5 Reasons to Invest in Commercial Real Estate via a First Mortgage Investment Fund

April 4, 2024 by
Credit Connect Group, CCG

Investing in commercial real estate is a popular strategy for diversifying your investment portfolio and generating a steady income, however, direct ownership of physical commercial property can be complex and require significant capital, time, and expertise that individual investors may not have.

An excellent alternative for Australian investors to invest in commercial real estate is to invest via a managed first mortgage investment fund. These specialised first mortgage investment funds, often referred to as ‘Non-Bank Lenders’ use the resources of their network of private investors to fund commercial property loans.  

Here are the top five reasons why you should consider investing in commercial real estate via a managed mortgage fund in Australia:

1. Portfolio Diversification

Diversification is a key strategy for reducing risk in your overall investment portfolio as it lowers your portfolios risk against a single investment failing or one asset class performing poorly, such as the share market. No matter what happens in the Australian economy, if you have a diversified portfolio, some investments are likely to benefit.

‍Commercial real estate, while potentially lucrative, can be a high-risk asset class when you also consider that you must also manage the physical real estate on your own and are often tied to long investment periods like a home loan of between 15 to 30 years.  

‍First mortgage investment funds, however, allow you to invest in the commercial property market without having to take on the full responsibility of the physical ownership of the commercial property. By investing in a managed mortgage investment fund, you can add commercial real estate to your investment portfolio and be paid a monthly income from the interest paid on the commercial loan without having to worry about the actual physical property.

2. Professional Management

Investing in commercial real estate requires expertise in property acquisition, management, leasing, and financing. On the contrary, Australian first mortgage investment funds employ skilled professionals who specialise in identifying, underwriting, and managing your commercial property investment. These people have a strong understanding of local real estate markets which allows them to make informed investment decisions.

‍Investing in a managed first mortgage investment fund means that you benefit from the knowledge and experience of these professionals without having to take a hands-on role in property management. They are responsible for evaluating potential investments, ensuring that loans are secured by quality properties, and managing the assets to maximize returns. This professional management minimizes the stress and time commitment that comes with direct property ownership.

3. Steady Monthly Income and Returns

A primary attraction of commercial real estate is the potential for regular rental income, however, if you own the property then you also must pay outgoings to manage that property as well as manage tenants and continue to monitor your investment for the life of the loan which may be up to 30 years.  

‍One of the most significant advantages of investing in first mortgage investments via a first mortgage investment fund is the stable income stream it generates. 

‍First mortgage investment funds generate income from the interest payments on the commercial mortgages they hold, which provide a stable income source for their network of private investors. As first mortgage investments are likely to be short-term investments of between 6 to 12 months, with a low loan-to-value ratio (LVR) there is often less risk which makes these high value investments very favourable to savvy wholesale and private investors looking for investments with high-returns and low risk.

4. Capital Preservation

Investing for capital preservation is an important investment strategy that is designed to preserve an investor’s funds as well as the overall purchasing power of an investor’s assets.

‍First mortgage investments are often a good choice for wholesale and sophisticated investors looking to protect their capital, as these investment opportunities offer conservative lending ratios, short-term loan lengths, and stable, predictable income that is often distributed on a scheduled basis.  

‍For example, through our Credit Connect Select Fund (“the Fund”), our investors can select the loan type, amount, return, term, location and LVR that you are comfortable with. You also get a steady income-focused investment that offers an 8-10% return on investment .

5. Risk Mitigation

Commercial real estate can be exposed to various risks, such as market fluctuations, economic downturns, or even vacancies. Investing in a managed first mortgage investment fund can provide additional safeguards against some of these risks since a first mortgage investment is secured via a first ranking, registered Australian mortgage. This means that if the borrower was to default on their loan then the funds can be collected.  

‍At CCG we employ conservative LVR’s, ensuring that the loans we invest in are well-secured by the property's value. Furthermore, managed mortgage investment funds often maintain reserve funds to cover unexpected expenses, reducing the impact of such issues on your investment returns. By participating in a professionally managed fund, you share the risk with other investors, providing a degree of collective security against unexpected challenges in the commercial real estate market, as opposed to being a single person with the weight of a physical commercial real estate investment on your shoulders.

‍Investing in commercial real estate through a managed first mortgage investment fund in Australia offers numerous advantages, including portfolio diversification, professional management, and the potential for steady income and returns. By choosing to invest in a first mortgage investment fund, you can access the investment opportunities of the commercial property market without the hassle and risk associated with direct ownership of a physical commercial property.

To learn more about our current first mortgage investment opportunities, download a copy of our Investor Guide or speak with our Investment Team.

DISCLAIMER: The information provided in this article has been prepared by Credit Connect Group (CCG) for general education purposes only and is not intended to constitute specialist or personal advice. While every care has been taken regarding its accuracy no warranty is given or implied. The information contained herein does not constitute financial product advice and or an offer to invest. Investment can only be made by Sophisticated/wholesale investors as defined under the Corporations Act. Past results are not a guarantee of future performance. Investment into mortgages carries risk. We recommend that any investor obtain financial, legal, and taxation advice before making any investment with CCG. Copyright © Credit Connect Group. All rights reserved.

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