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Mortgages or Guarantee Trusts: Which Is Better?

Mortgages vs. Guarantee Trusts: Which is Better?

When it comes to investing in real estate, you have many options. Two of the most popular options are mortgages and guarantee trusts. While both can be effective ways to invest in real estate, they have different pros and cons that you should consider before making a decision.

Mortgages

A mortgage is generally a loan that is used to purchase a property. The borrower makes regular payments to the lender, usually monthly, until the loan is paid off. Mortgages are a popular option for real estate investors because they allow you to purchase a property without paying for it outright. This can be especially helpful if you don’t have enough cash to purchase a property outright.

One of the biggest advantages of a mortgage is that you can leverage your investment. This means that you can use borrowed money to increase your returns. For example, if you purchase a property for $200,000 with a $40,000 down payment and a $160,000 mortgage, and the property increases in value to $250,000, you can sell the property and make a profit of $50,000, even though you only invested $40,000 of your own money.

However, mortgages also come with some risks. You could lose your property if you can’t make your mortgage payments. Additionally, if the value of your property decreases, you could end up owing more on your mortgage than your property is worth.

Guarantee Trusts

A guarantee trust, also known as a real estate investment trust (REIT), allows you to invest in real estate without owning property. Instead, you invest in a trust that owns and manages a portfolio of properties. When you invest in a guaranteed trust, you receive a share of the income generated by the trust.

One of the biggest advantages of a guaranteed trust is that it provides diversification. Because you’re investing in a portfolio of properties, your investment is spread out over multiple properties and markets, which can help reduce your overall risk. Additionally, guarantee trusts are generally more liquid than physical properties, meaning you can buy and sell them more easily.

However, guarantee trusts also come with some risks. Because you’re investing in a trust that owns multiple properties, you have less control over your investment than you would if you owned the property outright. Additionally, guarantee trusts can be affected by changes in interest rates, which can impact the trust’s income and share price.

Side By Side Comparison

 

Mortgage

Guarantee Trust

Granting of mortgage: 1.65% of the amount of the mortgage. Cancelation: 0.65% of the amount of the mortgage.

Trustee fees (approx $500-1000/year) + 2 transfers of the property at 3.5% of the property fiscal value. Transfer is exempt only if lender is a bank.

The court proceeding is simple and straightforward. Depending on court involved, proceeding will take months.

Property is auctioned privately, typically at the trustee’s location. It involves setting a date and publishing a notice in a local paper.

If debtor does not voluntarily vacate, the same court will issue an order to the police to put lender in possession by force if necessary.

As there is no judicial authority involved, the trustee does not have the same legal authority as a judge, therefore an administrative proceeding called “administrative eviction” has be to be filed with the Ministry of Security, and if the proceeding is complex, they may declare themselves as incompetent — in which case the lender will have to start court auctions to have a judge issue an order.

The mortgage is regulated by law as well as the judicial foreclosure proceeding. The sole defense of the debtor is to demostrate that payment was made or amount claimed is not the correct one. Basically a proven bulletproof proceeding that normally is not challanged by debtor.

Mostly regulated by private agreements and therefore more chance that mistakes are made. Normally arbitration clauses are included and many debtors use it to delay foreclosure or challenge foreclosure once done.

Which is Better?

So, which option is better for you? The answer depends on your specific situation. If you’re comfortable with the risks of owning property and want to take advantage of leverage, a mortgage might be a good option. However, a guaranteed trust might be better if you seek diversification and more passive investment.

At Gap Investments, we can help you weigh each option’s pros and cons and determine which is best for you. Contact us today to schedule a consultation.

-Written by Glenn Tellier (Founder of CRIE and Grupo Gap)

[email protected]

 

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    Frequently Asked Questions

    What is a mortgage?

    A mortgage is a loan that is used to purchase a property. The borrower makes regular payments to the lender, usually monthly, until the loan is paid off.

    What is a guaranteed trust?

    A guarantee trust, also known as a real estate investment trust (REIT), allows you to invest in real estate without owning property. Instead, you invest in a trust that owns and manages a portfolio of properties.

    What are the advantages of a mortgage?

    One of the biggest advantages of a mortgage is that you can leverage your investment. This means that you can use borrowed money to increase your returns. Mortgages can also help you purchase a property without paying for it outright.

    What are the risks associated with a mortgage?

    You could lose your property if you can’t make your mortgage payments. Additionally, if the value of your property decreases, you could end up owing more on your mortgage than your property is worth.

    What are the advantages of a guaranteed trust?

    One of the biggest advantages of a guaranteed trust is that it provides diversification. Because you’re investing in a portfolio of properties, your investment is spread out over multiple properties and markets, which can help reduce your overall risk. Additionally, guarantee trusts are generally more liquid than physical properties, meaning you can buy and sell them more easily.

    What are the risks associated with a guaranteed trust?

    Because you’re investing in a trust that owns multiple properties, you have less control over your investment than you would if you owned the property outright. Additionally, guarantee trusts can be affected by changes in interest rates, which can impact the trust’s income and share price.

    Which option is better: a mortgage or a guarantee trust?

    The answer depends on your specific situation.

    If you’re comfortable with the risks of owning property and want to take advantage of leverage, a mortgage might be a good option. However, a guaranteed trust might be better if you seek diversification and more passive investment.

    How can Gap Investments help me determine which option is best for me?

    At Gap Investments, we have extensive experience helping our clients make informed financial decisions. We can help you weigh each option’s pros and cons and determine the best option. Contact us today to schedule a consultation.

     

     

     

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    Article by Glenn Tellier (Founder of CRIE and Grupo Gap)

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