The MapleMoney Show » How to Spend Money Wisely » Real Estate

How Private Mortgage Lending Works, with Chad Robinson

Presented by Wealthsimple

Welcome to The MapleMoney Show, the podcast that helps Canadians improve their finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of MapleMoney, where I’ve been writing about all things related to personal finance since 2009.

Real estate investing often requires a slow and steady approach, but there is a way to increase your investment returns through private mortgage lending. You have a chance to become the bank by lending your own money to individuals who need a mortgage but find themselves outside the box of traditional lenders.

Chad Robinson is the president of Align Mortgage Corporation and IQ Lend Inc. A fully licensed mortgage and real estate broker with 25 years of experience, he is also the author of the book, Becoming the Bank. I sat down with Chad this week to learn more about private mortgage lending, and why it offers so much potential for some real estate investors.

As Chad explains, private mortgage lending offers some benefits over traditional real estate investing. For example, as the lender, you avoid the hassles of being a landlord and the potential for costly house repairs. Private lending can also be a short-term investment with high potential returns.

But like anything else, to be successful, you have to do your homework. Only deal with mortgage brokers who specialize in private deals, always get an appraisal and don’t just lend to anyone.

You don’t have to be a millionaire to be a private lender, although you should have excess capital available to cover cash shortfalls. According to Chad, you can use registered investments, like RRSPs, to invest, and you can invest in pooled mortgages for a lower entry point. If earning up to 18% as a private mortgage lender piques your interest, check out this episode.

Do you prefer to invest in socially responsible companies? If so, our sponsor Wealthsimple will help you build a portfolio that focuses on low carbon, cleantech, human rights, and the environment. To get started with Socially Responsible Investing, head over to Wealthsimple today!

Episode Summary

  • The benefits of becoming a private mortgage lender
  • People invest in real estate because they understand it
  • Most mortgage brokers don’t specialize in private mortgages
  • How to get started in private mortgage lending
  • Never lend without an appraisal
  • Pooled private mortgage lending explained
  • You can use registered funds (RRSPs) for private lending
  • Power of sale vs. mortgage foreclosure
  • Mortgage default rates in Canada are exceptionally low

If you ask a thousand mortgage brokers (if they specialize in private lending), 100 will say they do it, but there’s really 50 that do it…really interview the mortgage brokers in particular and say, ‘how many private deals do you do a month, and how many lenders do you deal with’…”  – Chad Robinson

Read transcript

Real estate investing often requires a slow and steady approach, but there is a way to increase your investment returns through private mortgage lending. You have a chance to become the bank by lending your own money to individuals who need a mortgage but are outside the box of traditional lenders. Chad Robinson is the president of Align Mortgage Corporation and IQ Lend Inc, a fully licensed mortgage and real estate broker with 25 years of experience. He’s also the author of the book Becoming the Bank. I sat down with Chad this week to find out more about private mortgage lending and why it offers so much potential for some real estate investors. 


Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Do you prefer to invest in socially responsible companies? If so, our sponsor, Wealthsimple, will help you build a portfolio that focuses on low carbon, clean tech, human rights and the environment. To get started with socially responsible investing, head over to today. Now, let’s chat with Chad… 


Tom: Hi, Chad. Welcome to the Maple Money Show. 


Chad: Thank you very much. Pleasure to be here. 


Tom: Thanks for being on. You’ve just released a new book called Becoming the Bank, and it goes into something that we’ve touched on a little bit in the episodes, which is private lending of mortgages. When we’ve talked about it before, it was more that this is another option where someone is real estate investing but doesn’t have to go to a traditional bank. There’s other ways to make this happen. Your book covers the other side of it, which I found interesting. It’s something people can actually get into and do. In a small sense, I’ve used this business peer-to-peer lending thing, Lending Loop. Just a couple of thousand dollars, I think. But just the idea that you can lend to someone and see the payments come back, the principal, the interest and everything. I know this isn’t related to mortgages, but I think I have a completely “no default” record there, despite everything that’s happened the last couple of years. I get the concept of private lending, but this is different and I assume bigger. Can you just start off with an overall idea of what we are talking about here? What is private mortgage lending? 


