This article appeared in the Australian Jewish News.
At a time when it appears nothing is certain, investing in mortgage funds allows control and transparency over investments, and yield with security.
As the official cash rate nears zero, bond yields struggle and residential property yields remain soft, private investors face a dilemma in trying to generate income without significant risk.
Private mortgages provide borrowers with secure competitive commercial mortgages from private institutions outside of the major banks, which are often hamstrung by regulatory and bureaucratic hurdles that other lenders don’t face. They also provide faster and complication-free settlement.
For investors, private mortgages have grown strongly in recent years as an assets class, generally offering 7-11 per cent returns for first ranking mortgages, and higher for second ranking mortgages, and a secure income stream that remains stable in dynamic market environments.
Bowery Capital co-founder Vann Fisher said private mortgages offer unique security, regular income and strong returns, as share market volatility and dividend uncertainty make it difficult to liquidate assets when required.
“At Bowery Capital your investments are backed by bricks-and-mortar Australian real estate, allowing for monthly returns unaffected by Australian consumer confidence or what happened on Wall Street overnight. For our clients, that security is important,” Mr Fisher said.
Bowery Capital’s investments are secured by ‘first ranking mortgages’ meaning the lender has the first right to proceeds from the sale of a property. Some second ranking mortgages are also offered depending on the circumstances. Approved borrowers provide personal guarantees and company charges as additional security. Loan to value ratios of less than 65% provide considerable protection for investors, even in a
Investors with Bowery Capital also have the ability to select which borrower they lend to and which property they are secured by, providing full transparency over the borrower, project and terms of investment. Each investment with Bowery Capital is also a stand-alone mortgage transaction allowing investors to diversity their portfolio by investing in multiple mortgages at the same time.
Bowery Capital’s co-founder and CEO Adam Smyth said the team’s background in banking, corporate finance, lending, economics, law and risk management has allowed the company to put its investors “in the shoes of the banks”, with a focus on providing secure returns for investors.
“While the demand from borrowers remains strong, our purpose is to be the most client-focused mortgage fund manager in Australia. Now, more than ever, our investors appreciate knowing the interest rate they will receive and the term of their investment at the outset,” Mr Smyth said.
“And, while we have always performed a robust due diligence, we have increased this diligence and stress testing this year to account for the impact of the global pandemic but, pleasingly, our sector has continued to deliver robust returns for our investors.”
Steward Wealth director (and Australian Financial Review contributor) James Weir agrees that private mortgages are providing safe harbor for investors looking for yield or self-funded retirees seeking low-risk, sustainable income.
“More and more, investors are asking us to recommend solid fixed income investments, particularly since the pandemic resulted in incredibly low government bond yields,” Mr Weir said.
“At the same time, the mortgage loan sector continues to grow strongly – mainly because investors have been able to earn yields varying of up to 11 per cent on loans between six to 24 months. That is extremely attractive to a certain class of private investor.”
While there is risk in any investment, many investors are looking to offset the volatility in the market – and within their portfolio – with stable yield and steady income. Private mortgages tick all the right boxes.