Most people think real estate investing is just about owning property and profiting from it. If you’re a landlord, a developer, or a flipper, that often means headaches. You might have to do renovations and inject more money into the asset. You could have tenants who don’t pay rent on time or have to take late-night calls about leaky toilets and issues with the faucet. But in this article I’ll show you how Canadians are earning high returns by investing in the mortgage, rather than the property. This is exactly what banks do. My name is Alexis Assadi, and I’ve been investing in first and second mortgages across Canada since 2013.
How Real Estate Can Create Wealth
Real estate ownership is a well-worn path. It has created massive wealth for many. It can generate income, it can appreciate in value and you can borrow against it. Real estate is tangible. You can see it, drive by it and live in it. So it’s no surprise that real estate investing has become a symbol of financial independence.
The Shortfalls of Owning Property as an Investment
But while owning property is often recommended for passive income, investors soon realize it actually requires a lot of work. You’re managing people, properties and problems. You’re fixing broken furnaces, calling plumbers and renovating. You’re handling late rent payments, complaints and evictions. If you don’t want to do it yourself, you’re paying a property manager and giving up revenue.
You’ve also got property taxes, insurance and environmental issues. Everything is your responsibility. You can be squeezed by rent controls even if your costs are climbing. In a rising interest rate environment, your expenses can go up while your income stays flat. Vacancies can hurt too. Every empty month is lost income, but your mortgage payments still need to be made. Screening tenants takes time and care. A bad choice can cost thousands of dollars. Even property appreciation, which many investors rely on, isn’t guaranteed. Markets can stagnate or fall.
At some point, many people say: “I don’t know if investing in real estate is always worth it. Maybe I should place my capital elsewhere.” However, there’s another way to invest in real estate. It’s one of the oldest business models in Canada and it’s growing in popularity.
Private Mortgage Lending in Canada
Instead of being a landlord, you can become a lender. Rather than owning the property, you own the mortgage on the property. This is called private mortgage lending.
A private mortgage is a direct loan. It’s a deal between you, the lender, and a single borrower, and it’s registered directly on the property’s title. This is not a mortgage investment corporation or a syndicated deal. The mortgage isn your name and gives you legal rights and recourse if the borrower doesn’t pay. And just like a bank, you earn monthly interest from the borrower until you’re repaid. For example, if you lend $100,000 at 12% interest for a year, you earn $12,000 in interest. It’s straightforward.
When a mortgage is registered on title, it means the real estate is collateral for your loan. If the borrower doesn’t pay, you can foreclose, sell the property and recover your money. And unlike chasing back-rent from a tenant, any unpaid interest simply gets added to the principal balance, so it’s protected by the property’s security.
Private lending can be genuinely passive. Once you’ve done your due diligence, checked the property value and assessed the borrower’s profile, much of your work is done. The borrower makes regular interest payments directly to you. You get the monthly income, but they manage the tenants. They worry about the repairs. They deal with the emergencies. Your role is simply the lender. Your involvement is mostly front-loaded. It’s real estate investing, without the operational headaches of property ownership.
The Limitations of Private Lending
I’m not trying to convince you to stop buying real estate. This is simply a way to diversify your portfolio. And, like all investment vehicles, private mortgage lending has limitations.
For example, private mortgages aren’t liquid. You can’t sell your investment tomorrow like you could a stock. You have to wait until the borrower repays the loan, which is usually done by refinancing or selling the property. When you lend money, it’s typically tied up for a fixed term that you and the borrower agree on. Many private lenders aim for six months to a year. But it can be longer if the borrower’s exit strategy does not go as planned.
Like real estate ownership, mortgage lending is best for capital that you don’t need immediate access to. You commit your funds for a set period in exchange for higher, secured returns.
There’s also the risk that your borrower doesn’t pay you, which is why the up-front due diligence is important. But again, as a mortgage owner you have the ability to foreclose on the asset. There are also plenty of methods to protect yourself from default scenarios. I explore them elsewhere on this channel and in my Canadian Private Lending Course, which you can access for free.
Why Private Lenders Exist in Canada
So if the banks already lend money, why do private lenders exist?
Well, in recent years, Canadian bank regulations have tightened. The mortgage stress test, stricter income verification, and careful lending policies have made it harder for people to get approved by traditional lenders. That problem exacerbates when interest rates increase, because it becomes even harder to qualify.
It is a misconception that only people in financial distress cannot qualify for bank funding. Many “un-bankable” borrowers include self-employed people, real estate investors, and those who need short-term financing to complete a project or refinance another property.
Private lenders fill this gap. They provide solutions that banks can’t, and can be rewarded with strong returns in the process. As this demand has grown, more investors are realizing they can use their capital to participate in the mortgage market and earn attractive, secured income. Lending is not just for banks and large funds. There are plenty of opportunities for retail investors across Canada.
Once you understand how the asset works, private lending can become a powerful source of passive, predictable income. It’s still real estate. It’s still secured by hard assets. But can be truly passive. Not every investment can offer that.
To learn more about Canadian private lending strategies, take the Canadian Private Lending Course. The first module is free. If you like what’s there, you can always upgrade to the premium content.