3+ years on a $50,000 investment in a mortgage on 3 pieces of Kelowna land that were advertised as "65% LTV" and now the land value is around 50% .. so likely my mortgage will be cut down by 20% in addition to the lost time and interest that was meant to be 12%/year !
Proceed with caution. Analyze like any investment !
Feel free to read these two posts here on "guaranteed returns" and on mistakes to avoid investing in real estate syndications in general.
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- 13,879
[quote user=wgraham]Want to know how banks make a good portion of their profits? Mortgages!
They borrow for free from your savings account or from bank of Canada at 1% and lend at 3.5% on average today .. and live nicely on that 2.5% to 3.5% spread over a few billion. The risk of capital loss is very low as the mortgages are at most 80% LTV or CMHC insured.
This is NOT the case with many MICs or syndicated mortgages, which are often on yet-to-be-constructed properties with a significant chance of total capital loss, sometimes in 2nd or even 3rd position behind 1st mortgages.
Consider return OF your money before you consider return ON your money !
They borrow for free from your savings account or from bank of Canada at 1% and lend at 3.5% on average today .. and live nicely on that 2.5% to 3.5% spread over a few billion. The risk of capital loss is very low as the mortgages are at most 80% LTV or CMHC insured.
This is NOT the case with many MICs or syndicated mortgages, which are often on yet-to-be-constructed properties with a significant chance of total capital loss, sometimes in 2nd or even 3rd position behind 1st mortgages.
Consider return OF your money before you consider return ON your money !
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Mortgages have been around since the beginning of civilization and people have done well with this type of investment.
A MIC is like a mutual fund of private mortgages. You will have someone in a suit taking his cut to manage the fund and do all the regulatory paper work. He is probably of the same breed of suit you deal with for your mutual funds.
A private mortgage is by definition is a loan the banks or larger institution has decided not to do. They may have a good reason for passing but often pass on good deals because the deal does not fit into their checklist of lending parameters. A portfolio of these projects will provide a nice return but the qualified folks who do these projects have gone quiet.
People call private mortgages risky. They are probably dealing with the household that have gotten in over their head and is looking for a 2nd mortgage at any cost. There are a lot of these deals around and money to be made in these properties but you need to be a shark.
There are good MIC's and funds that blow up. MIC's will typically specialize in a certain class of property. Make sure you understand the property type. The mortgages are funded with investor's money. The MIC may also have a line of credit to fund these mortgages. Funds using this form of leverage can be a little more volatile.
Other mortgage backed securities such as REIT's would be similar. MIC's don't have a lot of regulatory control. But your mortgage backed securities would have more of a published track record and perspectus.
Is this field you need to think, what if I or my fund needs to take over the project or property. Can it be sold quickly to get my money back or can they complete the project.
Alternatively you could put out the funds yourself on individual deals. Make sure you or the person presenting the deal to you has on the team:
- a proven track record in structuring private mortgages
- legal expertise to take over a property or project
- real estate or appraisal expertise to value a property for a quick sale in the current market
- ability to complete project if need be.
- ability to judge the intent of the borrower; as opposed to a phoney matrix of parameters
A MIC is like a mutual fund of private mortgages. You will have someone in a suit taking his cut to manage the fund and do all the regulatory paper work. He is probably of the same breed of suit you deal with for your mutual funds.
A private mortgage is by definition is a loan the banks or larger institution has decided not to do. They may have a good reason for passing but often pass on good deals because the deal does not fit into their checklist of lending parameters. A portfolio of these projects will provide a nice return but the qualified folks who do these projects have gone quiet.
People call private mortgages risky. They are probably dealing with the household that have gotten in over their head and is looking for a 2nd mortgage at any cost. There are a lot of these deals around and money to be made in these properties but you need to be a shark.
There are good MIC's and funds that blow up. MIC's will typically specialize in a certain class of property. Make sure you understand the property type. The mortgages are funded with investor's money. The MIC may also have a line of credit to fund these mortgages. Funds using this form of leverage can be a little more volatile.
Other mortgage backed securities such as REIT's would be similar. MIC's don't have a lot of regulatory control. But your mortgage backed securities would have more of a published track record and perspectus.
Is this field you need to think, what if I or my fund needs to take over the project or property. Can it be sold quickly to get my money back or can they complete the project.
Alternatively you could put out the funds yourself on individual deals. Make sure you or the person presenting the deal to you has on the team:
- a proven track record in structuring private mortgages
- legal expertise to take over a property or project
- real estate or appraisal expertise to value a property for a quick sale in the current market
- ability to complete project if need be.
- ability to judge the intent of the borrower; as opposed to a phoney matrix of parameters