Chad: Absolutely. I’ll give you the 30,000 foot view. Obviously, money lending and lending in real estate has been around since the dawn of time. And that’s primarily where most of banks make all the money. They make it on lending, mortgages, and credit. So private lending is, like you said, peer-to-peer lending. At it’s heart it’s just one person lending to another person. We only lend on real estate, so it’s not unsecured. Everything we do is based on teaching people how to lend on real estate. So you have a security. If you don’t pay, at the end of the day, you can take the house back and sell it, just like the banks do. At its core, that’s what it is. And you can do it through RSPs, through your LIRAs (locked in retirement account), anything registered. So that’s TFSAs, IRAs—the whole gamut. What a lot of our investors are doing is lending it through their RSPs. When you boil it down, it’s almost like a bond, just secured on real estate. 


Tom: We have done a few episodes about investing in real estate, becoming a landlord. If you have the money to lend, why not just do that? Why not buy the property? It almost feels like taking out the middleman. What’s the “con” there as opposed to it all sounding great? 


Chad: That’s a great question. I love real estate or real estate entrepreneurs, don’t want to have all the equity ownership because they’re still dealing with tenants—dealing with tenants and toilets, right? This is another way to be involved in real estate, that you’re not dealing with that side of the equation. You’re letting the other person take care of that stress and that risk of having the vacancies and having all those kind of things. It also lets you do RSPs, which (if you’re in direct ownership) you can’t do unless you’re in a REIT or something like that. But over the time, I’ve noticed that people will own real estate and have cash that they want to diversify in a different asset class or in a different location. Or they have $300,000 sitting around because they just sold a property and they’re going to be out of the market for a year. They want to do something with it. Real estate people tend—not always, but they tend to like real estate because they understand it. They don’t want to buy stocks because they’re just fearful of the market and don’t understand. They’ll say, “Okay, I have this money sitting aside and I want to lend it to somebody because I understand that that’s a good property and value in that location.” They’re comfortable with it. So it’s really about people’s comfort. 


Tom: I’ve got a few questions here. So, if someone’s got some money that they’re considering lending, where do they even get started? I’m thinking, how do you find people? It seems like this is tougher to get started because I assume most people will go to a bank to get a mortgage or they might go to a mortgage broker. Is that the answer? Do mortgage brokers kind of have these connections?


Chad: Mortgage brokers across the country that specialize in private lending—and this is the key. If you ask 1,000 mortgage brokers, 100 will say they do it, but there’s really 50 that do it. So you should really interview the mortgage brokers in particular and say, “How many private deals do you do a month? How many lenders do you represent?” and really dig into what they’re doing. But if you’re working with an experienced private mortgage broker, we get deals all the time—every day. We vet our investors to match with the private borrowers they’re looking for. I have some investors that want high yields of 15, 18, 20 percent. Now, those are very risky. In the mortgage world this is not risky in the first place. But in our spectrum, it’s at the higher end of the spectrum. On the other side, I have some people that are elderly, in their golden years that don’t want risk, high balance payments. They want something as safe as possible. Right now, that’s more than five, six, seven percent interest rate range, and everything in between. We pair the risk that the investors want to the type of mortgages they’re looking for. 


Tom: So when we’re talking risk is this the usual, what is their credit score? What’s their income? All the mortgage factors? And the more outside the norm they are, they’re paying a higher rate? 


Chad: Absolutely. And risk in the mortgage world is a very holistic approach. Somebody can have horrible credit, but I have a great job and very low loan-to-value. They’re not necessarily a risky file because they had a bankruptcy five years ago. They might have just never rebuilt their credit so the main banks won’t let them borrow any money because they don’t have “official” credit. We do a lot of divorce work—people separating from a spouse and they need the money quick. They need it in a week and a half. Banks, especially now, don’t turn anything around that quickly. Lately, we’ve been doing a lot of bridge financing. Closing dates aren’t lining up and they need to have $200,000 for three weeks, those types of scenarios. There’s all kinds of scenarios where people need private money. It’s just matching those investors with those borrowers. 


