“An investor who is looking for cashflow is best suited [for investing in private mortgages]; I have owned rentals in New Zealand and the United States and I’m currently selling off my portfolio to invest more in private mortgages,” Michael Anger, an investor and sales and sales and marketing manager with Paramount Equity Financial Corporation, told Canadian Real Estate Wealth. “As an investor, myself, I have had both private mortgages and rentals; they make a good combination strategy. You can use equity you’ve earned to beef up your rental portfolio.”
Anger started as a stock market investor, but desired an investment he had more control over. So he purchased his first rental property.
His agent put him in touch with her husband, a mortgage broker, who suggested investing in private mortgages.
“He said ‘don’t invest in real estate by owning it; invest in real estate by lending against it,’” Anger said. “You get the cashflow from lending the money … it definitely seemed a lot easier than owning a house and managing it.”
There are many ways to invest in mortgages, but Anger suggests working with a brokerage that has a mortgage administration division.
“It’s much safer that way because you leave the underwriting to a brokerage that has experience in doing so,” Anger said. “Some of my earliest mistakes in private lending were related to lending against the wrong types of properties, lending to the wrong borrowers; and you have to go through expensive processes to get your money.”
Anger says returns in the realm of 10-12% are common but, like any investment, there are risks.
“As with any investment, the investor should educate themselves first and not just dive in; talk to people who are already doing it, find out what the real pitfalls can be,” he said. “And work with someone who is already a private mortgage investor.”
“Do your due diligence, just like any other investment.”
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Real estate investors looking to maximize cashflow may want to look outside the rental market and consider investing in private mortgages, according to one veteran.