History has proven that although real estate prices may have fluctuated from time to time, over the long-term real estate property has appreciated in value. The security for a mortgage is real estate property.
Private mortgages provide a regular income stream, tangible security, and a real return to the investor that is superior to bank deposits, GICs, and bonds.
The big-chartered banks in Canada have often been criticized for charging exorbitant service charges. However, service charges at best probably only cover the overhead costs incurred by the banks in their operations. Their favorite money-making venture is undoubtedly the mortgage business.
There are many reasons why these investments are so highly sought after, which include the following:
Low Administration Costs
Perhaps the main reason why Banks love mortgages, and why they fight tooth and nail with each other for this business, is the low risk associated with these investments. Obviously the risk associated with a first mortgage is less than the risk associated with a second mortgage, but then again the return from holding a second mortgage is substantially greater.
For the first several years the mortgage is outstanding, almost all of the payment is applied to interest. The capital is protected by the value of the real estate against which the mortgage is registered, and the value of the mortgage is not affected by the ups and downs of the stock market.
Our mortgages give an average rate of return of 12% – 24%, secured by a First or Second Mortgage on a Real Property in Canada.
At a rate of 10% yield rate of return, your RRSP portfolio should double in value every 7 years according to the rule of 72.
Private mortgages can be a great investment, since there is great security with the equity on real property. Even if a debtor reneges, the property can be used to help pay off the mortgage.
It is also an easy investment to make – private mortgages require little baby-sitting or watching of an investment. Money is paid regularly and the lender is fully covered by the legal documents signed at the time of the mortgage, ensuring that the investment as well as a profit is collected.
Since private mortgages are so good for investors, many think that they do not offer a great deal for property owners, but this is not always the case. Property owners turn to private mortgages for many reasons. Not all private mortgages are high interest – some do offer good rates. In some cases, property owners turn to private mortgages if they simply have poor credit and cannot get financing elsewhere – and then switch to a non-private mortgage with better rates as one’s financial status improves. Finally, there are usually no greater risks with private mortgages than with other types – the same legal documents are used to protect the lender.