When someone needs capital for a short period of time, one solution can be to get a commercial property bridge loan if you have equity in commercial real estate that you can leverage.
The use of funds do not have to relate directly to the property such as a purchase, refinance, or investing in some type of improvements.
The funds can be required for just about anything. The key is that commercial real estate property is being provided as security to a lender.
Some of examples where a short term loan is required is 1) someone needs to close a sale quickly, 2) a business has an order they need to fill and need to supplement their working capital to get it completed; there is some sort of cost that someone is trying to avoid by having capital provided on time within the parameters of an agreement.
The financing amount is typically $500,000 or higher and the money is required quickly, or more quickly than can be arranged through a conventional bank.
When individuals or businesses come to us with this type of financing request, we arrange financing through our private lender net work and work towards getting the financing in place right away.
One of the benefits of this type of commercial mortgage financing is that the loan is fully open for repayment. So as soon as the need for funds has passed, the principal can be repaid right away without penalty or further obligation to the lender.
Bridge loans can be for several months, up to a term of 2 years for the most part.
In some cases, funds may only be required for a couple of weeks to close a transaction and the proceeds from the transaction will in turn be used to repay the loan.
When we get bridge financing inquiries, one of the first questions we get asked is how long will it take to get a short term loan in place?
Depending on the situation, the faster placements are in one to 2 weeks. On average, we can get funding completed from the time of application to cash advance in 2 to 3 weeks.
Part of the speed to getting deals in place is the getting the deal assessed quickly and immediately matching up the deal with an interested bridge lenders so most of the time is spent with the closing process.
If you’re looking for short term capital and have equity in commercial property to leverage, then I suggest that you give me a call so we can quickly go over your situation on the phone and provide options for your immediate consideration.
The Second thing you need to realize is that they also love turning them down.
Commercial real estate provides larger scale financing placement for banks, financing institutions, and other commercial lenders so the attraction to a commercial deal is obvious from an opportunity to put money out into the market.
But institutional lenders such as banks, credit unions, and life insurance companies are also low rate, low risk lenders that are really interested in only the cream of the crop of the commercial real estate financing market.
To qualify with an institutional lender on an investment properly, you’re going to need near zero vacancy, triple net tenants, strong security value, etc.
But if you fail to qualify with an “A” lender, that certainly doesn’t mean that you can’t get financing for either an investment property or owner occupied piece of real estate.
The reality is that there are many different types of commercial real estate financing sources. So much so that the amount actually provide by your “A” bank type options can be pretty small in many situations.
Immediately below bank type financing options are the alternative mortgage lending options which can include lenders such as trust companies, mortgage investment corporations, mortgage investment funds, all the way down to private mortgage lenders.
And because the majority of financing scenarios do not qualify for “A” lending options, the alternative mortgage lenders are always on the look out for the deals that the bank can’t do.
They are especially interested in deals that generate good cash flow as cash flow by itself is arguably the single biggest way to mitigate risk of loss with existing cash flow much more interesting than potential cash flow being promised after certain actions are taken.
Deals that fall below bank grade, for whatever reason, are going to be considered higher risk which equates to paying more in rates and fees. But in many cases, the difference in rates and fees compared to a bank can be minimal and still very appealing as a mortgage option.
From a lender’s point of view, many of the alternative lenders are primarily into residential mortgage financing, but love to place commercial deals where there is higher margins available to extract from the market.
The key to remember that every commercial lender out there is going to assess a deal on its merits including the value of the property, cash flow, borrower credit and so on. So the more risk associated with the deal, the higher the rate and the tighter the lending criteria. As risk goes up, the number of financing options are likely going to decline.
Its just important to remember that can potentially be all sorts of options in the market that could be a good fit for your deal, or even a better fit for your deal than your local bank.
If you’ve been turned down for commercial mortgage financing, or want to better understand your potential options, then I suggest that you give me a call so we can discuss your situation in some detail.
While in theory that can make perfect sense, in reality there can be many complicating factors that don’t allow things to play out so clean and neat.
When posed with the question of how to finance a residential subdivision development, most people would assume that there would likely be financing required for the land purchase, the planning and site development, and for the build out of the residential homes.
