Many Canadian investors are enticed by private lending because it can produce steady, predictable returns backed by property. The main barrier for a lot of new lenders is perception. They assume they need huge amounts of money to lend.
In big cities, that’s often true. Housing prices in Toronto or Vancouver can easily exceeds a million dollars. Even a conservative 60% loan-to-value mortgage would mean lending around $600,000. Few individuals can commit that much.
But that’s not the whole story. There are opportunities across Canada for smaller investors to lend directly on real estate. In fact, you can fund deals with tens of thousands of dollars, not millions.
A private mortgage is a loan secured by real estate. You lend your money and a mortgage is registered in your name on the property title. That gives you legal protection and the right to enforce payment if the borrower stops paying you. It’s no different from what banks do. You’re just doing it privately, on the terms agreed on by you and the borrower.
Smaller Lending Opportunities
Canada is a large country with varying real-estate markets. In many regions, prices are far lower than in Toronto and Vancouver. That means the size of the mortgages are also smaller. That’s where the opportunity lies. Early this year, for instance, I funded a 1st mortgage on a cottage on a lake outside Sudbury, Ontario. The loan-to-value was just 45%.
Another example is Winnipeg. Many single-family homes there sell for between $250,000 and $350,000. A first mortgage at 70% of value would be under $250,000. A second mortgage could be even smaller, maybe $50,000 or $75,000. These are numbers within reach for many Canadians with savings, equity in their homes or RSP funds.
The same applies in countless other cities. Places like London, Windsor, Edmonton, Moncton and dozens more have active markets with moderate home prices. Across the country, smaller investors can lend meaningfully without needing institutional capital.
You also don’t need to reside in the local market to do business there. A local lawyer, mortgage broker and appraiser can represent you. All you need is your home office.
The Bank Preference
Banks prefer large, high-volume urban markets. They want consistent data, quick sales and lots of comparable properties. In smaller towns, the market moves slower. Appraisals can be harder to verify. It may take longer to sell a house if something goes wrong. From a bank’s point of view, that’s added risk. That’s not to say that banks don’t lend in smaller markets at all. It’s just that there’s a bigger gap for retail investors to fill.
The Small Market Advantage
Smaller-market lending often produces higher yields because there is less competition. In large cities, private lenders are everywhere. Individuals, companies and mortgage investment corporations are all chasing the same deals. That drives rates down and reduces your margin. But in rural or secondary markets, there may only be a handful of lenders willing to step in. That scarcity lets you negotiate better terms, charge fair premiums and select only the strongest borrowers.
Risks
The downside, however, is that these are usually less liquid markets. If the borrower plans to pay you back by selling their property, it could take months longer than in big cities. The same applies if you have to foreclose on the asset. You have to factor this in before granting a loan. You will also probably want a lower loan-to-value ratio.
It would not be accurate to say that smaller markets are always riskier than large ones. Risk depends on multiple factors, not just location. A million-dollar condo in Vancouver at an 85% loan-to-value might be far riskier than a $200,000 home in Brandon, Manitoba at 60%. The difference is the equity cushion. The smaller property could represent a safer investment because there’s more protective value behind your loan.
Still, smaller-market lending requires diligence. You need to verify the property value carefully. Always use an appraiser who understands that market. Review property taxes to make sure they’re current.
Try the Canadian Private Lending Course
If you want more Canadian private lending strategies and due diligence, take the Canadian Private Lending Course. The first module is free. If you find it valuable, you can always upgrade to study the remaining 10 modules. I’ll leave a link in the video description below.
So if you’ve thought about becoming a private lender but assumed it was out of reach, think again. Look beyond the major urban markets. Explore areas where property values are moderate and competition is low. With the right approach, you can participate in this essential part of the Canadian financial landscape.