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Private Mortgages: Investments
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Private mortgages are illiquid, meaning that you cannot easily cash in your investment so you really have to be forward thinking. Most private mortgage investors will only agree to lend for a one-year term to help minimize the risks inherent to the real estate sector.
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Private mortgages can ... be held in a self directed RRSP. Mortgages are an ideal RRSP investment because they earn interest income that can be sheltered within the RRSP. If you were to invest in a mortgage outside of your RRSP your interest income would be taxed at your full marginal tax rate, thus lessening the benefit of your investment.
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Private lenders could be anybody. Usually, they are people with extra money to invest. To them, investing in mortgages allows them to achieve a higher return on investment (ROI) compared with bank savings accounts or GICs.
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In most cases Private Lenders are retired individuals who are looking for a better rate of return than is available to them at a Bank. They are willing to fund mortgages as they can usually generate a greater return for their investment dollar.
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Although investing in private mortgages is a minor part of the total investment market those investors who brave the waters are quickly hooked on a relatively safe way of investing in real estate at one remove. Whilst it is not a totally risk free way of earning a return on your capital, it is a risk controlled way.
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Historically, investing in private mortgages has always paid above average dividends but remained exclusive to those with large amounts of capital and mortgage administration experience. A Mortgage Investment Corp. fund allows a much larger segment of the market to become involved.
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