Financing complexity can come in many forms depending on the specific subdivision being developed.
For instance, even though a subdivision project is classified primarily as residential, it may have a commercial component to it which could require a different form of financing.
Lenders that fund development projects will also be very focused on the achievement of different milestones at different times in the project which might not match up with the cash flow needs of the developer.
Basically, each stage of subdivision development can require a different form of financing so if key milestones can’t be met to complete a certain stage, the property owner or developer might not be able to attract the additional capital required to continue to move the project forward.
Here’s an example to better make this point.
Let’s say that a developer has acquired property and secured a first mortgage at 50% loan to value on the bare land to complete the purchase. This would be the first stage of required financing. Then the developer starts spending his own money to move the planning process along and do whatever site development work he is allowed to do at this point.
In order to get stage two financing for some of the site development costs, the project will require a new appraisal to determine what the value of the property will be once approvals are in place and the project is shovel ready.
The challenge at this stage of development is that regardless of how much money the developer ours into the property, its hard for him to be given credit for improving the land until the shovel ready milestone is reached. So if the project all of a sudden does not have the cash to get to the next milestone, it can be very difficult to secure additional capital.
One way we deal with this type of situation, which can be quite common, is to work with lenders that have considerable development experience which allows them to better assess the progress of the project prior to the full approval milestone. If the body of work done to date shows the project being on track and heading to a profitable conclusion, a private lender may be able to place a price second mortgage against the property that will provide enough incremental capital to get the developer past the next milestone required to refinance everything into a larger development loan.
This is just one of many examples of how project the manner in which project details play out can work against getting subdivision financing in place.
In order to get to the next stage of the project, there are times when alternative short term solutions need to be put into place as outlined in the example above.
Our focus is help you secure all the funding you will require for your project from land acquisition through building construction as well as the other requirements that may materialize in between.
If you are in need of residential subdivision development financing, please give me a call so we can go over your particular situation and discuss potential options for providing the necessary funds to move the project forward.
When we’re looking at requests for residential condominium development financing in Toronto and other parts of SW Ontario, one of the challenges that we many times have to try and work through is a lack of presales.
While there is certainly variability from one lender to another regarding their presales requirement, in most cases it falls into a range of 70% to 75%.
In many cases, when a developer inquires about condo development financing, they are well along with the project, own the land, and have completed a certain portion of the work, but now require additional capital and may have significantly less pre-sales than a lender is looking for.
In these situations, instead of providing a development loan, we will look to provide a bridge loan against the value of the property so that money can be obtained to carry on work and time can be bought for more pre-sales to take place and eventually get into the 70% to 75% range.
This can be a very realistic strategy in that the work completed to this point has likely added value to the property, potentially considerable value.
The bridge loan may also need to be in a second mortgage position behind an existing first mortgage which is also something that can be accomplished through some of our bridge lenders.
Provided that there is enough equity in the property to support additional borrowing, the bridge lender is going to be interested in the deal, especially if they see a clear path to the project getting their pre-sales up to a high enough level to allow for a larger condominium development loan to be approved.
When the condo development loan gets into place, the bridge loan will get paid out and the project can continue.
While there are many different challenges that can face a residential condo construction project, the challenge of not enough pre-sales is one of the most common and using a bridge loan as an interim step to getting you to a larger development mortgage is great method for getting around this issue.
If you have a residential condo project you are currently planning, or one you’re in the middle of where funding is required, I suggest that you give me a call so we can go through your situation and discuss the most relevant financing options that are available to you.
Click Here To Speak With Toronto Mortgage Broker Joe Walsh
Land development loans are available through our institutional, sub prime, and private lending sources for projects in the Toronto area, Greater Toronto Area, and Southwestern Ontario.
Depending on the project, the majority of financing we put in place for things like installing services and infrastructure related to a vertical construction build requires an equity driven financing solution as their is no review at the land development stage to service debt.
As a result, many property development loans are provided by private mortgage lenders, especially when the amount required is under $2,000,000 and only a second mortgage position is available to the lender.
Larger property development loans can also be arranged but through institutional or sub prime sources.
