Who Can Invest in Mortgages?

At Active Property Group, we are often asked who can invest in private mortgages. The quick answer is anyone can invest in mortgages, provided they have the minimum investment amount required for the type of investment they want to make (click here for Target Market Determination).

There are a couple of different ways to invest in private mortgages and each way will appeal to a different type of investor:

Pooled Mortgage Funds

A Pooled Investment is where multiple investors all contribute funds to a Trust and the decision on which loans to fund rests with the Mortgage Manager. This type of investing is open to Wholesale Investors with a minimum investment amount of $25,000 and is also open to Retail Investors who have a minimum investment amount of $10,000.

This type of investing is for people who are interested in passive investment options that perhaps don’t have the time to actively manage their investments. It’s for people who would prefer to utilise the expertise of an experienced mortgage manager who will source investment opportunities and manage the mortgages so that they can just sit back and wait for their quarterly distribution.

For more information on direct and pooled mortgage investment check out our article here.

Direct Investment

A Direct Mortgage or Direct Investment is where a loan is provided by a single lender (investor) or multiple individual investors to a single borrower. The Mortgage Manager finds the borrower and matches them with an investor who has an appetite for the kind of investment on offer. This type of investing is reserved for Wholesale investors (see explanation below) who have a minimum investment amount of $250,000. It’s usually for people who are more experienced and want to play a more active role in deciding exactly where their investment funds are placed.

Difference between Wholesale and Retail investors

1. Wholesale Investor – this is someone who invests a minimum of half a million dollars in their first investment, or is a person or entity that has a minimum of $25,000 to invest and has obtained an accountant’s certificate within the preceding six months stating that they meet one of two requirements:

• They have net assets of at least $2.5 million, or
• They have a gross income of at least $250,000 for the last two financial years

2. Retail Investor – this is anyone who does not qualify in the above categories and has a minimum of $10,000 to invest.

Types of investing entities

Investment can be made through several identities including:

1. An individual – a singular investor how meets the requirements
2. Joint individuals – this is usually a couple who have an account in both their names.
3. A company – any registered company.
4. A Trust including a family trust, or any unit trust.
5. A Self-Managed Super Fund

SMSF Mortgage Investment Options

Self-Managed Super Funds (SMSFs) can invest in mortgage funds as an alternative to directly purchasing property. This is an attractive option for trustees seeking diversification, income stability, and professionally managed exposure to property-secured loans.

Benefits of Mortgage Investing for SMSFs

SMSFs often invest in mortgage funds because they can:

• Achieve property-backed income without purchasing or managing physical property
• Diversify across multiple loans rather than concentrating risk in a single asset
• Avoid complexities associated with SMSF property loans
• Maintain liquidity depending on the mortgage fund’s structure

Risk evaluation

When choosing to invest in private mortgages, an investor must decide which type of investing suits their risk profile. Direct investment is usually riskier as you are invested in a single loan while pooled mortgage funds are diversified across a portfolio of loans.

Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-term financial goals while minimising risk. This is no difference when investing in private mortgages. You can read more on this topic in our article: The Importance of a Diversification in Private Mortgages.

Experienced Mortgage Manager

No matter what type of investor you are, when it comes to private lending, working with an experienced mortgage manager who knows how to navigate the intricacies and mitigate the risks associated with lending, gives you peace of mind.

Active Property Group’s mortgage manager, Private Mortgages Australia, ensures that we are making sound lending decisions so that we continue to deliver strong returns to our investors. If this sounds of interest to you, head on over to https://activepropertygroup.com.au/private-mortgages/ and register your details and we’ll send you more information.

If you have any questions about investing in private mortgages then please send us a message via our Contact Page.