Tom: You mentioned bridge financing and divorce. Is the divorce similar in that sense? I assume if someone’s saying I need money now and I’m willing to pay a higher rate, they’re probably not expecting to have that mortgage for 30 years—obviously not the term. But is it similar bridge financing then? Are they just sort of getting something quick but you get a higher rate as the investor? 


Chad: Absolutely. Any private lending is really what I call, solution lending. It’s a short term, usually a year or less. It’s to fill a gap for something. A home flipper, for example, is buying it, renovating it and going to sell it or refinance. A divorcee, sometimes they’re in the final stages of their separation agreement and the banks won’t sign the mortgage without the separation agreement to prove child support in many cases. But they still have to pay that ex-spouse out, right away. There’s a reason that they’re not fitting to A-space. Private lenders are here to meet that need. We always have been, going back hundreds of years now. 


Tom: I’m glad you said it’s a “solution” and often a year. That actually makes me more interested in this. The idea that you can put your money in, you get a higher rate, and it’s something you actually expect to get back soon. I assume it isn’t necessarily that they’re paying you off month-by-month. It’s that at the end of that term, they’re moving on to a regular mortgage or something like that? 


Chad: That’s the number one key thing. I talk a lot about it in my book—exit planning. How is this person going to pay off this private mortgage? Because it’s not the never-never mortgage. It’s not a Scotiabank mortgage. And a lot of times, especially inexperienced brokers will come and say, “I’m going to refinance.” Then I question them. I say, “Okay, what’s changing between today and six months from now that you’ll be able to refinance this customer? What’s your plan?” And that’s one of those key determinants—is the mortgage broker you’re working with quality and sophisticated enough. A lot of times they don’t have a plan. They say, “Okay, next…” Whereas some will say, “I can enroll them in this credit repair company. Their job is changing here. They’re finishing their school…” They have all the details. Those are the people we work with. 


Tom: Oh, okay. Earlier on, you mentioned a loan-to-value ratio. What is that exactly? 


Chad: So loan-to-value ratio is basically the amount of the mortgage to the value of the property. If the mortgage is $50,000 and the value is $100,000, (let’s pretend) that would be a 50 percent loan-to-value property. There’s a lot of equity there in the case of a default. Because, with any mortgage company, if the people don’t pay, you can demand your money back. If they can’t give it to you, you can take the property and sell it. Each province in Canada has slightly different rules about how to do this, but effectively, you get to sell the property and reclaim your money. And if there’s a shortfall, you can go after the borrower for the shortfall. Again, that’s depending on the province. But that’s a loan-to-value. The lower the loan-to-value, the less the risk. 


Tom: And that’s a good point, too. When people think about risk, something like stocks (theoretically) could go down to nothing. Here I guess you’ve always got something. Obviously, markets could go up and down. Lately, they seem to be going up more often so there’s some risk there. I’m sure there’s all sorts of hassle, like whether the place got destroyed and things like that. But there’s still something somewhere that you can claim back. 


Chad: Yes, absolutely. There’s bricks and sticks, right? You can drive by it. You can feel it. Obviously, I’m a real estate guy. I have been my whole life. My family comes from real estate so I gravitate towards that. But it always kind of makes me laugh because in the stock market there are some great assets there, but when you dig into it, it’s huge and complex. If you’re lending on a house in your area, which is one of the things I recommend, lend in areas you know so you can drive by the house and see that, “Yes, that house is worth $500,000. I know it. I know the local market is going up. It’s going down…” It gives them that comfort to understand the local real estate dynamics. 


Tom: When someone’s private lending, is it always that they’re just sitting on some money? Or could you get into the case where you’re borrowing to invest and then lending that out? I’m thinking, if I can get a loan at five percent and take on one of these higher ones at 15 percent, there’s money to be made from nothing. 