For Ontario based projects, we are able to secure financing before and after approvals are in place which can be crucial to keeping the project on track during a permitting and approval process that can take weeks and months longer than anticipated.
Financing can be arranged from projects that are just in the planning stage as well as projects that are well under way or even near the end where additional capital is required to complete the remaining work.
The first step in determining your land development loan options is to give me a call so we can quickly review your situation on the phone together and get right into discuss the most relevant options that are available to you.
Our assessment process does not come with any cost or obligation to you and we try to complete it as quickly as possible so that no time is being wasted determining if we can help you or not.
Give me a call at 416 464 4113 to book a time when we can discuss your financing requirements. If you get my voice mail, leave your name, number, and best time to call and I’ll get back to you as soon as I can.
When it comes to the refinancing of a commercial property, most people think that the lending decision is primarily going to be related to the value of the building.
And while real estate security value is certainly a primary criteria for refinancing a commercial mortgage, its not going to be the only aspect of the deal that will be under consideration.
The reality this there can be a multitude of items related to the business and a commercial lender can focus in on when reviewing a commercial mortgage refinancing application and so it becomes important for a consultant or broker providing financing assistance to fully understand the deal so that a highly relevant fit can be made between borrower and lender.
For instance , other than the value of the real estate, the first thing a lender is going to review in a refinancing application is what the use of funds is for. If refinancing is related at all to business distress, the financing options will likely need to become more focused on sub prime and private mortgage options. If the use of funds is for growth of an already profitable company, then there will be more bank or conventional “A” mortgage options available to the applicant.
In situations where the deal falls out of “A” lending criteria, there can still be a wide range of options available, especially in the Toronto and Greater Toronto Area.
In these subprime and private mortgage lending situations the objectives can also be varied by the situation which will also impact the lender target. For instance, does the refinancing require any additional capital or do we strictly need to refinance the outstanding balance of the existing lender? Are we trying to refinance more than one mortgage? Is the existing mortgage up to date or are we going to be asked to financed accrued interest, arrears, and potentially property taxes? How much time will the new mortgage be required for and what will be the exit strategy to repay it?
The point here is that specific requirements of the refinancing request and the specific financial and credit standing of the business that owns the commercial property will dictate the available lending options in addition to the real estate value and the projected loan to value that will result.
If you’re looking to refinance a commercial mortgage in Toronto or the Greater Toronto Area, I suggest that you give me a call so we can discuss in detail the requirements of the request as well as the existing financial profile of the business so we can quickly determine the most relevant commercial property financing options available to you.
When you have this type of property, most of the “A” mortgage lending programs will not provide seasonal vacation home mortgage financing and the ones that do typically will fall in the 60% to 70% loan to value range, depending on the location and property itself.
So what do you do if you have a seasonal property lined up but only have 20% to down on the purchase?
Part of the answer will relate to what your long terms plans are going to be.
Under one scenario, you may be looking to upgrade the property so that it be could be categorized as 4 seasons at which time standard mortgage programs that offer up to 80% on refinancing applications could be accessed. A bridge loan in the form of a second mortgage can provide you with the additional capital to acquire the home and allow for the period necessary for making the improvements.
If the cottage is to remain seasonal, then you’re going to need a second mortgage source (typically provided by the vendor) to cover off the amount that the first mortgage holder is unable to provide. Keep in mind that under both of these scenarios, the debt servicing requirements for both the first and second mortgage are going to have to collectively work for the first mortgage holder.
Another option would be to look at a 80% private first mortgage to acquire the property, make the improvements to get it to 4 season status, and then refinance into a conventional mortgage at 80% loan to value. This option is going to cost you a bit more in interest, but if the time period to make the necessary upgrades is short, the incremental financing cost should be minimal.
One of the ways to offset the bridge financing costs is through your negotiations with the seller.
It can be difficult to sell a seasonal vacation home due to the higher down payment, or secondary financing required. Therefore, you may be able to negotiate better purchase terms to close the deal and cover off the additional financing costs you may incur through a private first or second mortgage.
The bottom line is there can be a number of ways to finance the purchase of a seasonal cottage through short term or cottage bridge financing where the objective is to covert the the mortgage financing into a lower cost, longer term debt instrument over time.
