Tuesday, April 10

Income Producing Investment: MICs

I have dabbled in mortgage investments but not too seriously. Here is something that I am considering. It is called a Mortgage Investment Corporation or MIC. There are many companies in Canada that are now running these and they tend to be quite small compared to mutual funds.

The way it works is that investors pool their money into a corporate entity, the MIC. The MIC then invests in multiple mortgages. As mortgage payments are made, they are proportionately distributed to investors based on their amount of investment.

The appeal of MICs for me is based in four things:

  • regular income (usually monthly but may be quarterly or other)
  • higher than average rates of return - most MICs can offer 9% and up, far higher than GICs
  • lower risk than investing in a single mortgage because the pool invests in multiple mortgages - NOTE: make sure of this, don't assume the number of mortgages is sufficient to spread the risk
  • no extra work - once you find a MIC with management that you trust, they do all the due diligence. Also, there are no tenants involved. :)

The downsides may include:

  • some risk if a borrower defaults (although the multiple mortgages will limit it to a portion of your investment)
  • taxation of MIC income may not be favorable (I really don't know but I think it would be taxed like interest)
  • lower liquidity - depending on the rules you may only be able to buy and sell in certain amounts or on certain time schedules

There are several companies offering this across Canada. Search the internet for MIC, mortgage, investment and your city name and you will find many choices.

Has anyone tried this route?

6 comments:

mOOm said...

This is like a mortgage REIT in the US. I am invested in NCT which is a mortgage REIT. Another option is to buy shares in a bank that issues mortgages which is riskier. I have shares in HCBK. I don't know how to buy a Mortgage Backed Security but in theory you could do that - buy a bond that represents a package of mortgages. That's what these mortgage REITs will mostly be buying.

Middle Class Millionaire said...

Hi MD,

Great blog! I've been reading for while. Do you have an e-mail address I could reach you at? I just want to discuss some blog stuff with you.

If you don't want to post your email in the comments section please email me at

middleclassmillionaire@yahoo.com

Cheers,
MCM
http://middleclassmillionaire.blogspot.com/

the money diva said...

moom,
That's very interesting. I previously thought that all REIT's actually owned real estate. I had never heard of a mortgage REIT before. Thanks for the info!

MCM,
Please feel free to email me at the.money.diva@gmail.com. However, I don't always check this account daily so be patient if I don't respond quickly. Thanks!

MD

Canadian Capitalist said...

Ask yourself a simple question: You can get a risk-free return today of approx. 4% in a T-bill. Blue chip equities can be expected to provide a return of 7% over the long-term but you assume the risk of variable returns, including some money-losing ones.

An interest rate of 9% (I am assuming net of fees) suggests to me that you run a serious risk of capital loss. Please do your research before proceeding with these investments.

Anonymous said...

If you are interested in MIC's, Check out this company. I'm not advocating buying the funds or anything, but I believe they have a pretty good track record.

www.bancorpfinancial.com/

-Editor
www.crunchmoney.com

zbs said...

I just find your blog, very good information in here. For MIC, I bought some shares of FC.UN but I do not know if it qualified as MIC. It paid monthly income but no capital gain from last 12 months.