Sherwood Mortgage Group License Number: 12176
529 Wilson Avenue, Toronto ON M3H 1V1
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Private Lending
WHAT IS PRIVATE LENDING?
Investing in real estate passively using your wealth! You provide the loan to a qualified borrower with a piece of real estate being security and collateral for the loan.
You can lend using:
- Cash
- Registered Retirement Savings Plan (RRSPs) including Locked in Retirement Accounts (LIRAs) and Registered Retirement Income Funds (RRIFs)
- Tax Free Savings Accounts (TSFAs)
- Unsecured and secured lines of credit
Responsibilities
- Understanding the risks and rewards of providing mortgage financing on real estate
- You will need to find, screen and accept applications for mortgage financing
- Ensure the property is deemed acceptable
- Prepare and negotiate the terms of the mortgage
- Ensure the funds as available as agreed upon and administer the mortgage including repayment, renewal, annual mortgage statement etc.
Don’t worry! You don’t have to do it all by yourself. We are here to help.
Advantages & Disadvantages
Advantages
- The real estate as security since you are registering a mortgage charge on title
- Opportunity to diversify your investment portfolio
- You can invest in real estate passively
- You get to decide the terms (interest rate, length, up-front lender fee)
- Generally all legal fees are paid for by the borrower
- The return on your investment (1sts from 6% to 12% per year)
Disadvantages
- Can be complicated & difficult to decide what constitutes a good borrower & property
- You will have to collect monthly payments
- Liquidity & Timing - you are legally bound by the terms of the mortgage
- Downturn in housing market
- Default Proceedings: worse-case scenario default occurs that results in a loss of your principle and interest
Balancing these two are what helps you create your criteria for lending.
Your Returns
1st mortgages: 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
2nd mortgages: 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
The overall return will depend on your lending criteria
Tips for Success
- Start when YOU are ready
- Build a strong power team
- Ensure you are comfortable with the risk (and rewards)
- Remember, YOU are in the driving seat
- Go with your gut...if it doesn't feel right, it isn't
- Stay focused and stick to your plan - business, financial, strategy, exit and acquisition - ALWAYS
- Due diligence, due diligence, due diligence!
- This is a business decision and not an emotional decision
- Only accept a complete Investment Proposal before proceeding...ALWAYS!