If you’re looking at a seasonal cottage acquisition and want to go over the available options, then I suggest that you give me a call and we’ll discuss all the potential scenarios together.
A private mortgage lender’s return on investment is based on the interest rate charged as well as any lump sum lender fees due on closing.
For the purposes of today’s discussion, I’m going to focus on the interest rate range that is charged for both private first mortgages and private second mortgages.
So let’s start with the interest rate you can expect to earn from placing private 1st mortgages.
For investors that are most comfortable with first mortgage positions only, the interest rates charged will most likely range from 7% to 12%.
These rates will be relevant to both residential and commercial property financing scenarios with the actual interest rate offered and charged directly relevant to the risk assessed by the lender.
The majority of mortgages that we place are in the 8% to 8.25% range.
For someone to provide a 7% private rate, there would have to be excellent equity in the property, providing a low loan to value to the lender or investor.
The higher rates are associated with higher risk scenarios including financing for construction projects.
If you’re looking to invest in private 2nd mortgages, the rates are going to be higher and will most likely fall in a range of 8% to 15%.
The majority of seconds that our office place are in the 9% to 11% range, but we also place deals all through out the range mention above for 2nd mortgages.
Once again, where the equity is very high and the loan to value low, a private second can be secured in 8% to 9% range.
The higher end of the 2nd mortgage interest rate range is going occur in situations where the loan to value is getting into the 80% to 85% range.
The higher ratio private seconds are not common among lenders and investors and our own office does not place many deals where the loan to value is at or above 80%.
Lower risk loan requests also attract more lenders and the resulting competitive pressures can push interest rates to the lower end of the range.
For each lender that we work with, we spend time discussing their expected rate of return as well as the types of properties they’re comfortable with so that return and risk can be properly matched up.
Unrealistic expectations on pricing can result in weak deal flow as some of the available financing opportunities will fall to lower priced competitors.
If you’d like to get more information on private lender rates of return for either first mortgages and/or second mortgages, then I suggest that you give me a call to discuss rates and returns further as well as your lending and investing objectives.
Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh
Often times when investors are considering private mortgage lending, they hesitate to get started due to a lack of defined strategy or focus are for placing private real estate loans and mortgages.
While there are a number of different strategies or approaches an investor or lender can take, I tend to recommend the most basic approach when getting started and that’s to focus on what you know.
This may sound too obvious or too simple, but when you think about it, most people will tend to gravitate towards what they know, regardless of what it is that they are working on.
Recently I got a call from an investor who wanted to start putting money into private mortgages and he was himself a developer.
When we started talking about what types of deals he should be looking at, the conversation quickly came around to development because that’s where is knowledge and expertise lied, and that’s what he was most comfortable assessing.
Almost any investor has a knowledge and experience base to draw from that can relate to a private mortgage niche.
In the event that no true slice of the market can be identified, then the best starting point is to simply invest in residential home mortgages because at the end of the day, all investors with funds available for private mortgage financing will have experience with home ownership.
Residential real estate is the easiest type of private mortgage to assess and there are more opportunities to consider compared to all other private real estate lending opportunities combined.
So the sticking what you know private lending strategy is a great place to start, and for many investors, the only type of lending opportunity they end up considering over time.
If you’d like to know more about potential private mortgage lending strategies you can take as an investor, please give me a call to discuss further.
Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh
Today we’re going to discuss some of the concerns I hear most often from investors that are considering investing in private mortgages.
These are individuals that typically are heavily invested in the stock market and are looking to diversify their portfolio via private mortgages, but are unsure of the related risks, which becomes a barrier for them moving forward with mortgage investment opportunities.
For the benefit of anyone that is considering private mortgage investing, I came up with the most common concerns I hear and will now go over them.
Investors can have a hard time rapping their head around how providing a private mortgage to someone with bruised or poor financial and credit profile could be a good investment opportunity.
Well the fact of the matter is that a private lender provides mortgage financing in the same manner that an institutional lender does and has the same legal recourse available to protect themselves against loss in the event of borrower default.
