Are Mortgage Investments right for you?
There are so many investment options available to today’s investors, that even the most experienced of investors have a hard time deciding where to invest. While many investors are aware of the various opportunities available on public stock, bond and money markets, fewer are familiar with alternative investment products such as mortgages.
So what makes mortgage investments such a compelling option for investors big and small? A large part of what makes mortgage investments attractive is the relative stability and predictability of returns generated by these investments, along with their more tempered risk profile.
Mortgage investing is without a doubt a very sensible and practical way to grow one’s investable assets and diversify one’s asset mix away from public markets.
Is private mortgage investing the right option for you? We will touch on this shortly, however, it’s important to note that there is no universal answer to this question. Much like any investment, it really depends on your personal, financial and economic circumstances.
Treat the following questions as checkpoints and a means of validating your investment needs or preferences as they relate to mortgage investing. This approach can help you to better understand your current investment status and how your portfolio aligns with your overall financial goals and objectives.
Does your current investment portfolio fit with your investment objectives over the short and long-term? What assets currently make up the fixed income component of your portfolio? Is your current portfolio overly concentrated in any one industry, geography, market or asset class? These are the types of questions you need to consider.
You prefer stable and predictable returns.
Some investors are comfortable with taking on more risk to achieve higher returns for their investment portfolio. These investors tend to be attracted to a hot stock and the potential for big returns. But as is typical with big returns, they also often represent high risk. On the other hand, some investors want a more tempered investment strategy, one that offers the opportunity for gradual and consistent asset appreciation. By investing in private mortgages, you might sacrifice the big highs that come with some stocks, but you’ll instead achieve more consistent returns over time – the proverbial gradual, upward sloping line graph. If that’s something you’re looking for, then a private mortgage investment might be the right investment for you.
You are looking to grow your investments over the medium to long-term.
This point goes hand in hand with the one above. Investment advisors often mention the adage “it’s not timing the market, it’s time in the market.” What this statement means is that it’s often very difficult to determine the best time to purchase a given investment – will it go up or will it go down over the near term? What advisors tell their clients instead is that if you pick a quality investment product, one that is well managed with quality underlying assets, it will eventually go up over time and will continue to do so for the long-term. While you won’t get rich quickly with private mortgage investing, the high quality mortgage assets that underlie these investments combined with the collateral security inherent in mortgage products will enable you to generate a safer and more predictable rate of return for the duration that you hold these assets in your portfolio.
You are interested in quality investment products, like real estate, but don’t necessarily want to be a landlord or a property manager.
You know that real estate is one of the most secure investments you can make. But you also know that managing real estate properties can be a difficult and time intensive endeavour, one you have no desire to undertake. Private mortgages provide the best of both worlds. They offer access to the real estate market without all the headaches associated with active ownership. For individuals interested in a piece of the real estate pie but without having to break the eggs to bake it, passive investing via private mortgages can be the ideal solution.
You’re looking for an investment solution that can generate regular cash flow for your portfolio.
Most equity investments only generate an actual return when they’re sold; this means the investor only realizes a ‘paper gain’ until such time that this happens. For investors looking for regular cash flow from their investments, private mortgages and other fixed income products can be an ideal solution that meets this need. Being able to derive regular monthly, quarterly or annual cash flow from your portfolio can be critical for some investors, particularly retirees who expect to live off of their investments and require assets that can generate cash to help them meet their financial obligations.
You want a more diversified investment portfolio.
Publicly traded assets offer investors many benefits, with transparency, liquidity and visibility being the primary ones. That said, limiting your investments solely to this asset type can hinder the growth of your portfolio, not to mention diminish the benefits that can be derived from having a more diversified portfolio. The benefits that alternative investments offer are ones knowledgeable investors seek as they attempt to optimize the asset mix in their portfolio. The investment concept of not having “all your eggs in one basket” is one that can be enhanced through products like private mortgages.
You don’t want to lock your money away for an extended period of time.
As noted already, many investments require a longer term perspective when it comes to generating an appreciable rate of return. Such is not the case when you invest in private mortgages, since many offer terms that are generally one year in duration (although longer terms are also available sometimes). This means your money isn’t locked in for an extended period of time. And with CMI’s private mortgages, you also have the option to renew your investment once it matures if both you and the borrower are interested. The choice is ultimately up to you.
It’s important to note that the decision about investment suitability, when it comes to private mortgages or any other investment product, is not one any investor should take lightly. In effect, it’s very much a function of several factors including your investment objectives, time horizon, risk tolerance and expectations for a rate of return.
These factors and the questions outlined above are all important to consider and should form an excellent starting point in deciding whether private mortgages investing is right for you.
In many cases, a more in-depth analysis and conversation with your investment advisor may be in order. They can provide you with the guidance and advice you need to make an educated and informed decision about whether these alternative investments can be the right fit for you and your portfolio. If nothing else, this should provide a great excuse to initiate this conversation.
To learn more about our private mortgage products, or any of our other mortgage investment solutions, fill out the contact form at the bottom of the page and one of our Investment Managers will reply to you within 24hrs.