What is a syndicate mortgage?
A syndicate mortgage is where several investors combine funds together to create one instrument (a mortgage). The investment ‘moves’ as one funding but each investor is individually registered and secured proportionally.
Why invest through syndicate mortgages?
Syndicate mortgages allow you to have direct collateral for your investment and ongoing returns from the interest earned by the mortgage. Opportunities to invest in real estate development through syndicate mortgages provides investors the ability to earn higher returns through a deferred lender fee while still maintaining solid security and collateral on their principal investment (Speak to a licensed mortgage agent and see contract for details).
Why invest in real estate?
All markets (stocks, resources etc) have cycles and periods of upturns and downturns. Real Estate offers the ability to diversify into an area often underserved in many consumers’ portfolios. The ability to collateralize directly to an actual asset makes Real Estate an attractive option.
How do I earn profit?
On most projects, you’ll earn profit through two different means. The first is through regular interest payments paid on your money while the project is progressing. The second is through a “deferred lender fee” upon completion of the project.
Why not just invest in the corporation itself?
Owning shares in a corporation can offer a larger return and more profit but can also present greater risk (cash calls, dilution etc).
Why do developers use/need additional financing?
Developers work with an equity partner or mezzanine lender to get access to additional capital they need outside of the funds the bank provides to buy the land and finance the construction. Developers are carefully screened and contribute their own equity and cash at prescribed intervals.
What is an appraisal?
Appraisals are provided by AACI designated members. These professionals are tasked with providing hard, reliable valuations of land to banks, especially when land is being purchased. This baseline for value provides a key element of assessing the current value of a project.
Why are appraisals and valuations so important?
Appraisals are critical as they help assess the ‘loan to value’ ratio of a deal. This is one of the formulas that illustrate the degree of risk associated with your investment. Since you’re secured against the land/property, the value of that asset is key in the event of any problem with the project; the asset can be sold to help recover your principal investment. When appraisals aren’t available (eg lack of direct comparables), a third party research company is engaged to provide detailed analytics to assess the value of a property or parcel.
What about the risks of cost over-runs and delays?
Everyone has heard of or seen horror stories where construction projects have either stalled or sat unfinished for years at tremendous cost to investors. This is often a result of a failure to achieve zoning or not having the proper financing in place (low pre-sales etc). Projects that have minimal zoning risk and strong sales objectives help protect the investor from any sort of protracted delays. Additionally, high-rise projects are to be insured and bonded. This is an essential component to approving any build so investors are insulated from delays and budget stress.
What if the developer or development fails?
A default would occur if the developer cannot pay back the funds by the maturity date of the contract. This can be proactively mitigated by the developer by:
a payment to investors in exchange for an extension
an institutional refinance to buy out the Investors
If these cannot be achieved, then the process would commence to sell the property to recover the investor monies. This is a significant advantage to being secured via syndicate mortgage; recovery of your investment will take priority over all unsecured debts, monies owed by the corporation and even construction liens.