Forbes magazine recently ran an article which listed the worst real estate investments one could ever make. To no surprise, investing in private mortgages did not appear on the list. So what did?
Anything that doesn’t bring in a return
These are the types of investments that rely on property values going up – second homes, properties that are going to be flipped (just after property values rise, of course) and other properties that aren’t bringing in a regular, and profitable, return. That’s just one of the beautiful things about private mortgages – the investment is tied to the mortgage, not to the property or its value.
Anything with negative cash flows
This goes along with the above. If you spend a ton of money on a sprawling luxury property in The Beach area of Toronto, but it sits empty for months because there are no buyers on the market at the time, you’re actually just spending money, not investing it. With private mortgages again, you don’t have a property, you don’t sit on anything. Except of course that interest that you start collecting from day one.
Forbes doesn’t call land development deals bad investments per se, but they are extremely complicated, and if you lose out on even one, you stand to lose millions of dollars potentially. While they can be extremely lucrative for investors that are very wealthy and can stomach the risk, this is a small handful of the group indeed. With private mortgages on the other hand, there’s no risk to take on, and you choose how much you invest by choosing the type of mortgage product, and mortgage amount, that you’re willing to invest.
Condo-hotels, intervals, and time-shares
This one’s simple: these are all just bad. Stay away from them. Invest in private mortgages instead and easily predict your cash flows, forget about stressing over rental income, and never mind about resale value or home prices.
Foreign real estate
Again, not a bad investment, but these deals can be very complicated. Unless you’re extremely familiar with the different real estate laws in different countries, and you find an investment that doesn’t include a great deal of foreign currency risk, investors can also stand to lose a lot of money on these. Even if it’s just a condo in Florida where the family can go every summer, do it for the quality time – not the investment factor. Meanwhile, rely on your private mortgage investment, uncomplicated and with a regular high return, to provide the cash flow to buy that foreign property.