Big News in the Real Estate Sector Today

There’s some big news in the real estate sector today, with the National Post putting the story on the front page. Sales in Vancouver were up 117% in August this year over last year, and nationally prices have increased approximately 11%.

There is no question that low mortgage rates have fuelled most of the positive numbers in real estate. It will be interesting to see what happens to real estate as rates start to rise. When they rise is up for debate, but it is safe to say that they will likely start rising sometime in late 2010 if not sooner.

The Federal Reserve Chairman (in the US) has indicated that he thinks that the US is finally out of their recession. He did provide some caution, stating that he thinks it will be a while before the unemployment rate eases, and that the recovery will be slow. This is good news for mortgage rates if it is true, as weak markets have little inflationary pressures and translate into the low mortgage rates that we have today. Expect low rates in their current range for at least 6 months.

$100,000 to invest? Expect returns of 10 to 15 per cent with low-risk private mortgages

Earlier this year, I sited three opportunities that exist in real estate for 2009. They are: a) investing in real property; b) early renewing your mortgage to pay-off your mortgage quicker; and c) investing in private mortgages.

Most people think they should call a mortgage broker only if they are buying their first home. However, a seasoned mortgage broker can help you re-examine the largest liability you have, which is normally a mortgage.

In my October article I’ll look at private mortgages and investing in them. This is one area where we’ve helped individuals invest their money into secure, shorter-term mortgages. Our track-record in this area is better than most banks because of our low borrower default ratio, which is less-than a half a per cent.

Are you a good candidate for investing in private mortgages?

Most private investors have some experience in owning real estate. Many have owned real estate investments and know that real estate does not fluctuate nor is as risky as investing in the market.

Because of the tightening of the credit markets, financial institutions are only giving mortgages to individuals with great credit history and good job stability. Individuals with weaknesses in these two areas require alternative mortgage-financing which often includes a private mortgage. Essentially the private investor, replaces the role of the financial institution, and gives a borrower a mortgage.

Another area of opportunity with private mortgages is in commercial real estate investments. Again this opportunity is a result of the tightening of the credit markets. In this area, the borrowers tend to be stronger than residential borrowers. One key reason for their need in a private mortgage is that they can’t come up with the 35% or 40% that the banks are requiring now for a commercial mortgage.

What are the risks?

The main risk in investing money into a private mortgage is that the borrower defaults on the mortgage. If you a working with a reputable mortgage-broker, before you invest in the mortgage, they will review the borrower’s profile and the pros and cons of the investment.

You will also work with your lawyer who can counsel you on the investment.

Nonetheless, if the borrower is to default on the mortgage, you will still have access to the real estate asset which you can sell and recoup most of your losses. You will likely get the majority of your investment back, which is more than we can say with investing into the markets.

How do I learn more?

Contact The Mortgage Centre to learn more or a reputable mortgage broker that has been referred to you.