Wealthy Canadians are increasingly liquefying their assets to get into mortgage lending, with a very real impact on their advisors.
The thirst for homeownership even as prices skyrocket has a growing number of Canadians turning to private mortgages, and a growing number of advisor clients looking to provide those funds at a return much larger than their portfolios can provide.
This scenario may threaten advisors as those clients look to liquefy some of their investments in order to free up the cash to lend.
Still, it’s important that advisors arm clients thinking of doing so with information on the pros and cons of working directly as a private mortgage lender or going through a mortgage investment corporation.
“The obvious question mark around investing in the space [Vancouver/Toronto residential real estate] is that real estate values are quite high,” a Vancouver-based mortgage professional who prefers to remain nameless told WP Monday. “It’s important that if you’re investing in a MIC manager that’s earning higher yields, they’re not also capturing a big amount of the economics because they don’t pay it back if the market tanks.”
When it comes to clients investing in private mortgages it’s important to remember that while they might pay above-average yields, the lack of diversification when investing in a single mortgage along with the fact the people in need of these mortgages don’t have the best credit, makes the risk profile too high for the average client with investable assets of a million or more.
A possible alternative to private mortgages and MICs is to invest in public residential REITs. However, those primarily involve investments in the equity of those companies rather than the mortgages themselves.
“A lot of the information [private mortgages] is highly specialized so if you don’t have a lot of experience in real estate then you could be putting up more risk than you’re getting paid for,” he said. “I wouldn’t recommend it unless people know what they’re doing. They’re probably better off just investing in the markets.”
This scenario may threaten advisors as those clients look to liquefy some of their investments in order to free up the cash to lend.
Still, it’s important that advisors arm clients thinking of doing so with information on the pros and cons of working directly as a private mortgage lender or going through a mortgage investment corporation.
“The obvious question mark around investing in the space [Vancouver/Toronto residential real estate] is that real estate values are quite high,” a Vancouver-based mortgage professional who prefers to remain nameless told WP Monday. “It’s important that if you’re investing in a MIC manager that’s earning higher yields, they’re not also capturing a big amount of the economics because they don’t pay it back if the market tanks.”
When it comes to clients investing in private mortgages it’s important to remember that while they might pay above-average yields, the lack of diversification when investing in a single mortgage along with the fact the people in need of these mortgages don’t have the best credit, makes the risk profile too high for the average client with investable assets of a million or more.
A possible alternative to private mortgages and MICs is to invest in public residential REITs. However, those primarily involve investments in the equity of those companies rather than the mortgages themselves.
“A lot of the information [private mortgages] is highly specialized so if you don’t have a lot of experience in real estate then you could be putting up more risk than you’re getting paid for,” he said. “I wouldn’t recommend it unless people know what they’re doing. They’re probably better off just investing in the markets.”