On top of that, you’re still actively doing risk management, assessing risk, and determining which scenarios fit your lending criteria because there are lots of scenarios where people can require a private mortgage without bringing high levels of lender risk to the table.
As banks get tighter and tighter with their lending criteria, there are more and more deals that fall to private lenders. And not only are more deals available, but many of these previously bank grade deals are very appealing with respect to risk assessment and risk management.
The second most common investor concern is how do I go about maintaining and administrating a private mortgage.
Individual investors don’t typically have a staff or admin pool to draw from unlike a bank or institutional lender, so key barrier to private investing is the concern over how to cover off mortgage administration requirements.
In reality, a private mortgage typically has very little administration that is not hard to cover off. The term is usually one year, and the borrower provides 12 postdated cheques for the monthly interest only payments. The time required to administer most private real estate loans is really quite minimal and should not be viewed as a borrowing deterrent.
There is always the possibility that a default can occur and there can be a big fear of capital loss which once again stops an investor from moving forward with a private mortgage opportunity.
This is where we come back to risk assessment and entering into a mortgage where capital conservation has been properly considered from the get go.
When a default occurs that the borrower does not immediately rectify, we turn the process over to a lawyer to manage the power of sale process if necessary to get all your capital and accrued interest paid back to you.
Regardless of the amount of time it takes to deal with a default, capital is conserved by the risk assessment and risk management process conducted before funds were ever advanced.
If you need more information on private mortgage investing, I suggest that you give me a call so we can discuss any concerns you may have and determine what lending parameters best fit the level of risk you are prepared to take.
Today I want to talk about why you need to use a good mortgage broker when investing in private mortgages.
In my opinion, having an experienced broker is crucial to getting the return on capital you’re looking for and here are the main reasons why.
First of all, you want a broker who originates a fair bit of business and can provide you with the deal flow necessary to place your money in deals that are going to fit your criteria.
Not all deals that come along are going to be of interest to you for whatever reason, so you want to have a source of deals to choose from so that 1) you only place funds in deals you’re comfortable with, and 2) you aren’t waiting long periods of time in a cash position waiting to find a mortgage to invest in.
The second reason for using a good private mortgage broker is take advantage of their ability to do proper deal and risk assessment.
For almost any private mortgage that ends up losing money or even losing part of the original capital, the loss event could likely had been avoided when the deal was first assessed and risk of loss was analyzed.
Proper representation will uncover all the relevant facts about a particular deal most of the time, which allows you as a private mortgage lender to make better assessments of the deal so that any related offer you make to the borrower is not going to put you in a loss position down the road.
Private lenders want to clearly understand the reason why a mortgage request is seeking private funds. This doesn’t mean they won’t lend money if a few blemishes exist. But it does mean that the advance rate, cost, and terms are going to fit the deal according to the risk of loss it presents.
A experienced mortgage broker will be focused on providing you all the relevant information for the deal so that you know exactly what you’re getting into. And through experience, he or she is also going to know what to look for versus some one with less experience with private lending and investing.
Once you have reviewed an application for funding and put out an offer to finance, then the next step is closing the deal.
This is another key area where a mortgage broker can add significant value to the process.
While some may think that once the deal gets to the point of closing, there isn’t much work left to do. But in many cases, the work is just getting started.
The mortgage broker is a facilitator of the closing process, making sure that all involved parties are completing their part to get the mortgage in place. This can mean working with appraisers, environmental consultants, accountants, property managers, and of course lawyers to make sure not only that all the lender requirements are being met, but also that any problems or issues are dealt with swiftly so that the deal doesn’t fall apart unnecessarily.
There is art and science to the closing process and having someone representing you that has done a lot of private mortgage closings is certainly a benefit to your private mortgage investing activities.
Today I want to talk about how an experienced mortgage broker can help private lenders and investors manage risk and preserve their capital in the process.
As private mortgage brokers, we are continually completing risk assessments on deals for financing and placing the deals through one or more of our private mortgage lenders.
And in a perfect world, all the payments are made on time once the mortgage is funded and there never is any issue with the borrower right through to and including the repayment of the mortgage in full.
