With so many conflicting reports and statistics thrown out there by different banks and government bodies, and continued volatility in the stock market, it’s no wonder there’s confusion and uncertainty around investing.
As someone who’s been in this business for decades, and who has experienced the tumult of both the 2008 financial downturn and the housing market crisis of the 1990s, I’ve been watching the events of 2020 with great interest. My opinion is this: unlike these previous crises where there was a complete freeze, today’s environment continues to have lucrative and viable opportunities available to savvy investors, particularly when it comes to private debt investing in residential commercial real estate mortgages. In fact, for investors willing to act, the time is right for accessing some phenomenal opportunities.
For those interested in this area that is sometimes overlooked and often considered inaccessible, here are some reasons to consider private debt investments right now.
COVID-19 has created a vacuum
With the chaos created by the global health pandemic, banks have pulled back, leaving high quality borrowers looking for new lenders. As such, many are moving into the private lending market. These borrowers tend to have a lot of experience in development and building, have high quality land in prime locations in the GTA or the Greater Golden Horseshoe, and have proper zoning and entitlements already in place. For those looking to invest in high quality borrowers with high quality locations, this timing is perfect, as it means they’ll be able to get the yield they’re looking for.
My advice: Act on these opportunities quickly, as the banks will refocus on these borrowers soon and these investment areas will become more scarce.
Engage with an active and transparent investment group
For investors wanting to dip a toe into the commercial real estate industry, it’s critical to work with someone you trust, who’s transparent about the investments offered, and who actively manages all investments, especially in times like these.
My advice: Deal directly with the people who are putting in their own money in the investment, shoulder-to-shoulder and who have good experience within this industry.
Private debt investments are the right vehicle for those willing to take long perspective
Private debt investments are an ideal vehicle –– if you’re the right kind of investor. For those looking for a quick turnaround, this isn’t a good option. But for those who have money they don’t need for the foreseeable future, and that they’re able to set aside without touching for two or three years, the returns can be extremely lucrative.
My advice: For investors willing and able to take a long-term view, now is a great time to partake in residential commercial real estate mortgage investments. The quality that’s available right now is almost unprecedented, and shouldn’t be missed.
Private debt investments aren’t only for those with high net worth
While individuals with very high net worth are most often comfortable and familiar with private debt investments, the gate isn’t closed for other investors. Individuals who make more than $300,000 per year and have a family net worth of more than $1 million in liquidity should definitely consider this type of investment opportunity, but so could a senior executive who has been recently packaged out of a company and has come into a large payout that doesn’t need to be accessed or used in the near future. Or an individual in their mid-50s who has paid down most of their debt, and is in good shape from an income perspective. We recently had an 18-year old investor who lives at home and saved $30,000 to invest in commercial real estate. A successful private debt investor needs to understand the terms of the investment and feel comfortable in having that investment at arm’s length for a matter of a few years.
My advice: In a time when traditionally strong investments such as retail and hospitality are suffering, it’s the right time to at least diversify your portfolio. With residential commercial real estate stronger than ever, now is the right time to consider its inclusion.
Downturns always end
While it’s difficult to predict an economic downturn, it’s always easier to predict the end of one. Hedge your bets that the current downturn will end and you’re going to be alright.
Knowing that the end is coming might also mean a tightening of opportunities in residential commercial real estate mortgages. Don’t wait to get into the game.
For more information about residential commercial real estate mortgage investments visit Dorr Capital.