HOW TO BECOME A PRIVATE LENDER
Becoming a private lender is easy. There is only one basic requirement: You need to have access to money to lend out. We handle the rest.
HISTORY OF PRIVATE LENDING
Private lending is one of the oldest forms of financing and businesses in the world, it existed long before there were financial institutions like banks and predates the invention of money. Eventually evolving through ancient history into pawnbrokers providing secured loans using personal property as collateral. Modern day private lending in real estate has increased in popularity for many reasons. For investors, they find private lending attractive because it is passive income and can yield significantly higher and more predictable return than other forms of investing. For borrowers, they are faced with strict lending guidelines from financial institutions.
WHAT IS A PRIVATE LENDER
There are only 3 types of private lenders recognized in Canada:
- Real/Direct Private Lenders – One investor, either an individual person or company, investing their own funds into a single loan.
- *This is what we provide and will get into detail below.
- Mortgage Investment Corporations (MIC) – Investing in a corporation that pools funds, lends money out based on their Offering Memorandum, and distributes profits back to investors as dividends (Mortgage Income Trusts and Mortgage Income Funds operate in similar ways to a MIC.)
- Mortgage Syndicators – Two or more investors, investing into a single loan (similar to a Joint Venture.
*Both a MIC and Syndicator require specialized licenses from provincial securities commissions. MortgagePro Ltd. is a licensed mortgage brokerage and does not offer MIC or syndicated investments, neither does Private Lender Inc.
WHERE TO FIND OPPORTUNITIES TO INVEST IN PRIVATE MORTGAGES
Your best resource for finding investing opportunities is through a mortgage broker. However, not all mortgage brokers are experienced to deal in private mortgages. It is important to find a mortgage broker who invests their own funds and has dealt in private mortgages for several years. An experienced broker can thoroughly review a deal and manage your investment. Private lending is a niche market, many brokers do not have the knowledge and systems in place.
WHO ARE PRIVATE MORTGAGES FOR
Property owners and buyers have limited options outside of financial institutions. Lenders, insurance providers, and government bodies are tightening lending criteria and making it more difficult to get approved. Many property owners and buyers have good reasons to borrow from a private lender. It can be especially difficult to find loans for individuals who are self-employed and investors.
Visit our Loan Products page to learn more about what we have to offer.
RISKS OF PRIVATE LENDING
Private lending is relatively low risk when investors remain loyal to fundamental investment principles. Simplicity is the ultimate sophistication. Investors understand that all investments carry risk. Real estate is tangible and over a long period of time will generally appreciate. The level of risk you are comfortable with varies from person-to-person and can vary throughout your life stages.
When a private lender and borrower agree to a loan, they enter a loan contract, a mortgage. The primary risk for a private lender is a borrower that does not pay the loan, known as a default. There are various remedies to correct this breach of contract. Like all other forms of collateralized lending, the property has been pledged by the borrower as security. Therefore, the lender is entitled to take possession of the security if there is a breach that cannot be remedied. A legal process must be followed to take possession, either through a foreclosure or power of sale – the legal process varies provincially. The lender only takes a loss if they decide not to enforce their legal right to possession in the contract.
Canadians have one of the lowest mortgage default rates in the world and significantly lower than US rates.
The Canada Mortgage and Housing Corporation (CMHC) produces a report that verifies this information. This report is titled: Canadian and U.S. Residential Mortgage Arrears and Foreclosure Rates.
There are a few different ways in which a borrower can breach, and it is up to the lender to decide their policies (within law.) A breach can also consist of property tax arrears, condo fee arrears, failing to adequately insure the property, damaging the property, and arrears on loans that take priority. It is a common misconception that a borrower must miss 3 payments before any legal action can be taken.
Find out more about how we lend and the Private Mortgage Investing Process.
DISCLAIMER AND IMPORTANT INFORMATION
This web site is for discussion purposes only. It is intended to provide the reader with an introductory education on the investment philosophy of MortgagePro Ltd. and Private Lender Inc. This philosophy may not be suitable for you. Neither the information nor any opinion expressed within this web site constitutes an offer to sell securities or financial instruments or provide any investment advice or service. Furthermore, any discussion of past performance mentioned in this web site is not intended to provide an indication on future performance. Laws and market conditions are constantly changing. Before you act on any of the information contained herein, you should consult your local lawyer, tax professional, and industry experts. It is also highly recommended to review the licensing status of any of the individuals you deal with.
Ready to invest? Contact us, we look forward to investing with you!