But unfortunately we do not live and work in a perfect world and sometimes, despite our best efforts, there can be issues and challenges with a private real estate loan or mortgage that’s been put into place.
In a perfect world, we try to avoid foreclosures and collection actions as much as possible, and for the most part we are highly successful in this regard.
But when problems with repayment do occur, the conservation of capital comes right back to the risk assessment.
What that means is that we are always looking to fund deals in liquid markets.
So for instance, larger urban cities of one million people or larger will always provide a market for liquidation.
Where liquidity is lower due to factors such as smaller market size, we compensate for that through the loan to value that can be provided.
An example of an unexpected default scenario is in the case of a divorce where there is lots of equity in the property, but both sides are at odds with each other and no one is making the mortgage payments.
When a default does occur, in many cases the mortgage broker will do all the coordination related to repayment, relying on the strength of his or her risk assessment to either facilitate getting the borrower to get the mortgage back on track, or facilitate the foreclosure process.
In either event, the worst case scenario for the lender is that they may not get their capital back in the initial time period outlined in the terms of mortgage, but they will get all their money back in time due to the equity in the property and the liquidity in the market.
A proper risk assessment will allow broker and lender to preserve capital regardless of circumstance due to the legal rights afforded by mortgage security laws.
As I mentioned earlier, there may be some time inconvenience in getting capital and the required return back, but within a matter of months capital will be returned to the borrower.
As a mortgage broker, I work closely with each of my private mortgage lenders to understand their lending criteria and risk tolerance so that any mortgage they enter into has a risk assessment that properly matches with their lending goals and risk preferences.
If you would like to learn more about how we conserve lender capital through mortgage risk assessment, then I suggest that you give me a call so we can have a discussion and get all your questions answered in the process.
Click Here To Speak With Toronto Mortgage Broker Joe Walsh
When it comes to private lending, there are a number of what I call myths as to what private lenders will and will not do with respect to mortgage lending.
These myths or misconception can get in the way of your ability to secure sub prime mortgage solutions from private investors.
By having a better understanding of fact versus fiction, you are placing yourself in a better position to succeed when seeking private mortgage financing.
So let’s get into the primary private lending myths and misconceptions.
Many times borrowers will not be prepared to disclose all their information and when a bank or institutional lender persists for full disclosure, the applicant will through up their hands and say they’ll just go private instead.
The view here is that privates will just lend money and they aren’t necessarily hung up on all the details and back story that led you to your financing requirement.
The reality is that private lenders are always going to concerned about conserving their capital, so while they may not require as much information as a bank or institutional lender, they are going to require enough information to properly assess their risk of investing in any particular deal. If the risk is assessed to be too high, they most certainly will not be providing a loan.
Bottom line, private lenders will not just do anything. Most won’t go high loan to value or enter into a deal where there isn’t a strong potential for exit and repayment. This fact alone can save you considerable time chasing money that may not be available to you.
There are many that hold the perception that all private mortgage financing is high rate, high fees which also relates to the term hard money.
The reality is quite the opposite.
Markets are always driven by supply and demand and the private mortgage market is no different.
Sure, rates are higher than bank rates, but rates and fees are relative to risk. If the risk is higher, the rates and fees stand to be higher as well.
If a private lender is pricing his or her money higher than the risk, then there are other lenders in the market that are more likely to be placing the deal.
Its not uncommon for people to speak of their fear that private lending is a greater risk to him in the event of default as compared to what they could expect from a bank. The thinking there is that in some way, a private lender will be more severe to deal with and can potentially provide a greater risk of property loss to the borrower.
This is again far from the truth as private lenders have the same legal rights as any other lender and follow very similar processes and procedures that you would see from just about any mortgage lender.
In fact, you may find that a private lender is more likely to work with you on a late payment or payment you would like to proactively delay making for some reason than what you might come across from an institutional lender.
Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh
Today we are going to talk about the conservation of capital in private mortgage lending.
In order to better understand this concept, let’s do a bit of a comparison to the stock market.
Because a lot of investor capital is in the stock market, this can be a good way to better understand how mortgages can promote capital conservation.
So lets get into an example.
