It’s Time to En­hance Your In­come


Richmond Hill Post - - Summer Profession­al Registry - Jef­frey S. Ro­her - Trez Cap­i­tal 401 Bay Street, Suite 1401 • 647-788-1780 [email protected]­cap­i­ • www.trez­cap­i­

In­vestors of­ten ask what their op­tions are for earn­ing more than a typ­i­cal GIC rate of 1% - 2% an­nu­ally. In­vestors to­day want higher rates of re­turn, but do not want to take on too much risk for their in­vest­ment dol­lars.

In the fixed in­come space (as op­posed to in­vest­ing in typ­i­cal “stocks”) there are a myr­iad of in­vest­ment op­tions rang­ing from sim­ple GICs to com­plex de­riv­a­tive strate­gies. The rates of re­turn are gen­er­ally unattrac­tive in GICs and there is too much risk in com­plex prod­ucts. In­vest­ing in commercial real es­tate mort­gage pools are a per­fect bal­anced ap­proach to earn­ing an at­trac­tive rate of re­turn while pre­serv­ing cap­i­tal. In ad­di­tion, they are easy to un­der­stand as most in­vestors have at some point had a mort­gage. Mort­gage pools are a bas­ket of in­di­vid­ual mort­gages that gen­er­ate in­come via in­ter­est pay­ments made by the bor­rower. This in­ter­est in­come is then used to pay the in­vestor their quar­terly dis­tri­bu­tions.

When eval­u­at­ing mort­gage pools, there are three key con­sid­er­a­tions. First, an in­vestor should as­sess who the in­vest­ment man­agers are and what their track record of suc­cess has been. The in­vest­ment man­ager’s track record and longevity in the busi­ness will be a good in­di­ca­tor of the re­sults you can ex­pect. The man­ager’s ex­pe­ri­ence in sourc­ing and un­der­writ­ing mort­gages is in­dica­tive of the mort­gage pool’s abil­ity to pro­vide en­hanced re­turns over the long term. Sec­ond, in­vestors should un­der­stand what the fo­cus of the in­vest­ment man­ager is. Is the in­vest­ment man­ager lend­ing against sin­gle fam­ily homes, multi-res­i­den­tial and/or commercial? In ad­di­tion, is the man­ager con­cen­trated in one or only a few ge­o­graph­i­cal ar­eas? A mort­gage pool that is di­ver­si­fied by as­set class and ge­og­ra­phy will gen­er­ally be less risky than one that is not well di­ver­si­fied. Fi­nally, ask what kind of in­ter­est rates are be­ing charged on mort­gages. Are the rates fixed or float­ing? What is the aver­age term of the loans? A mort­gage pool with float­ing rates that are short in du­ra­tion is gen­er­ally prefer­able as it mit­i­gates risks as­so­ci­ated with in­ter­est rate fluc­tu­a­tion.

When used strate­gi­cally to com­ple­ment tra­di­tional in­vest­ments, mort­gage in­vest­ment pools can help cre­ate a more ef­fi­cient and di­ver­si­fied port­fo­lio by pro­vid­ing con­sis­tent re­turns and higher yields, while pre­serv­ing wealth. For in­vestors wish­ing to ex­plore op­por­tu­ni­ties to en­hance one’s in­come, con­sider in­vest­ing in mort­gage pools.

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