It’s Time to Enhance Your Income
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.