Understand the factors driving the returns, as well as the key areas of risk
Historically low-interest rates and low fixed-income yields are drawing some investors towards alternative investments in search of higher returns. One area attracting a lot of attention is real-estate debt investments. As with any investment, it is important to understand the factors driving the returns, as well as the key areas of risk.
The new kid on the block
Once the poster child for self-funded retirees, term deposits have lost some of their lustre in the recent low-interest-rate environment. A number of higher-yielding fixed-income investments have stepped in to fill that void. And one option is private real estate – one of the fastest-growing alternative investments in Australia today.
With this investment, private investors (you) act as ‘the bank’, providing loans to borrowers in return for a registered 1st mortgage over their properties and the potential for a regular fixed income.
Not your typical fixed income investment
Private real estate debt typically pays a return of between 4.00% p.a. – 8.00% p.a. % per annum.
What adds to the attraction of this investment is that it’s secured by a first mortgage over the real estate that you invest in. This provides the potential for a stable income return, backed by ‘bricks and mortar’ security.
Understanding the rate of return
There are several factors that can impact the rate of return. Here are some of the key things to consider:
|1. The quality of asset securing the loan
|• Where the property is located
• The loan to value ration of the transaction
• The security type (residential, commercial, industrial, land)
• Income status of the asset and is there a lease in place?
|2. The strength of the borrower
|• How strong is the asset/liability statement?
• What experience does the borrower have in property development?
• What is the sponsor/guarantor’s credit history?
|3. Borrower income verification / serviceability
|• Can the borrower produce company financials?
• What individual/guarantor income can be verified?
• What is the term of the lease (if a property is rented out)?
|4. Exit strategy from the loan
|• How likely is it that the borrower will be able to refinance the loan to another lender?
• How easy/difficult would it be to sell the property security?
• How long would it take to sell the property security?
• What would the expected settlement term be?
Is private real estate debt right for you?
At AltX, we offer a range of investment opportunities secured by registered 1st mortgages. Investors can self-select based on their preferred investment criteria. Since inception, 100% of the interest and capital on all investments has been returned to investors. To learn more about real estate debt and how to unlock alternative investment opportunities with AltX, visit www.altx.com.au/investments
Level 21, 10 Grafton Street
Bondi Junction, NSW, 2022
Phone: 1300 991 380