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Mortgage Investing Versus Real Estate Investing: Which Is Better?

1 June 2021


Modern age real estate investing through mortgage lending—Why mortgage investing is easier than direct property ownership.

For many investors, the benefits of real estate exposure are self-evident: Diversification, stability and positive cashflow are some of the biggest advantages to investing in this asset class. Although most investors associate real estate investment with outright ownership of property, private mortgages offer many of the same benefits—without the hassle.

Mortgage Investing Versus Real Estate Investing Which Is BetterMortgage Investing Versus Real Estate Investing Which Is Better

Mortgage investing has taken on newfound importance in the post-pandemic era. Central banks have doubled down on monetary stimulus to support their economies and keep financial systems afloat. In this environment, traditional fixed-income securities like government bonds are no longer as attractive. Although real estate investments benefit from low interest rates, monthly cash flow can be restricted by higher costs, not to mention tighter mortgage guidelines that elevate the cost of owning physical property.

By investing in private mortgages, investors can tap into growing demand for residential real estate, not to mention its relative stability compared with other markets, while deferring the additional risks of property ownership or title transfer. These risks include illiquidity, vacancies, the potential for unexpected cost, shifting consumer sentiment and lapses in market conditions. Importantly, participating in the private mortgage market means you are investing in debt as opposed to equity, which entitles you to fixed payments, including interest.

Private mortgages are essentially defensive cash flow investments that are backed by residential real estate. Investors typically access the private mortgage market in one of two ways—either through whole mortgage investing or through Mortgage Investment Corporations (MICs). Both methods provide the same level of exposure to real estate, although MICs invest in a pool of mortgages whereas wholesale investing entails purchasing a specific loan or multiple loans. In both cases, the investor is entitled to payments in the form of interest and other fees charged to the borrower. When it comes to real estate investing, the property owner is ultimately responsible for making all mortgage, utility and property tax payments, even if the property is vacant.

Unlike direct property ownership, private mortgages provide an uncomplicated way to gain exposure to the real estate market. Products like Mortgage Investment Corporations also spread capital across a broad range of mortgages instead of concentrating on a single location, as is often the case with real estate investing. Mortgage investments are secured against the actual properties while insurance policies and personal guarantees provide investors with additional security. MICs also allow investors to defer income tax, so long as the investment is part of a Tax Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).

Mortgage Investing Versus Real Estate Investing Which Is BetterMortgage Investing Versus Real Estate Investing Which Is Better

Investing in private mortgages is less work, less risk and offers similar returns as purchasing property. CMI Financial Group makes this process even easier by offering investors a range of mortgage investing opportunities. Our wholesale lending division invests in residential mortgages exclusively within Canada. Since inception, we have made more than $600 million in successful mortgage placements.


Next Steps

To learn more about how we can make private mortgages work for you, contact a CMI Investment Account Manager today.

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