In a mortgage you’re taking a snap shot in time of the mortgage investment and the property value. The mortgage is advanced as a percentage of the property value to protect the investor from risk of loss.
When you look at stock investment, the stock value will go up and down while with a mortgage, the value pretty much stays the same as well as the value of the property.
Most of the mortgages we place are for a one year term, so you’re not going to see a big change in the real estate value over a 12 month period.
During that year, the amount you invested stays the same, and the amount you earn is known from the outset.
With a stock, you certainly have the opportunity for large stock appreciation, but you also have the alternative to potentially contend with as well.
A mortgage provides a fixed rate of return, but a fair rate that is acceptable to the investor.
And unlike a stock, you know when you’re going to get your capital back. At the end of the mortgage term, you can get paid out or renew the mortgage. There is an exit strategy to get your capital back at a specific point in time.
So with a mortgage, the risk is very low and you know what your return is going to be.
With a stock, you are at the mercy of the market and must be prepared to ride the up and down swings that can occur in the market.
The investor risk of any private mortgage is managed through the valuation of the property relative to the mortgage amount being extended, and the strength of the borrower’s ability to repay.
If there are repayment challenges, we have the ability to work through them and recover capital and earnings through the rights that are afforded to all mortgage holders.
This is where the conservation of capital comes in both through the process for getting the mortgage in place, and the security its back by.
These and other reasons are causing more investor dollars to find their way into private mortgages both for residential and commercial properties, in first mortgage, second mortgage, and even third mortgage positions.
With private mortgages, the goal is to generate a fair return while minimizing the risk of capital loss which offers a significant advantage over the stock market if capital conservation is important to your investing strategy.
To find out more about private mortgage investing, give me a call and I’ll make sure you get all your questions answered right away.
For many years, the bulk of private mortgage lending was concentrated into second mortgages where the private lender was going behind a bank or institutional first mortgage.
The rationale for this type of lending was that 1) there was lots of demand in the market; 2) because the mortgage was going to be in second position and carrying a higher risk, a higher rate of interest could also be charged, providing a good rate of return, and 3) the amounts for most second mortgages were relatively small, allowing the investor to develop a well diversified mortgage portfolio without having a large amount of cash to work with.
Second mortgage lending remains very popular in Canada as housing prices continue to hold for the most part and consumer debt still sits at very high levels where refinancing or consolidating debts into a second mortgage to leverage available equity is a common cash flow management and debt management strategy.
But since 2008 when the last great recession hit, there has been an ever growing supply of private first mortgage opportunities, mostly on the commercial property side.
With banks tightening up on lending requirements, there is a large supply of product or financing requests on the market at any given time that require private mortgage financing, or more accurately are forced into private mortgage options.
This has not only attracted individual investors and investor groups, but those that have more substantial cash holdings for mortgage investing.
The commercial private firsts that are available are, on average, significantly larger than the average residential private second mortgage, so placing this type of loan requires considerably more capital resources.
In addition to being able to fund bigger deals that are lower risk that perhaps what we’ve seen in the past, more investors have entered into private lending to more easily diversity their multi million dollar portfolios.
The rate of return on a private first for the most part is going to be higher than a private 2nd, but not necessarily depending on the time to get in place, the property type, and the geographic location.
First mortgages also provide the deal control many investors require with first mortgage position versus being in second spot behind a large institutional lender.
The main benefit of these develops is the establishment of a sub prime market for commercial property in the $500,000 to $3,000,000 range.
Near bank deals can also be highly sought after by private investors, creating competitive pressure on pricing and terms to secure deals.
In fact, in certain strong market areas such as the Greater Toronto Area, private first mortgages can be priced only slightly higher than similar institutional deals allowing them to be considered as a short term funding option even over a bank deal if the circumstances and timing warrant.
The bottom line here is that there are many different ways to operate in today’s market as a private mortgage investor, largely driven by the contraction and selectivity of institutional lenders on commercial property deals.
If you would like to explore commercial first mortgage lending and investing opportunities with private funds, I suggest that you give me a call and we can go over both your lending and funding criteria as well as potential deals you many be interested in that are currently available.
Click Here To Speak With Toronto Mortgage Broker Joe Walsh