Chad: Absolutely. The arbitrage there is awesome. And yeah, line of credits right now,  at prime plus a half, many people have a secured HELOC and do private lending a lot. The key to that is you got to make sure if you that if you’re leveraging in anything that amplifies the returns, it also amplifies your losses. When it comes to that broker that you’re working with, make sure you interview them, “Do you have the resources? Do you have that flexibility? What happens if they don’t pay for three months? Are you okay?” You can’t have somebody coming in with their line of credit maxed out and leveraging in every last cent. I wouldn’t take them as a client. 


Tom: The idea of someone not paying, that’s the sort of the same concern I’ve had even with the landlord idea. In the case of being a landlord, it’s vacancies. I guess it’s also not paying rent. It is a similar risk. You might not be to the point of saying, “Okay, we’re just going to sell the property.” But if they get behind for three months like when the early COVID thing hit and everything went pretty wild, how do you get through that? If it’s your own money that was just sitting around then, okay. But if you have your own payments to make towards that, then there’s it could get ugly. 


Chad: Absolutely. You’ve got to make sure if you are leveraging that you have that reserve. There is no right “generic” answer in the sense. But I would say don’t go over 50 percent of your line of credit limit. That’s kind of a rule of thumb. If it’s a $200,000 line, invest $100,000. That gives you enough to cover any payments for a long time. And also, if you do get into a default situation, there might be other expenses. You might have to pay a lawyer, the property might need repairs. Now, if the loan-to-value is good enough and you’ve done a good job underwriting, all those things come back. You get paid all of your interest. You get paid all those legal costs. You get paid any repair costs but you’ve got to front them. So, it’s important to make sure that you have that cash flow ability. 


Tom: Yeah. I like the idea that you only do half of the credit line you have. With this loan-to-value, how do we get that value? Is this a full appraisal? Are we really going into it like a lot or is it driving by knowing that a house is worth $500,000? How deep do we go? 


Chad: Step one is, exit planning. That’s my very first rule of thumb. What’s the exit? The second thing is, I always say never lend without an appraisal—a third party appraisal by a professional. In Canada, we have two governing bodies for appraisers. It’s a 30 page document (maybe a little bit less depending on the property). A third party goes in and says, “This house is worth this amount of money.” You add that to your knowledge of the local area because an appraisal is only a snapshot in time. Today it’s the value but what is it tomorrow? They can’t tell you. They’re not speculating on that. We lend as a percentage of that appraised value. You go through the questions. Appraisers are human beings. They can make mistakes too. I tell all of my investors to make sure that even though I’ve read it and my staff has read it, you read it too. Go through it and make sure you’re comfortable. 


Tom: One thing that makes me feel that this actually could be a safer option to being a landlord—and a lot of people are probably thinking this sounds complicated or risky in some cases, one thing that sounds better is that your mortgage value is your mortgage value. If the market does drop, you don’t lose anything there. Maybe it gets harder to get that person to pay and you’re taking a little more risk that the security you have in the house is dropped but in general, though, you’re not playing the market that way. You can see it the other way too, though. If a house goes up 20 percent, you’re not benefiting from that side but at least there’s security that you’ve got this set amount. And like you said, a bond. It’s already just baked in that this is what it is. 


Chad: Absolutely. And it’s part of somebody’s portfolio, right? In your investment portfolio, I don’t recommend anybody to have 100 percent of their money in private mortgages. I know they take a slice of it and might have some direct ownership in some stocks and some index funds and some other things. This is one of those slices and it’s a really great income slice. As mortgages pay monthly, it’s a cash flow thing. That’s why a lot of people in their golden years love private lending. They can do low lend-to-value files with lower risk, and they’re getting cash flow every month. And their principal is still staying most of time—their startup. And they’re living off the cash flow. 


Tom: If most of these mortgages are one year, say someone just has money for one investment? That’s it. Are they going from one and immediately they’re looking for the next? Is it just sort of this constant, annual turnover? 


Chad: It is if you’re working one-on-one, direct. There’s a lot of different ways to invest in mortgages. One way is what you’re talking about, direct. One investor, peer-to-peer lending. One investor, one borrower, and you match them up working through, again, mortgage brokers. We always have this churn of clients coming and going. We know their being paid out next week and this new file is coming in. We’re going to hook them up. There’s also pooled funds. We also run a company called a Mortgage Investment Corporation. Our company is called Align Mortgage. There are many of them in Canada. And when you put it in a mutual fund, the fund is constantly invested. Your money is divided over hundreds of thousands of mortgages. You don’t need to do any of that work. It’s always invested underground. 


