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What you need to know before investing in private mortgages

From researching a firm’s track record to their risk practices, there’s plenty to consider to unlock the investment potential of funding private real estate lending
Do your homework before selecting a company to best manage and grow your money.

Doing your due diligence. It’s a phrase often heard when there's a call to gather as much pertinent information as possible before making an important financial, career or life decision.

In short, make sure you do your homework first.

When it comes to applying that practice while exploring the world of private mortgage investing, there are some vital avenues you should investigate prior to selecting a company to best manage and grow your money.

What is private mortgage investing?

Private mortgage investing deals with lending funds to borrowers for real estate purchases or refinancing, with the property serving as collateral.

“That provides investors with a level of protection,” says Chris Baker, VP Investment Sales with CMI Financial Group, a leader in the private mortgage investment sector. Baker adds that not all traditional means of investing possess that considerable safety net.

While private mortgage investing does allow investors to access the potential benefits of the real estate market, it dispenses with the associated costs, such as property management, building upkeep, and other overhead that can detract from your investment funds.

Again, that’s because mortgage investing is not like real estate investing because you are not investing in physical property, but in mortgages backed by the property.

“Mortgage investing also offers the opportunity to diversify your financial portfolio, and can act as a stabilizing force thanks to steady income and minimal correlation to public markets,” Baker says.

While private mortgage investments are less liquid than stocks - the average term length is around 12 months - returns can range between six and 16 per cent.

Typical investors can come from two categories - firstly those considered to have accredited investor status. That means they have an annual income exceeding $200,000, or either possess net assets in the region of $5 million, or $1 million in financial holdings. This would qualify them as an accredited investor to directly provide whole mortgage investing - essentially, lending the entire sum of the mortgage.

Secondly, those who do not meet the minimum net worth, income and capital requirements can pool their funds with similar investors through a mortgage investment corporation (MIC). A MIC invests in a diversified portfolio of private mortgages and requires a much lower minimum investment than a whole mortgage investment.

How to select the right private mortgage investment firm for you

So, how do you go about choosing the right company to manage your private mortgage investments?

Baker says a good starting point is consulting a trusted financial advisor, attorney or accountant who specializes in real estate investment management.

Also helpful is getting first-hand accounts from those investors who have already had experience in private mortgages.

Then, make sure to enquire about a firm’s history in the private mortgage business - how long they have been around, their industry reputation, and the size and growth of their assets under management.

“It’s important to remember that experience isn’t just limited to years of service, but also total funds deployed,” Baker says.

Find out their risk management practices and terms and restrictions, as well.

“The better lenders have not only a proven track record of successful mortgage placements, but are also geographically diversified,” Baker says, adding that is a good strategy to address regional fluctuations in housing markets.

CMI Financial Group is a non-bank financial services provider dedicated to helping investors achieve competitive fixed income returns for their investment portfolios by sourcing high quality mortgage investment solutions - backed by real estate - that match their investment objectives and risk tolerance.

For more information about the benefits of mortgage investing and determining if it is the right investment strategy for you, visit