Investing Strategies

Syndicated Mortgages – Is it RIGHT for you?

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April is best known for April showers and believe me, I’m one happy camper when it comes to rainy days!  While others hate those gloomy, cloudy days, for me, I get right into business – for these tend to be my most productive ones!  (I honestly hate working on sunny days – I’d rather be out and about and enjoying the sun with family and friends than working!)

Recently, some investor friends have been asking me about “Syndicated Mortgages” and whether they should be investing in such.  Well, first of all, let me explain how a syndicated mortgage works before you jump into putting all your money into such investments and expecting great returns!

An excerpt by Money Sense explains it like this: “A syndicated mortgage is where several investors combine funds together to create one financial instrument: a mortgage. When you invest in a syndicated mortgage, you are pooling your money with others to create a mortgage that will be registered and secured directly with the land or building that’s associated with that mortgage.”

As most of you probably know, banks will not lend you money for nothing.  When you purchase a property, you will require to put down a deposit so that the financial institution can provide you a loan for the remainder of the purchase price (with terms, conditions, etc. set out prior).  They do so because firstly, you have put down some of your own funds.  Secondly, the loan amount they lend you (mortgage) is strictly tied to the actual physical property they are lending on. And finally, they hold you liable for the amount owed.

This is very different in the case of syndicated mortgages where developers and builders use this strategy to realize their projects.  The banks do not lend funds without security.  And thus, the syndicated mortgages that investors put together are now used to cover the initial costs of the builder’s project including consultant fees, zoning permits, architecture charges, and even marketing and sales expenses (like commissions).  This means that this type of mortgages are not even secured to the actual building/house/townhome, etc. for whatever the project is.  And therefore, poses a risk to the investor should the project fall through, gets delayed, goes bankrupt, etc.  Although the mortgage is registered against the land, you are never the first in line to get back your investment should something go wrong.

Due diligence is the key to any type of investment, and especially true for syndicated mortgages.  And that is why the return on investment is usually higher 10% to even 30% sometimes.  Be watchful and keep a keen eye, do your homework before you put all your money in one type of investment! 

Hope this helps shed some light to those who are thinking about investing in syndicated mortgages.  In my opinion, unless you are the developer or builder of the project, or if you have 100% control of the project, my advice would be to steer clear of such types since there are far more investment opportunities that I believe are much more grounded and secured.

If you are interested learning about other real estate investment opportunities, feel free to contact us and we will be more than happy to assist you!

To another month of success!

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