When you are looking at real estate as an investment vehicle sometimes you get locked into a particular point of view. It can come from your background or the education that you have already received around investing in real estate.
What I really find amazing about real estate is that it does not care about your age, background or gender and there are many different avenues to earn income and create wealth.
You could decide to become a real estate professional and work as a realtor, mortgage broker/agent, or property manager for income. Or you could focus on transactions like flipping houses, assigning houses, or lease to owns.
There is also the ability to create long-term wealth and cash flow and give you the opportunities to do whatever you want outside of real estate by choosing the right long-term hold properties.
Whatever strategy you choose to focus on will be affected by your goals, ability to finance, ability to gather a down payment, and time.
One way to earn income is through mortgage investment instruments such as second mortgages, REITs, mortgage investment trusts, and syndicated mortgages.
My personal point of view is that these instruments should only be used when you have exhausted your ability to finance properties yourself or through joint venture partnerships, and you understand the risks associated with these types of investments. I personally feel that you will be able to obtain better returns if you were to put your money into a joint venture partnership, as a money partner in a great long term rental property. But for some people partnerships are not what they want to do and they’re looking for a short-term place to put their money.
There are many different mortgage based investments that are out there that are constantly vying for the attention of potential investors. Companies may offer dinners and events to help promote their particular product. Other times you don’t easily see any company affliations. Asking the right questions can help.
Please understand, that sometimes the effective rates that a developer may be paying for accessing the funds from a mortgage syndication are closer to 35-40%, whereas the investors who placed the funds in the syndication are getting a 8-10% return, unaware of risks associated with the investment.
Not all of these investments are the same and some are packaged in a way to make them seem that they are a low risk investment, when really there is a lot of risk associated with a particular investment type.
I created a tool for investors to help them assess the risk of Mortgage Based Investments with the help of some very smart people that I respect, I’d love to get your feedback on it.
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.