Investing in select mortgage funds can offer an attractive opportunity for income-focused investors seeking stable returns with potentially lower volatility compared to alternatives like equities (shares). These funds offer investment in loans, usually secured by Registered First Mortgages over legal interests in real commercial property.
Select mortgage funds are particularly appealing in the context of Australia’s mature real estate market and well-regulated financial system. Select mortgage funds are not pooled mortgage funds.
Consistent income generation
One of the key advantages of select mortgage funds is their ability to generate a consistent income stream. For example, investor returns are typically distributed monthly, sourced from borrowers’ interest payments. The yields can be attractive when compared with property trusts, term deposits or debentures. A well-managed fund focuses on lending to reliable and experienced borrowers, helping to maintain a high-quality loan portfolio and deliver consistent performance.
Capital preservation and asset-backed security
Unlike many other investment options, RMBL’s Mortgage Income Investments (the Fund) are backed by assets, in the form of Registered First Mortgages over real commercial property in Australia. In the event of a borrower default, the underlying property may be sold to recover the outstanding loan balance, providing an added layer of security for investors.
Strict lending criteria, such as conservative loan-to-value ratios (LVRs), meaning the loan amount represents a percentage of the security property’s value, and thorough borrower assessments, further support capital preservation. This disciplined approach helps reduce the likelihood of capital loss, making these funds attractive for risk-aware investors.
Diversification benefits
Select mortgage funds provide investors with exposure to a diversified portfolio of loans across various property types including residential, commercial, and industrial properties. Diversification can also extend across geographic regions and project types such as development and non-development loans. This diversification may assist in reducing the impact of any single borrower default or localised property market downturns, while giving investors access to segments of the private credit market that are typically not available to investors in their individual capacity.
Professional management and rigorous due diligence
Select mortgage funds are managed by experienced professionals who undertake rigorous due diligence before approving loans. This process typically includes assessing borrower creditworthiness, verifying independent property valuations, and structuring loans to effectively manage risk.
Many select mortgage funds prefer to work with repeat borrowers, who have an established proven track record, which can provide an extra level of confidence for investors. The active management of these loans also ensures ongoing compliance and risk management and enables early intervention if challenges arise. RMBL, for example, works with well-known and experienced property developers, many of whom have been long-term clients.
Accessibility and liquidity options
While mortgage funds are generally less liquid than cash investments, many select mortgage funds offer redemption mechanisms that allow investors to access their capital under certain conditions. This provides a degree of liquidity that is not usually available with direct property ownership, although redemptions are not guaranteed and are subject to fund terms.
Entry requirements are generally accessible. RMBL, for instance, accepts both retail and wholesale investors, with a minimum investment of $10,000.
Portfolio stability during market volatility
Select mortgage funds often have a lower correlation with equity markets, which may help reduce overall portfolio volatility during periods of market uncertainty. Their regular income distributions and asset-backed structure can provide peace of mind for investors and contribute to a more balanced investment portfolio.
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The above information is general in nature and does not take into account your investment objectives, financial situation and needs. It should not be relied upon as financial product advice. All investments carry risk, including the risk of capital loss. Investors should obtain and consider the relevant offer documents and seek independent financial advice before making any investment decision. RMBL Investments Limited (ACN 009 159 423, AFSL 222348) is the Responsible Mortgage Income Investments. Past performance is not reliable indicator of future performance.
