What structures work best for non-bank mortgage deals?

September 15, 2021

September 15, 2021

September 15, 2021

What structures work best for non-bank mortgage deals?

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In this educational piece, we discuss potential considerations and structures of a private mortgage deal for investors.

Non-bank mortgages are fast becoming a channel of choice for Australian borrowers looking to secure money to fund real estate developments. They’re also growing in popularity with investors looking for yield backed by real-estate security. So, what should investors consider before making an investment?

Asking the right questions

When making a private 1st mortgage investment, it’s sensible to limit your risk exposure to just the loan and the mortgage. Try to steer clear of any other aspects of the transaction, such as operational risks of the manager, that may introduce unnecessary risk.

Here are some things to consider:

  • Active or passive participation: Are you looking to actively manage the loan, or do you want to outsource this to an experienced manager?

  • Security: Is the loan structured in such a way that gives you direct security over the property that is backing the loan? Having direct security over the property provides greater protection if the property must be sold for any reason.

  • Transparency: Do you have a direct line of sight into where your funds are being invested? Do you know what the underlying real estate asset is? Do you have access to the legal documentation supporting the loan?

  • Rights in event of default: What rights does the loan structure give you in an event of default?

  • Operational risk: Are you exposed to any operational risk in the company that is managing the loan? This could involve the risk of loss due to inadequate or failed internal processes, people, controls, or systems.

  • Alignment of interest: Do the interests of the people managing the loan align with yours? Do they have their own funds invested in the transaction on the same terms as your investment?

  • Regulatory oversight: Does the company offering the loan hold the necessary regulatory licenses?

Shining a spotlight on the loan structure

In addition to these points, it’s also important to take a close look at the structure of the loan. For example, does the loan structure lend money to a manager that then on-lends to borrowers? If so, you could be exposed to the operational risk of the manager.

A more robust structure would be investing in a deal that has no other assets other than a loan to a borrower secured by a 1st mortgage over the relevant property. If it is set up as a separate Special Purpose Vehicle (SPV), the deal has no other liabilities other than repaying the investors in the loan. This reduces risk and eliminates complexity, which is what you should be looking for.

Adding private real estate debt to your portfolio

AltX was founded on the principle of making investing in real estate loans accessible, transparent and secure. We offer investors disclosure on each underlying real estate asset and access to legal documentation to support their investment. If you’re a wholesale investor and would like to learn how real estate debt investing could fit within your investment portfolio, visit here.

Non-bank mortgages are fast becoming a channel of choice for Australian borrowers looking to secure money to fund real estate developments. They’re also growing in popularity with investors looking for yield backed by real-estate security. So, what should investors consider before making an investment?

Asking the right questions

When making a private 1st mortgage investment, it’s sensible to limit your risk exposure to just the loan and the mortgage. Try to steer clear of any other aspects of the transaction, such as operational risks of the manager, that may introduce unnecessary risk.

Here are some things to consider:

  • Active or passive participation: Are you looking to actively manage the loan, or do you want to outsource this to an experienced manager?

  • Security: Is the loan structured in such a way that gives you direct security over the property that is backing the loan? Having direct security over the property provides greater protection if the property must be sold for any reason.

  • Transparency: Do you have a direct line of sight into where your funds are being invested? Do you know what the underlying real estate asset is? Do you have access to the legal documentation supporting the loan?

  • Rights in event of default: What rights does the loan structure give you in an event of default?

  • Operational risk: Are you exposed to any operational risk in the company that is managing the loan? This could involve the risk of loss due to inadequate or failed internal processes, people, controls, or systems.

  • Alignment of interest: Do the interests of the people managing the loan align with yours? Do they have their own funds invested in the transaction on the same terms as your investment?

  • Regulatory oversight: Does the company offering the loan hold the necessary regulatory licenses?

Shining a spotlight on the loan structure

In addition to these points, it’s also important to take a close look at the structure of the loan. For example, does the loan structure lend money to a manager that then on-lends to borrowers? If so, you could be exposed to the operational risk of the manager.

A more robust structure would be investing in a deal that has no other assets other than a loan to a borrower secured by a 1st mortgage over the relevant property. If it is set up as a separate Special Purpose Vehicle (SPV), the deal has no other liabilities other than repaying the investors in the loan. This reduces risk and eliminates complexity, which is what you should be looking for.

Adding private real estate debt to your portfolio

AltX was founded on the principle of making investing in real estate loans accessible, transparent and secure. We offer investors disclosure on each underlying real estate asset and access to legal documentation to support their investment. If you’re a wholesale investor and would like to learn how real estate debt investing could fit within your investment portfolio, visit here.

Non-bank mortgages are fast becoming a channel of choice for Australian borrowers looking to secure money to fund real estate developments. They’re also growing in popularity with investors looking for yield backed by real-estate security. So, what should investors consider before making an investment?

