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Archive for April, 2013

Investment, will help you to retire fast, with money in your packet

Most people are not familiar with private mortgages. There is nothing new, but rather a business as usual in the financial industry to turn to private individuals and or mortgage investment companies to get a mortgage when banks turned applicant down. Private mortgages fill the gaps that institutional lenders, such as the banks, are unable or unwilling to lend. They offer an alternative source of financing to borrowers and a high yield investment opportunity for investors.

Institutional lenders have their lending criteria, guidelines written and they are not able to approve some request if it does not fit the parameters of such. However private investors are able to review and make their decision on case to case bases, using their common sense and making their own decision. Due to the higher risk, these mortgages cost more by rate and fees as well so investors can usually generate a greater return on their investment in a private mortgage transaction, risk assessed rate and fee charged.

logo creatorBorrowers forced to see alternative lending sources must turn to private lenders.  Private Lender Inc. is a private lender firm, lending its own funds from his own investment capitals and also has many private investors lending their funds on the recommendation of Zoltan M. Padar president of Private Lender and also broker at MortgagePRO Ltd. Location, MortgagePRO is not licensed will be referred to many of our licensed co brokers and or private investors to ensure positive outcome.

Investors in private mortgages must be willing to take risks. They must be willing to become involved in the investment process and must know what their tolerance to risk is. They should not simply rely on the recommendation of a lawyer, a real estate agent, or a mortgage broker when entering into a transaction. They should fully understand what they are getting involved in before they agree to invest their money in any transaction.

Here are some issues the potential private lender must be clear with before investing:

  • location is where they want to lend the property located
  • property designation; residential, commercial, industrial or recreational
  • position they are willing to lend: first position, second and or beyond
  • the so called LTV. Loan to value is the indication of risk involved
  • the amount for each mortgage
  • first mortgages require large capitals, however second mortgages start at $15,000
  • interest rate investor wish to earn, higher risk, higher return
  • using own investment capital or RRSP
  • advantages of using RRSP are: tax savings on three different ways, profit is also sheltered from tax

Yields on mortgage investments determined by risk. In today’s market you can expect a yield of 10% to 13% for a moderate level (75-80% LTV) of risk. 85% LTV will bring you 16% or even better return. Minimum investments of $15,000 are required for private mortgages.

The typical borrower who needs private financing:

  • self employed individual
  • someone who may have had a bad credit history in the past
  • borrower does not fit the TDS GDS requirement of the bank

Private mortgages can also 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. Find more about this opportunity here.

In summary, private mortgages can be a very rewarding form of investment but they are very much a hands on investment. You must be willing to take the responsibility to choose the investment that meets your needs and your tolerance to risk.

If you are interested in making an investment in private mortgages, or would like more information, please contact Zoltan M Padar 403-253-2022

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Importance of due diligence for private lenders

There is no way to invest 100% risk free. But it is a way to mitigate your risk and bring the exposure to it to a more comfortable level. It called “due diligence”  More of the information you have about the potential opportunity to fund a mortgage, better you will be able to make a decision. First of all, when you receive a request for a mortgage from you Mortgage Broker, you should get a package including:

  1. Application containing clients information, address, phone number, property address, indication of preceding mortgage if you are supposed to fund a second or beyond mortgage, client debt  level, client job information and indication of income (all the information provided in the application must follow documents as proof of the information at a later date, unless the Broker already has it and attach it to the request up front)
  2. Appraisal is very important unless you are a seasoned lender and will make your own evaluation based on property assessment and MLS listings. Some instances the borrower wants to see a commitment from the lender subject to property value and then only pays for an appraisal.

    RRSP investment with great return and substantial tax savings

    RRSP investment with great return and substantial tax savings

  3. Credit bureau will show first of all a Beacon score. Many lenders are sensitive, however as a private lender it means only one thing; the lower the score is, the higher the risk is and the higher the rate investors charge in return for tolerating. Careful analysis of a credit bureau will give you much useful information about the client’s character and financial well-being. Make note, if the client has a great score and good history, the banks will provide them mortgage with a great rate and you will not be given the opportunity for a great return. Clients with issues will pay premium rate. In any case, till you are familiar with credit bureaus and know how to read them, you need to consult your Broker, sent you the request and ask questions.
  4. Miscellaneous documentation might or might not be included in the initial package, however it is the practice your Broker wants to see first if you are interested in the deal or not.
  5. Lender Proposal/Disclosure Statement will provide you with a knowledge of client, property, preceding charges and the request made by the client. The amount of the mortgage requested, the rate might client will agree to, the fees charged by the Broker and others, the fees for other services, the Loan To Value Ratio and a synopsis of the application. Also it will remind you  of the importance of the “Due Diligence” process and that you are encouraged to make it thorough as the decision is yours and yours only.

Turning down a request is better than pushing through and have problems later on.  Even a well researched and considered mortgage can go “sideways” and a looks like very complicated and high risk mortgage can be just fine. Your Broker will certainly will provide you support and advice but you must make the approval yours and not of anybody else’s. After all it is your money.

MortgagePRO president Zoltan M. Padar is also a private lender for over two decades, lending his own funds and provide opportunities to private investors like you to lend your capital and or your RRSP funds into mortgages, secured by real estate across Canada. Visit him on his own website and also on the website he is promoting lending by investors. Never too busy to answer your question, just email Mr. Padar, you will get an immediate respond.