Tom: So with these pooled options, can someone get into this for less? Is there a minimum to get in? I was thinking mostly with the one-on-one you need to have $100,000, $200,000, whatever it is. With a pool option, what’s the minimum to be involved in that? 


Chad: It depends on the company I’d , but say the average is probably $10,000. You’re getting less money and the rates and the returns go from six to 12 percent. You don’t have the higher end, but you definitely don’t have the lower end either. And the risk is a lot more averaged out. 


Tom: Are there fees off of that or is out with the fees? Is that the rates of the return? What’s that look like? Because, obviously, there’s someone helping to manage all this now. How does that change it? 


Chad: Those are usually meta fees. Those kind of returns at six to eight percent or six to 10 is meta fees. The managers are usually charging one to three percent above that. If it’s a 10 percent yield to you, the borrowers are probably paying 13 percent and a manager is taking that spread. 


Tom: Is this kind of like a REIT then? Is it sort of a private REIT where you’re putting money in, someone’s kind of handling everything. They’re getting their percent, which is fine because they’re doing all this and it’s allowing you to get in because if you’ve got $10,000 and you want to try this out, you’re not going to find something that needs a $10,000 mortgage. 


Chad: No, for sure. It’s definitely like REIT. I mean, it’s a different legal structure. It’s either a mortgage investment corporation or a mutual fund trust. They’re the two big ones in Canada. There’s a couple other variations, but effectively, it’s the same. You pool the money and that money is then being used to invest in a certain product. In this case, it’s mortgages. 


Tom: With these pooled options, is there an ability to see what’s being invested? Do you know what’s coming up? I guess the follow up to that is, is there any direction in that? Can you say you would like to get in on this one thing more than another? Or is it just a big pool? 


Chad: It’s a big pool. But the pools are defined of what they’re investing in. It’s very much like a mutual fund would say, we’re investing in small caps. They’re basically the same. They’ll say, “We invest around the GTA,” or “We invest in mortgages in Ontario,” or whatever. They have a defined parameter. You’re picking the manager and picking those parameters you like, and then they have to stick to those parameters. 


Tom: One more pool question. I don’t want to go too far down this road, but it sounds a lot more accessible to people. Does everything you said about RSPs, TFSAs, does that all apply here, too? Does anything change there? 


Chad: In most cases it does apply. There’s a few funds that aren’t RSP eligible for different reasons. But in most cases you can use RSP—registered accounts to get into these pools. The type personalities that would like to invest in direct stock, like to do direct mortgages. They want to have control. They want to feel it. They want to kick the tires. The other kind of clientele are busy. They buy a mutual fund and or an index fund and just set it and forget it—go with the money in the pool. And sometimes we have both. Some investors do direct and pool because you can get into smaller amounts in a pool. Let’s say I’ve got $108,000 cash, I put $100,000 in a mortgage, and that $8,000 is going in a pool. That way they’re still using 100 percent of their funds. 


Tom: I know somewhere down in the U.S. does something slightly different. I’m wondering if this is a thing here. You look at something like a big apartment building and you want to invest in this. You get investors and they can do as little as $10,000. But it’s very specific to this one deal. Instead of this, “We have a pool and we’re going to go invest.” Is there a form of it like that where it’s still kind of managed for you, but it’s really individual where we’re going for this one thing?


Chad: It can be non-residential. You don’t typically see that in residential because a mortgage market too small. We’re doing residential mortgages a $300,000, $200,000. Putting that much effort into one deal is just not really feasible. But in commercial, we do a limited partnerships. It happens quite often in commercial. An apartment building is a great example. We’re putting together a $2 million mortgage for this apartment building, specifically. The minimum, $50,000, $10,000, or whatever the number is. And we’re seeing more and more of that happening now, especially since the banks are tightening up in the commercial world. 