Asking the right questions

When making a private 1st mortgage investment, it’s sensible to limit your risk exposure to just the loan and the mortgage. Try to steer clear of any other aspects of the transaction, such as operational risks of the manager, that may introduce unnecessary risk.

Here are some things to consider:

  • Active or passive participation: Are you looking to actively manage the loan, or do you want to outsource this to an experienced manager?

  • Security: Is the loan structured in such a way that gives you direct security over the property that is backing the loan? Having direct security over the property provides greater protection if the property must be sold for any reason.

  • Transparency: Do you have a direct line of sight into where your funds are being invested? Do you know what the underlying real estate asset is? Do you have access to the legal documentation supporting the loan?

  • Rights in event of default: What rights does the loan structure give you in an event of default?

  • Operational risk: Are you exposed to any operational risk in the company that is managing the loan? This could involve the risk of loss due to inadequate or failed internal processes, people, controls, or systems.

  • Alignment of interest: Do the interests of the people managing the loan align with yours? Do they have their own funds invested in the transaction on the same terms as your investment?

  • Regulatory oversight: Does the company offering the loan hold the necessary regulatory licenses?

Shining a spotlight on the loan structure

In addition to these points, it’s also important to take a close look at the structure of the loan. For example, does the loan structure lend money to a manager that then on-lends to borrowers? If so, you could be exposed to the operational risk of the manager.

A more robust structure would be investing in a deal that has no other assets other than a loan to a borrower secured by a 1st mortgage over the relevant property. If it is set up as a separate Special Purpose Vehicle (SPV), the deal has no other liabilities other than repaying the investors in the loan. This reduces risk and eliminates complexity, which is what you should be looking for.

Adding private real estate debt to your portfolio

AltX was founded on the principle of making investing in real estate loans accessible, transparent and secure. We offer investors disclosure on each underlying real estate asset and access to legal documentation to support their investment. If you’re a wholesale investor and would like to learn how real estate debt investing could fit within your investment portfolio, visit here.

Non-bank mortgages are fast becoming a channel of choice for Australian borrowers looking to secure money to fund real estate developments. They’re also growing in popularity with investors looking for yield backed by real-estate security. So, what should investors consider before making an investment?

Asking the right questions

When making a private 1st mortgage investment, it’s sensible to limit your risk exposure to just the loan and the mortgage. Try to steer clear of any other aspects of the transaction, such as operational risks of the manager, that may introduce unnecessary risk.

Here are some things to consider:

  • Active or passive participation: Are you looking to actively manage the loan, or do you want to outsource this to an experienced manager?

  • Security: Is the loan structured in such a way that gives you direct security over the property that is backing the loan? Having direct security over the property provides greater protection if the property must be sold for any reason.

  • Transparency: Do you have a direct line of sight into where your funds are being invested? Do you know what the underlying real estate asset is? Do you have access to the legal documentation supporting the loan?

  • Rights in event of default: What rights does the loan structure give you in an event of default?

  • Operational risk: Are you exposed to any operational risk in the company that is managing the loan? This could involve the risk of loss due to inadequate or failed internal processes, people, controls, or systems.

  • Alignment of interest: Do the interests of the people managing the loan align with yours? Do they have their own funds invested in the transaction on the same terms as your investment?

  • Regulatory oversight: Does the company offering the loan hold the necessary regulatory licenses?

Shining a spotlight on the loan structure

In addition to these points, it’s also important to take a close look at the structure of the loan. For example, does the loan structure lend money to a manager that then on-lends to borrowers? If so, you could be exposed to the operational risk of the manager.

A more robust structure would be investing in a deal that has no other assets other than a loan to a borrower secured by a 1st mortgage over the relevant property. If it is set up as a separate Special Purpose Vehicle (SPV), the deal has no other liabilities other than repaying the investors in the loan. This reduces risk and eliminates complexity, which is what you should be looking for.

Adding private real estate debt to your portfolio

AltX was founded on the principle of making investing in real estate loans accessible, transparent and secure. We offer investors disclosure on each underlying real estate asset and access to legal documentation to support their investment. If you’re a wholesale investor and would like to learn how real estate debt investing could fit within your investment portfolio, visit here.

Get in Touch

AltX is an online investment platform offering alternative income – generating investments, delivered seamlessly.

Disclaimers

AltX Pty Ltd (ACN: 618 796 115, AR no: 1270087), is an authorised representative of AltX Funds Management Pty Ltd (ACN: 113 502 604, AFSL no: 291314). The information on this website has been prepared for accredited wholesale clients – only who are interested in learning about the different products they can access via AltX. This information is factual information only. Any displays of potential investments are for example purposes only, and may not actually be available to investors. It does not take into account any of your personal objectives, circumstances or needs and does not constitute financial advice. Choosing an investment is an important decision and, before making any investment decision, you should consider obtaining financial advice, always read the disclosure documents as listed against every deal on the AltX investment platform and understand the associated risks as explained as on the AltX investment platform. 

