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How syndicated mortgages can help you grow your investment portfolio

8 October 2018

Are you looking to grow​ your investment portfolio and better diversify​ it outside the stock market? Then you’ve come to the right place. Syndicated mortgages are worth serious consideration if you’re a sophisticated investor.

When you think of investing in real estate, probably the first thing that comes to mind is being a homeowner. But not everyone wants to deal with the added responsibility of being a property owner, not to mention the expense. Common carrying costs include utilities, property taxes, home insurance, and the big and often overlooked one, repairs and maintenance.

You could invest in a rental property​, but similar to owning your own home, that’s far from what you’d consider a passive​ investment. It’s a highly active​ investment. You’ll need to be comfortable dealing with tenants, taking care of ongoing upkeep, maintenance and repairs and the list goes on.

Sure, you could outsource that to a property management firm, but that can easily turn your cash flow from positive​ to negative​

Enter syndicated mortgages

There has to be a better way to invest in real estate and thankfully there is—syndicated mortgages. Syndicated mortgages are the perfect way to get into the real estate market without becoming a property owner or becoming a landlord and dealing with tenants.

They’ve been growing in popularity with investors over the years. The sale of syndicated mortgages for condos in Ontario reached almost $4 billion in 2014, according to the Financial Services Commission of Ontario (FSCO).

Let’s take a closer look at exactly what is a syndicated mortgage and how it can help grow your investment portfolio.


What is a syndicated mortgage?

A syndicated mortgage involves a partnership between two or more investors in a specific, targeted mortgage. Under this arrangement, you, the real estate investor would become the bank to help finance a real estate project.

With syndicated mortgages, you’re squarely in the driver’s seat. You can decide the specific project you’d like to invest in, whether it be a condo, low-rise, commercial development, or single family home.

In a low-interest rate environment, syndicated mortgages offer investors the opportunity to earn an attractive return. Depending on the project, you can expect to earn in the neighbourhood of 8 percent.

How are syndicated mortgages different from mortgage investment corporations?

Don’t confuse syndicated mortgages with Mortgage Investment Corporations (MICs). Syndicated mortgages differ from MICs in several ways.

When you’re investing in a syndicated mortgage, it’s for a single​ real estate loan, while a MIC is a pool​ ​of real estate loans. Syndicated mortgages also let you choose the project you’d like to invest in, while MICs loan out your money on your behalf without your input.

Syndicated mortgages also come with the added safety and security of your name being registered on title as a charge holder on the property. This provides you with the opportunity to attempt to recover your initial investment if the project goes belly up. MICs don’t usually come with this level of investor protection.

How a syndicated mortgage works

Syndicated mortgage lending has grown in popularity since 2008. After the financial crisis, lenders have demanded more capital from developers before they’ll finance a project. This has forced real estate investors to look elsewhere for financing to help get shovels in the ground.

Although many syndicated mortgages focus on large real estate developments, at Canadian Mortgages Inc., most of our private mortgage investments are to individual real estate investors. Given much of the bad rap syndicated mortgages have received recently in Canada, focusing on individual investors​ with a proven investment track-record is a great way to minimize your portfolio risk.

Real estate investors typically use a combination of big bank financing, their own equity, and syndicated mortgages to finance a building development. Syndicated mortgages provide crucial financing that investors need to take projects from idea to completion.

The funding is typically used to cover soft costs incurred, including architecture, consulting, marketing, setting up the sales centre and zoning.

How to protect yourself when investing in syndicated mortgages

When investing in syndicated mortgages, the biggest risks are the actual project you’re investing in and the investor you’re lending the money to. To help mitigate your risks, it’s important to do your own due diligence or partner with a professional advisor.

You’ll want to make sure you’re investing with a reputable investor who has every intention of completing the project on time and on budget. Red flags to watch for include excessive commission and risky backing. You’ll also want to make sure the necessary permits and zooming has been obtained and examine the feasibility​ of the project to see if it makes economic sense​.

It’s important to recognize that syndicated mortgages are not considered securities, therefore, they’re regulated by FSCO, eventually to be regulated by the Ontario Securities Commission (OSC). This opens them up to the majority of investors, since they aren’t governed by accredited investors rules.

This is why you want to partner with a credible investment professional to help you source the best syndicated mortgages for your particular situation.

With syndicated mortgages, you’re able to structure your investment portfolio in a tax-efficient way. You can hold syndicated mortgages in your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) and other registered accounts, helping your money grow faster.

The Ontario government has taken a number of steps over the years to protect investors when investing funds into syndicated mortgages. More recently in the 2018 budget, you as an individual investor, are capped at a $60,000 investment limit. The goal is to prevent investors from being too heavily invested in syndicated mortgages.

As you can see, there are many benefits to investing in syndicated mortgages. Provided you do your homework and partner with an investment professional, syndicated mortgages are an investment worth serious consideration for sophisticated investors.

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