Tom: Yeah, good point. With the RSP and the TFSA, all these account options, how does that work? How do you lend from that? The whole self-directed RSP, how do you lend from that? How does that set up, paper-trail wise? I assume too, you can’t literally lend from an RSP, right?


Chad: Well, almost you can. There’s two trustees in Canada that are doing it now. It’s Olympia Trust and Canadian Western. Most people put their money with Olympia Trust. That’s probably the big player in this space now. With Olympia Trust, the rules are pretty wide open. They’ll allow you to go to 100 percent loan-to-value, which I never recommend. As long as it’s not related that you’re not lending to yourself or family member—it has to be a third party. There’s rules for lending to yourself, but that’s a whole other episode. You lend to a third party and you just need a lawyer to do it. You can lend from your RSPs to Bob Smith, the lawyer does the work, registers the mortgage and away you go. I always recommend using a neutral third party, like a mortgage broker that will vet the mortgages for you on your behalf. Because at the end of the day, most people aren’t experts in lending. Having somebody else always check to see if the appraisal is good or the legal paper done right is an important thing. 


Tom: With this idea of, a 50 percent loan-to-value, would you ever get into the mindset of trying to predict the future value? Because you could kind of say maybe the market’s down right now, so you expect it to go back up. It’s not down here where I am, just outside of Calgary, but you could play with that percentage a little bit, depending on where you feel the market is. It feels like a bad idea, as I’m saying it, because I’m basically saying to try to time the market, but there might be a little bit of leeway? 


Chad: It’s more of avoiding risk side. When you’re lending mortgages, there’s something called the five C’s. And if you ask an old time banker, they’ll tell you what the five C’s are. It’s also a good test for mortgage broker. Say, “What are the five C’s?” If they can’t answer you… Basically, one is called capacity—can people afford the payments? One is called credit. Do they have good credit or not? The collateral is the house. And the cash in the bank, their assets and then their character. Those are kind of the five big criteria’s when you’re lending to somebody. Private lending usually has one or two of those things missing. Sometimes three. Typically income or credit for most private deals. The collateral, which is the real security, like the house that we’re lending on, if the market’s going down, then you’ve got to say, “Okay, I’ve got to make sure of what’s the exit. What’s the credit? Can this person get out of it? The character, their job? Can they afford to make the payments?” If the market’s going up, trending up then you can say, “Okay, I might be a little bit more flexible on credit because I know my security is getting lower as time goes by,” versus if you’re in a neutral or flat or declining market where you’ve got to be a little bit tighter on those things. Like, maybe the house values is going to drop five percent next year, you’ve got to have a little bit more cushion on the other areas. 


Tom: Yeah, the whole five C’s with the mortgage thing, it does feel like there’s so many pieces in play. They’re like levers. If one is down a little, maybe you can make it up somewhere else. 


Chad: Exactly. And that’s why I wrote this book originally. I saw a lot of people getting, I wouldn’t say snookered into bad deals, but people with a lot of motivation saying, “I want to borrow your money,” and getting people very excited. What are these levers? And what are the basic questions I should ask? One of the caveats I always say, if somebody is coming to you with a mortgage and they’re getting really excited about it and you’re getting excited, walk away. Mortgages are boring. It’s not exciting. It’s boring and it’s supposed to be boring. 


Tom: I personally hate the process. As someone with a mortgage—going through it every time, I have outsized, negative thoughts about it. It just seems like something is always falling through. We didn’t get this thing signed at the last minute. On the default side, if someone can’t pay, what’s that process look like? How long are we talking? It’s not like you’re 30 days late on your payment and we’re taking the house. Are there even rules to this? 