Past performance is not an indicator of future performance. Expected or forecasted returns may not reflect actual performance. Any displays of potential investment opportunities are for sample purposes only, and may not actually be available to investors.

The information on this website does not constitute an offer to sell securities or a solicitation of an offer to buy securities. Further, none of the information contained on this website is a recommendation to invest in any securities.

AltX Pty Ltd is not a bank and is not regulated by the Australian Prudential Regulation Authority, and investing in AltX products is not the same as depositing money in a term deposit offered by a bank.

© 2024

AltX Funds Management Pty Ltd

AltX is an online investment platform offering alternative income – generating investments, delivered seamlessly.

Disclaimers

AltX Pty Ltd (ACN: 618 796 115, AR no: 1270087), is an authorised representative of AltX Funds Management Pty Ltd (ACN: 113 502 604, AFSL no: 291314). The information on this website has been prepared for accredited wholesale clients – only who are interested in learning about the different products they can access via AltX. This information is factual information only. Any displays of potential investments are for example purposes only, and may not actually be available to investors. It does not take into account any of your personal objectives, circumstances or needs and does not constitute financial advice. Choosing an investment is an important decision and, before making any investment decision, you should consider obtaining financial advice, always read the disclosure documents as listed against every deal on the AltX investment platform and understand the associated risks as explained as on the AltX investment platform. 

Past performance is not an indicator of future performance. Expected or forecasted returns may not reflect actual performance. Any displays of potential investment opportunities are for sample purposes only, and may not actually be available to investors.

The information on this website does not constitute an offer to sell securities or a solicitation of an offer to buy securities. Further, none of the information contained on this website is a recommendation to invest in any securities.

AltX Pty Ltd is not a bank and is not regulated by the Australian Prudential Regulation Authority, and investing in AltX products is not the same as depositing money in a term deposit offered by a bank.

© 2024

AltX Funds Management Pty Ltd

AltX is an online investment platform offering alternative income – generating investments, delivered seamlessly.

Disclaimers

AltX Pty Ltd (ACN: 618 796 115, AR no: 1270087), is an authorised representative of AltX Funds Management Pty Ltd (ACN: 113 502 604, AFSL no: 291314). The information on this website has been prepared for accredited wholesale clients – only who are interested in learning about the different products they can access via AltX. This information is factual information only. Any displays of potential investments are for example purposes only, and may not actually be available to investors. It does not take into account any of your personal objectives, circumstances or needs and does not constitute financial advice. Choosing an investment is an important decision and, before making any investment decision, you should consider obtaining financial advice, always read the disclosure documents as listed against every deal on the AltX investment platform and understand the associated risks as explained as on the AltX investment platform. 

Past performance is not an indicator of future performance. Expected or forecasted returns may not reflect actual performance. Any displays of potential investment opportunities are for sample purposes only, and may not actually be available to investors.

The information on this website does not constitute an offer to sell securities or a solicitation of an offer to buy securities. Further, none of the information contained on this website is a recommendation to invest in any securities.

AltX Pty Ltd is not a bank and is not regulated by the Australian Prudential Regulation Authority, and investing in AltX products is not the same as depositing money in a term deposit offered by a bank.

© 2024

AltX Funds Management Pty Ltd

AltX is an online investment platform offering alternative income – generating investments, delivered seamlessly.

Disclaimers

AltX Pty Ltd (ACN: 618 796 115, AR no: 1270087), is an authorised representative of AltX Funds Management Pty Ltd (ACN: 113 502 604, AFSL no: 291314). The information on this website has been prepared for accredited wholesale clients – only who are interested in learning about the different products they can access via AltX. This information is factual information only. Any displays of potential investments are for example purposes only, and may not actually be available to investors. It does not take into account any of your personal objectives, circumstances or needs and does not constitute financial advice. Choosing an investment is an important decision and, before making any investment decision, you should consider obtaining financial advice, always read the disclosure documents as listed against every deal on the AltX investment platform and understand the associated risks as explained as on the AltX investment platform. 

Past performance is not an indicator of future performance. Expected or forecasted returns may not reflect actual performance. Any displays of potential investment opportunities are for sample purposes only, and may not actually be available to investors.

The information on this website does not constitute an offer to sell securities or a solicitation of an offer to buy securities. Further, none of the information contained on this website is a recommendation to invest in any securities.

AltX Pty Ltd is not a bank and is not regulated by the Australian Prudential Regulation Authority, and investing in AltX products is not the same as depositing money in a term deposit offered by a bank.

© 2024

AltX Funds Management Pty Ltd