Not a bad return.
Yep. I've set a couple of funds up in the past. More or less retired these days and recently retired as a Responsible Office for 2 funds with $100M under management. Still provide compliance for those funds which have never lost a $ for any investor in the past 10 years and pay about 7.5% (retail fund) and 10%+ (wholesale fund). I have no financial interest in either fund any longer (so not ramping them) but still consider contributory mortgages one of the best investments around for the risk adverse. For those unfamiliar with the product the LVR's are about 55% on average generally backed by metro residential 1st mortgages. Contributory mortgages are where the investor chooses the mortgage they want to invest in. The other type of mortgage fund is pooled where you invest in all the mortgages in the Fund and the Manager decides on which loans the Fund invests in - ie you are stuck with the Managers credit choices - not yours. Not many contrib funds around these days but look at www.millbrookgroup.com.au for a few details if you like. Download a PDS for more info.
10% you say? never lost money you say? Risk adverse you say?
No - not even any money invested in those Funds. Just making a comment that I consider that type of investment as one that has relatively low risk for a return almost as good as the market's historical average. As for the link, I'm just using them as an example of how a contributory mortgage fund is structured and operates.
Not at all - I was simply answering the question how I would invest. I'm not suggesting that plan would suit everyone. And yes, only 4 posts but it's my first day here after several years and a few thousand posts on the Commsec forum which closed recently.
Ah your friend must be the one that keeps sending me those emails.
welcome
Hi - well inflation isn't running at 7% so anything paying 7% should see you in front. But the real question investors need to ask themselves is whether a higher paying investment in say crypto (God forbid) or perhaps a second mortgage or a marginal property development mortgage (paying say 15%) is worth the potential risk. Most people on a site like this can make their own value judgements but many retail mums and dads simply don't have a clue and a highly regulated retail first mortgage fund mitigates many of the risks they probably don't think about. There is no such thing as a risk free investment, but apart from almost paying a bank to hold your money options are limited. Also most retail mortgage investments are relatively short term (about 12 months) and while there is no right to withdraw until the borrower repays the loan, investors money isn't tied up for long periods of time.
I would happily put some money on low risk 7%return.
Oh - now I see your question. Well every mortgage fund is different but the one thing they have in common is that their borrowers are not able to borrow from mainstream lenders like banks. Now while that immediately suggests this type of loan is risky it needs to be recognised that most mortgage fund lending is not your typical home loan because these are so highly regulated they are almost exclusively the domain of the banks. To lend on a consumer mortgage, such a home loan or just about any loan to an individual that is not commercial in nature or involves residential property contrary to a very long list of compliance checks a lender needs to do runs the risk of said lender being unable to collect interest as well as opening up risk to financial penalties including loss of credit licences AFSL's etc. Now some lender do bend those rules to build their loan books (and you definitely wouldn't want to invest in one of those funds). The fund I mentioned previously, like a number of mortgage funds does not provide these regulated mortgages to avoid that risk. As such they are not providing 2% home loans. Property investors using companies as investment vehicles are not subject to the same rules and you would be suprised how many investors and developers want a quick loan against the value of asset without a need to prove financial capacity. An investor might be a tradie who wants to buy a property to renovate for resale or a developer who needs to hold a property for 6 - 12 months while they get plans, pre-sales and development funding in place.. These 'asset lends' attract rates of 6% - 10% depending on perceived risk, hence the 7% yield to an investors (the Fund manager usually picks up a 1% - 1.5% margin). All mortgages are backed by a valuation arranged by the Fund from a major property valuer and with loans of 50% - 65% on a standard suburban house (even if run down and worth land value only) I believe the chance of loss by an investor is low. Even if the market fell by 40% and there was blood in the streets and a lender should get the loan back. Even (especially) in the bad times there are always people with money prepared to buy a bargain.
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