The term alternative investing is a bit peculiar because, in essence, most investors seeking higher rates of return are in fact looking for alternatives to the status quo; alternatives to what’s available to most investors.
Therefore, when it comes to alternative investing, the challenge isn’t so much to look for something different, but to know where to look at the right time and the right place in order to achieve favourable yields.
The real-estate alternative
Not too long ago, real-estate investment trusts (REITS) were the so-called “alternative investments” of choice because they allowed for a more simplified and structured vehicle to invest in real estate. With REITS, instead of looking yourself for a diversified portfolio of properties to invest in, a REIT did this for you in a way that’s relatively simple while delivering desired returns.
However, the problem with “alternative investing” is that, at some point, it doesn’t become much of an alternative anymore. That is, as the investment vehicle grows in popularity, it becomes that much more difficult to find investment opportunities that beat the market. This may have happened to some REITS, as well as other investments labelled alternative.
Fast forward to the present, and another form of alternative investing has sprung up: mortgages. Most people don’t see mortgages as a form of investment. However, for those seeking a genuine alternative, mortgages can be a relatively safe form of investment at traditionally higher rates of return.
The emergence of alternative mortgage investing
Let me explain. In Canada, for example, the Canadian government has established rules to invest in private mortgages, which are largely responsible for establishing mortgage investment corporations (MICs).
With MICs, you have an alternative investment that is very much structured like a REIT, except the underlying asset isn’t real-estate property, but mortgages. Remember, mortgages are simply secured loans that collect interest payments backed by the value of the property itself.
As such, mortgages have traditionally served as a high-yield, low risk opportunity for investors. And, since they haven’t been utilized much in the mainstream yet, mortgages also serve as viable alternative investment opportunities for those who know where to look.
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