Be the Banker
Interested in Investing in Real Estate?
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Get a piece of the action.
The goal of this strategy is to have your money is making money! Become the banker by lending out your own funds to make money. Have you sometimes wondered what it would be like to earn the kind of profits you hear the major financial institutions reporting in the news each year?
One way of “getting a piece of this action” is to consider being the banker yourself. You can start loaning out your own funds and resources by way of mortgages on real estate. A great way of passively investing in real estate without being the landlord!
Specific strategies might include:
Be the Banker
Borrow Money to Make Money
Self-Directed RRSP, LIRA, RRIF, TFSA
For more details on each of these specific strategies and
how Claire can help, click here.
There are many advantages, including security. You have the real estate as security in a default situation as you are registering a mortgage charge on title when you provide the funds via a real estate lawyer. The property can’t be sold without you being paid first!
You have the opportunity to diversify your investment portfolio – not having all your “eggs in one basket”. If being a landlord doesn’t appeal to you, then this gets you into the real estate investment market relatively safely. You get to decide the terms – 1 year, 2 years etc., depending on when you want your money back! You’ll receive a fixed interest rate resulting in a clear return on your money that is sometimes higher than your existing returns on mutual funds, stocks etc.
Overall return of 6% to 12% per year typically broken down into:
Monthly payments to you of around 5% to 9% interest that may include some principle.
Up Front Lender fee of 1% to 3% of the amount that has been borrowed
Overall return of 10% to 15% per year typically broken down into:
Monthly payments to you of around 10% to 12% interest that may include some principle.
Up Front Lender fee of 1% to 5% of the amount that has been borrowed
You can use your RRSP and shelter the profits from tax until withdrawal Self Directed RRSP). Not only do you get to decide on the interest rate, but you will often charge an up-front fee as well … you are the lender so that is your “fee for service” and an immediate return on your capital. Often all legal fees for the lender (you) are paid for by the borrower… so no extra cost to you. Even if the borrower’s default, you have the opportunity to take over the property and any other existing mortgage payments to avoid a loss. You may even end up owning a property that adds positively to your portfolio.
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It is always important to know the disadvantages before you take the plunge and start loaning out your hard-earned cash! It can be complicated and difficult to decide what is a good borrower and property to help you mitigate the risks.
You will have to deal with collecting the mortgage payments although typically these are done via direct deposit or post-dated cheques.
Don’t forget that you may have to deal with a default of payments and possibly legal action including foreclosure proceedings.
If there is an increase in interest rates over and above what you are charging you could see you lose some extra potential profit. If you suddenly need your cashback that you loaned out, you can’t because it is tied up in the real estate and you are legally bound by the terms of the mortgage.
Also, the worse-case scenario is default occurs followed by foreclosure that results in a loss of your principle and interest.
Many of these disadvantages can be overcome by hiring the right
real estate lawyer and mortgage broker to your Power Team.
Remember, just like any investment, these are examples only and not guaranteed. When you invest in real estate as a private lender, your security is a registered charge known as a lien on title of the property.
This does mean that the borrower cannot sell the property without you being paid out. But even if they are forced into power of sale, judicial sale or foreclosure, there is no guarantee you will recoup all your principle back.
“The benefit of working with me as your mortgage broker is that we focus on the exit strategy and working with the borrowers during the term of their mortgage with you.” – Claire Drage, Mortgage Broker
This ensures that if there are any blips along with the way or things aren’t going as well as planned, we are being proactive to find a solution as quickly as possible.
Ready to begin investing in real estate?
Claire and The Windrose Group team can help!
Contact The Windrose Group
Have a question? Interesting in learning more about rates and opportunities?