12 November 2019

Investors Look to Mortgage Funds as Alternative Investment Amidst Low Return Rates Elsewhere

Nadia Sabaini
Nadia Sabaini Commercial Lawyer

With the share market and many other traditional forms of investment seeing rapid decline in returns over the last twenty-four months, investment in the lending sector has become a hot topic, our finance director, Nadia Sabaini, explains.

‘Many of our accountant and financial adviser referrers are expressing their clients’ concerns at dropping rates of return in traditional investment options such as share market investments. This has triggered a lot of interest in a slightly less-known sector of the market that has seen a surge in activity recently, non-bank finance.’

‘Private lenders and mortgage funds have been happily filling the gap left behind by the banks and credit unions since they began tightening their credit terms some time ago.’

‘Many borrowers, such as real estate developers, are struggling to obtain traditional bank finance or extend existing bank finance terms in the present market, and are looking to alternatives, such as second mortgage finance from a non-bank lender, to complete projects, or even as a full finance option on some cases.’

‘Many privately owned mortgage funds are presided by persons experienced in the industry in which they lend, who can conduct due diligence in a much more business-minded fashion, and can see a good opportunity when it arises, without lengthy application periods and tick-box requirements.’

‘There are also a number of very reputable finance businesses that provide short-term and long-term business finance, again aiding businesses who can’t wait for or might not qualify for bank finance.’

‘This has led many investors to consider if they should diversify and invest in a mortgage fund as part of their strategy. Some of these funds are returning in the double digits and present a lucrative investment opportunity, but, as with any kind of investment, it requires some careful thought.’

‘Investors looking to enter the lending game will need to decide whether to lend in their own right, invest in a small fund, or park their investment with a much larger fund.’

‘An existing mortgage fund will typically want to know the size of the proposed investment and the extent of the investor’s proposed involvement in the management of the fund. There is no one size fits all.’

‘The investor should carry out due diligence on the fund they are proposing to invest in. Make sure it has good reporting practices, check the financials, visit the office. Conversely, mortgage funds wanting to welcome new investors should ensure that they have an Information Memorandum ready, their financials are in order, and can demonstrate though official reports their lending strategy and track record, not only the rate of return but also their internal policies and procedures, percentage of defaults, complaints etc.’

If you’d like to know more about Bennett & Philp’s finance team and our work within the lending industry, don’t hesitate to contact us on +61 7 3001 2999 or via our contact form.

 

 


Individual liability limited by a scheme approved under professional standards legislation (personal injury work exempted).

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