Why investing in pooled mortgage funds can really make your money work for you in 2022.
As the world slowly starts moving towards a post-pandemic period, you might be starting to think about the future again. With holidays, long Sunday lunches with friends and casual spending dampened for the previous two years, you’ve been lucky enough to tuck away a few extra dollars. And now it’s added up to quite a tidy sum of money.
It’s not money you’ll need to use in the very near future. It’s not been earmarked for anything and it’s just sitting in your bank account doing not much at all.
You might even be thinking the amount you’ve managed to put aside isn’t really enough to make a substantial investment.
But this is where you’re wrong. Because, with as little as $10,000, you can invest in the Australian property market through pooled mortgage funds.
Before you begin
Before making any investment decisions, you need to think about what you want out of your investment and how an investment can help you reach your financial goals. Here are some questions to ask yourself before making an investment:
Short or long-term investment?
Are you going to need your money very soon or are you happy to put your savings away for a while, perhaps invest in your retirement? Or does the idea of not having access to your money for years on end leave you cold?
Tip: You can invest in a pooled mortgage fund for as little as three months and leave it there for as long as you like.
What’s my risk tolerance?
Before investing any money into anything, you need to think about your risk tolerance. Ask yourself, how much you’re prepared to risk. As a rule of thumb, higher returns generally mean higher risk. One way to minimise risk is to have a diversified investment portfolio so your eggs aren’t all in one basket.
Tip: When you invest in a pooled mortgage fund You invest in a portfolio of loans so your funds are instantly diversified.
What security does the investment have?
When you invest in Exchange Traded Funds (ETFs) or shares for example your investment is based on the fluctuations of the stock market. It’s a lot more volatile than investing in property where house prices generally change more slowly. .
Tip: Pooled mortgage funds are secured by physical property.
Do I have enough knowledge and experience?
Every day we read about people investing (and losing) money because they didn’t understand what they were doing or how to invest their money wisely. It’s important to know where you’re investing your money and, even better, to have an expert managing it all for you who wants to see your investment succeed.
Tip: Most pooled mortgage funds are managed by an experienced fund manager.
Things are a bit challenging now
While we seem to be over the worst of the pandemic, the Australian economy is still in somewhat of a holding pattern.
House prices, especially those in the major metropolitan areas, are soaring.
The share market is volatile with many predicting that the bubble is about to burst. You only have to look at the stunning slump of the once bulletproof Meta (formerly Facebook).
So buying an investment property may be out of reach and the stock market may make you nervous but a pooled mortgage fund provides a solid alternative.
What’s a pooled mortgage fund?
A pooled mortgage fund is exactly what the name suggests. A group of investors, pooling their money to then be loaned out to borrowers using a mortgage over a property to secure the loan.
And best of all (other than the great returns), this is all managed by a fund manager. Your fund manager is responsible for:
- finding borrowers
- conducting due diligence
- managing the loan, and;
- making sure the loan and interest are paid back on time.
Who are the borrowers?
As anyone who’s taken out a mortgage can understand, banks and other lending institutions are not known for their speedy lending processes. And when it comes to repaying the loan, they’re happy to let you take 20, 25, or even 30 years to repay that loan. That’s where they make their money. The interest charged.
But what about the borrower who needs a fast turnaround? They want to access funds quickly and don’t want (or need) to be locked into a 20-year loan. In fact, they can have the loan repaid in 6-36 months. To access these kinds of lending conditions, these borrowers are prepared to pay higher interest rates and that’s where a pooled mortgage fund comes in.
Is my $10K investment safe?
While there’s no escaping the fact that all investments and lending carry some risk, our experienced fund managers mitigate this risk in a number of ways. The main way is by using conservative Loan to Value Ratios (LVRs) when lending to borrowers
A conservative LVR means that the amount loaned to the borrower is a lot less than what the actual property is worth that they’re securing the loan with.
Why is the LVR so important?
If a borrower is unable to repay a loan, mortgage manager holders can sell the property to recover the money loaned, along with any interest owed and legal fees. If this happens, it’s crucial that the value of the property held as security is worth more than the loan. That means lenders can recoup all monies owed to them following the sale of the property.
Is a mortgage fund a good passive income stream?
We certainly think so!
Once you’re invested your $10,000 (or however much you choose), that’s it, you can just sit back and wait for your regular distributions. Your fund manager will
What are the current returns on investment (ROI)?
Most pooled mortgage funds are currently paying between 5 and 10 percent per annum.
So, you have an investment opportunity that’s backed by the security of the soaring Australian property market and you can expect a return of somewhere between five and ten percent?
It’s no wonder a recent Independent Investment Research (IIR) report commissioned by Active Property Group (APG) said:
‘IIR has for some time now viewed Australian private debt as offering one of the most attractive risk-adjusted returns profiles. It is also one of the few asset classes where the skillset of the manager can actually demonstrate the manager’s capacity to ‘preserve investor capital.’
If you’re interested in learning more about investing in APG’s pooled mortgage fund, please contact [email protected]