Chad: One hundred percent. It’s very province specific. Quebec, being the outlier, most provinces have a power sale mechanism. There are two big mechanisms. One is foreclosure, one is power of sale. We hear a lot about foreclosure in the States, right? So ignore anything you hear in the States. It doesn’t apply to Canada. But the power sale basically is, the law gives you the right to sell the home, but the people still own it. You get paid back all of your money. Any profit goes to the person that owned the home. So you have the power to sell it, but you don’t own it. It’s really fast. In Ontario, it’s about 90 days. You give a notice starting at 45 days. So it’s quite quick now. With COVID, the courts are slower, of course, and everything’s slowed down, but it’s a relatively fast process. You issue a demand letter. Most people who have equity in their house will pay you out. They don’t want to lose the home or that equity. The power of sales, I have noticed, tend to be because of some other major thing, like if there’s a mental illness, an addiction, a death, some major life event. Especially when you’re lending on someone’s house. They’ve got to live somewhere. They do not want to leave their home. They’ll let everything go first. They will stop making their car payments, their credit card payments, their cell phone before they stop paying the house mortgage. It’s always the last to go. If that is going, then there’s something major occurring. But the process is relatively fast for power of sale. Foreclosure is the opposite. The bank or the lender takes ownership of the house and keeps out a profit. So if you only owe $100,000 on a $500,000 house, you foreclose, you could keep all that equity. The courts make it really difficult and very slow, on purpose. In particular, in the west provinces, there’s a lot of historical banks and lenders trying to steal farms from people and that kind of stuff so the government has really made that process of foreclosure difficult in Canada. Ninety-nine percent of the time they’re doing power of sale. 


Tom: Last time I bought a place, there was another one out there I think was a foreclosure. And I don’t know if this is just how the banks work, but they were leaving it on the market for three months straight to see what the offers were, something like that. It was too awkward for me to care. But when I first saw it listed I said, “Oh, that looks like a good deal.” But it sounded like this weird situation where, if you need a new house now, you can’t wait three months. 


Chad: And that’s part of that test. The lender needs to try to get the most they can for the property. They just can’t just say, “You only owe me $100,000. It’s worth $1 million. I’m going to sell it for $110,000, right? Our laws are that you have to try and get as much as you can for it because all that profit is actually supposed to go back to the original borrower. 


Tom: So that’s probably what they’re doing then. They’re giving it that best try to get the money instead of taking that “first day” offer. 


Chad: Absolutely. The default rates in Canada are exceptionally low. We’re less than one percent actually—even fractions of a percent. It’s not often, especially in an increasing market, because if there’s a default, most people say, “Oh, I’ll sell my house and be done with it.” 


Tom: If that’s the default rates overall, is it higher with private lending? I can see there’s a higher risk, but if it’s one year, most of the time things probably don’t fall apart too bad within a year. 


Chad: No, the default rates in private is what’s measured because there’s not one central database that tracks all this. But from what we can see, it’s very, very low. It’s like less than half a percent. So it’s very small. And if you do a good job underwriting in the first place, it’s even smaller. Coming back to the first point, what is their exit and is it a legitimate exit? And is their equity good? If those two things are good, the chance of having a default are really small. 


Tom: Thanks for running us through all this. Obviously, if someone wants to go through this more, they should have a look at your book, which is going to go into it a lot deeper. Can you tell people about your book and where they can find you online? 


Chad: Absolutely. The book is at, You can go onto that web page. It’s also an Indigo, Chapters, Barnes and Noble, both Kindle and print version, and Amazon as well. All my contact information is on that site and I’m happy to chat or be a sounding board. And, if you’re interested in investing in Ontario, which is where we’re license to operate, I’m happy to connect with any of those listeners as well. 


Tom: Great. Thanks for being on the show. 


Chad: Thank you very much. 

Tom: Thank you, Chad, for uncovering the secrets of private mortgage lending and how to get started. You can find the show notes for this episode at If you haven’t yet, head over to our YouTube channel and subscribe there as we will be getting back to releasing never-before-seen content, soon. Either search for Maple Money or go to and subscribe today. As always, thank you for listening. We passed 200 episodes. This is episode 201 and I’m looking forward to the next 100. See you next week.

If you ask a thousand mortgage brokers (if they specialize in private lending), 100 will say they do it, but there’s really 50 that do it…really interview the mortgage brokers in particular and say, ‘how many private deals do you do a month, and how many lenders do you deal with’... - Chad Robinson Click to Tweet