If you’re considering how to invest your money, Canadian real estate is a top choice among sophisticated investors. Real estate investing is often active in nature. There are three typical types of active investors; those who purchase and tenant properties; speculative buyers who aim to buy low with the hopes of selling high; and those looking to ‘flip’ houses following significant maintenance or renovations.
Active investors have a big task list. Afterall, they face analyzing and sourcing viable properties, negotiating contractual terms and conditions, securing tenants, collecting rent, attending to maintenance, marketing rentals and much more.
Even though an investor’s to-do list can be outsourced, doing so reduces their overall profit margin. And, hard work is just the start, there are also those numerous expenses to consider.
Active real estate investing requires significant financial capital. Upfront costs might include an initial down payment, appraisal fees, inspection and legal fees, taxes (like GST/HST), transfer taxes, real estate commissions, and so on. Ongoing expenses might include repairs and maintenance, strata or homeowner association fees, property taxes, etc.
And, finally, when an investor looks to sell, there are even more expenses like real estate commissions, marketing and legal fees too.
The bottom line is that active real estate investing requires plenty of time and money.
If you’re wondering if there’s a simple, straightforward way to invest in real estate, the answer is yes.
Thankfully, passive real estate investing is possible. Less headache. Less wasted time. And, incredible returns. In fact, depending on risk tolerance, clients of private lending companies, like Canadian Lending Inc., see returns ranging from 6 to 18%.
What is passive real estate investing?
Similar to investing in stocks, bonds, GICs, or even a regular savings account, passive real estate investing occurs when the investors capital is managed by someone else.
Put simply, passive real estate investing requires investing your funds with a company and merely waiting for the return. In essence, rather than being tasked with the research, analysis, and maintenance of investment properties, passive investing is a set and forget approach to real estate investing.
Similar to active real estate investments, there are many different ways to be a passive real estate investor.
There are Real Estate Investments Trusts (REITs), Mortgage Investment Corporations (MICs), Private Equities, Joint Ventures, and Real Estate Crowdfunding which are all types of passive real estate investments. But, perhaps most notable is Canada’s rapidly growing private mortgage loan business, also known as private lending.
In November 2017, private lending amounted to 6% of the value of new residential mortgages in Canada.
What is private lending?
Private lending pairs investors with consumers requiring mortgages. Imagine a consumer, declined by a traditional lender (a bank or credit union), in need of a mortgage.
Companies, like Canadian Lending Inc., match consumers seeking a mortgage (a borrower) with a viable investor or give access to a private lending fund. The consumer receives the necessary funds, and the investor gets a return on their investment.
And, it’s important to note that the investor is secure in the sense that they, or the fund, are registered as a mortgage holder (either a first or second mortgage) on the title.
Why would a consumer use a private lender?
Consumers who are declined by traditional lenders frequently turn to private lenders. Consumers with poor credit history, unsteady income (like self-employed individuals), or those new to Canada are all borrowers likely to face challenges with traditional lenders.
Even new regulations like Canada’s mortgage stress test are making it more and more challenging to receive funding through conventional lenders. In fact, an article published in February 2018 states that borrower rejection rates have increased by as much as 20% following the implementation of the stress test.
As private lending doesn’t fall under federal regulations, investors are free to loan to borrowers they deem suitable.
As an investor, how do I find a consumer who’s looking for financing?
Ok, so if private lending interests you, sure you could try and source someone needing financing. But, as the saying goes, ‘don’t try this at home.’ Finding a borrower and acting as the lender is incredibly risky. Not only is it crucial to understand the dynamics of real estate, but it’s equally important to understand the details of the borrower.
It’s best to leverage the expertise of a private mortgage company who do the hard work while offering investors strong returns.
The benefits of private lending funds
Passive investing strategies, like private lending, are straightforward; they provide most, if not all, of the rewards, with none of the work.
When choosing how to invest your money, private lending allows you to pass the hard work to the managing company, with you waiting for monthly income payouts.
Here are some of the benefits of private lending:
- Real estate secures all investments; this means that should problems arise, the property in question acts as a form of collateral.
- Rates of return range between 6 to 18% depending on an investors risk tolerance.
- Income payments are paid monthly.
- The borrower is responsible for closing costs.
- Investments minimums are as little as $25,000.
- Our team of experts will scrutinize the property in question including accurate appraisals and the borrower’s circumstances too.
- Diversification is possible through multiple loans on various properties (both in their location and their type). Properties could be residential single family, residential high-rise, residential multi-family, multi-family, commercial/office, industrial, land, branded gas stations/hotels/ and agricultural properties.
- All CLI’s activities are licensed and insured by the respective licensing boards.
- The closing process is handled on your behalf through an external law firm.
How to invest your money: The bottom line
Private lending is among the most simple real estate investment strategies with healthy returns; allowing investors deciding how to invest their money the chance to participate in Canada’s real estate market without the headache of active investing. CLI offers turnkey service which includes sourcing opportunities for investors, underwriting loans in addition to facilitating the closing process.
It’s easier to allow a company with a trusted track record, with a network of analysts and mortgage brokers, and a legal team to determine the best return and associated risk level for your needs. Go ahead and arrange your free consultation today.