When some investors are just starting out in the investing world, or they’re thinking about becoming involved in it, they often hear of the opportunity to invest in private mortgages. After hearing of the benefits these investments bring, the next is surely about the amount of capital one needs in order to invest in mortgages – just under the whole value of a home, and that applies to homes of all types and price ranges. Quickly discouraged that they don’t have this kind of cash lying around, they move on to other, less productive investment opportunities or worse, forget about investing at all.
But investors who are still in the start-up phase shouldn’t be disheartened by this. The chances are good that even without the capital to put upfront, or an RRSP that can be turned into a private mortgage investment, you still have that capital around somewhere – and it might be within your own home.
Drawing on the equity in your home, and using the cash you get through a home equity loan or a HELOC could provide you with enough capital to get you started investing in private mortgages. It’s the way many of today’s savviest and most experienced investors began, and it’s a method that makes so much sense; especially if you can use a line of credit that will only charge you interest for the money you actually use.
Today is a great time to take out a HELOC or home equity loan, with interest rates being extremely low and, if you choose the latter, with the opportunity to lock in that rate for as long as you need it. Chances are it won’t even be that long, as private mortgage terms are typically for the average of a year or two. You borrow that money at 3 per cent, invest it in private mortgages for a yield of 12 per cent, and it’s not difficult to see how easy it is to take advantage of that tidy return.
The thought of coming up with enough money to equal the value of another mortgage can seem daunting to the beginner investor. But the chances are that the cash you need is just waiting to be discovered and once you find it, it will open the door to the entire world of the best kind of investment you could make – an investment in private mortgages.