A syndicated mortgage can be as simple as two people jointly loaning a third person a mortgage on their home, or as complex as a group of investors jointly backing a major development project. These products are often pitched as high-return, low-risk investments.
Money is raised by developers and builders to fund the earliest stages of development – to acquire land, hire architects, or obtain building permits – before bank financing is available. In this early stage, there is a possibility that things could go wrong. For example, permits could be denied, construction could be delayed, too few units could be pre-sold, or there could be an economic downturn. Syndicated mortgage investors are subordinate to banks and other primary lenders, meaning that they’re further back in line for repayment if something goes wrong with a project.
Before making a decision to invest in syndicated mortgages on development projects, ensure that you do your due diligence, scrutinize the track record of the developer, examine the actual location of the project, and understand the potential risks. If possible, have a discussion with your financial advisor.
Sources:
Toronto Star: www.thestar.com/business/2016/04/29/the-high-risk-world-of-syndicated-mortgages.html
Macleans: www.macleans.ca/economy/realestateeconomy/syndicated-mortgages-and-the-coming-condo-market-crash/
Moneysense: www.moneysense.ca/spend/real-estate/when-to-invest-in-a-syndicated-mortgage/