May 092014
 

I recently received payment from my tenant for the first half of the year’s rent. So I have $5K now sitting in the bank. What should I do with it? Well I want to invest in the mortgage market. I first heard about mortgage investing when I attended a free industry seminar. But it wasn’t until recently that I seriously started to look into it.

Here’s how it works. When someone buys a home, they typically need a mortgage (a loan) which usually comes from a bank. But instead of getting the loan from a bank, what if we, as investors, lend money to this home buyer. Then all the interest the borrower pays would be our gain.

In Canada, there are companies called Mortgage Investment Corporations, which pool together investors’ money and underwrites and lends mortgages for home buyers looking to finance. A MIC (pronounced *mick*) is a flow through investment and 100% of the net profits are distributed to investors.

14-05-mic-structure

A MIC is similar to a high yield bond because both are debt instruments for financing purposes and both have similar yields, which is perfect for me because I need some fixed income exposure in my portfolio right now. If any readers own a MIC, are you happy with its performance?

I am interested to invest in a MIC but don’t know where to start. So I have laid out a simple 6-step plan to figure it out 🙂

  1. Learn about the potential benefits and risks of MICs
  2. Find and make a list of MICs
  3. Research and narrow down the list to 2 or 3 candidates
  4. Scrutinize the short list even more and interview the companies
  5. Choose the MIC that’s best aligned with my goals as an investor
  6. Commit to the investment

I have completed steps 1 through 3 already. Below are my results.

1. Using the unlimited resources of the internet (mostly just Google) I’ve discovered that MICs can be a great addition to a diversified portfolio. They are also an effective hedge against rising interest rates. As a property owner my financing costs would increase if interest rates rise. But a mortgage investment would make me a lender and put me on the other side of this equation. Higher interest rates would actually improve my long-term returns 😀 That’s what hedging is all about.

Mortgage and down payment

2. Fisgard, Tembercreek, Westboro Mortgages, Trez capital, ACIC, Firm Capital, Atrium, Magenta, Great Pacific, and Antrim Investments, are some MICs I’ve found. There are many more MICs in Canada but I didn’t bother to search further.

3. Some MICs require a minimum initial investment of $50,000. Some are more conservative and only lend to reputable borrowers so the investment returns are lower (4% to 5%.) Other MICs have a mix of 1st and 2nd mortgages (riskier) but generally return 8% to 10% back to investors. Some have more projects in Ontario, others in B.C. or Alberta. Some MICs are private while others are publicly traded. After researching each one on my list I’ve narrowed down my choices to just a few.

I have phone calls scheduled with a couple of MICs on Monday. I will be asking them questions like how much assets do they have under management? Can I choose my own trustee? What is the redemption process? Will they send me a T5 for tax purposes? etc. If you are interested in MICs as well feel free to post any questions you may have in the comments and I’ll try to get an answer for you from the MIC representatives I’ll be speaking to.

Interesting isn’t it? 😀 I’ll post an update in the future.

[Edit June] Okay, here’s the update. I bit the bullet and bought $10,000 of Antrim MIC 🙂 [/edit]

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Random Useless Fact: How to offend four groups of geeks with one picture.

14-05-geeks

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Phil
Guest

Interesting concept, but again not for us. We have done a few bridge loans/mortgages but only to help out friends and family. Hard to really make money on given the low lending rates… but it sure has brought many of us closer together. I guess we were lucky in the end all of the times it has worked out. Loans for most people are so low as it is, so turning a profit is rather difficult. Our choice to help friends and family was for a different reward over profit anyways. 🙂 – Cheers, and good luck in yet another investment direction?

Financejourney.com
Guest

I have Firm Capital units, it is a publicly trading company under symbol TSE: FC and you can trade as any other stocks. I invested in 100 FC units since 2011, and collecting around 7.6% interests yearly. It is very effective if you hold into TASA accounts because they pay interest not dividend .

Financial Underdog
Guest

FJ,

When you trade those units, do they come up and down in value? Do you take it into account when figuring out the return on investment? Do they have min. order limit?

2-copper-coins.com (@2coppercoins)
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2-copper-coins.com (@2coppercoins)

After reading about the collapse of the mortgage bond market, I’m a little gun shy about investing in anything that is backed by private consumer mortgages. Sure lenders should have learned their lesson after the collapse of 2009 but how do they assure that the loans are being given to competent worthy customers? Have you learned about what the parameters are for those you might be potentially lending to?

Financial Underdog
Guest

Few years ago, I’ve invested money with an Albertan MIC and couldn’t been happier. I’ve met with them, and they explained their business model and criteria for their mortgages, and it was quite safe all around. My investment has been spiting out 10%+ and reinvested through DRIP. TFSA eligible too.

http://asset-grinder.blogspot.ca/
Guest

Cool Concept but the lock up terms kinda suck. Better off going into REITs imo.

Anyways I find your blog very useful and helpful

Jason
Guest
Jason

I just found your website recently and like the articles and how open you are with your finances. This MIC sounds very interesting. I look forward to hearing what you come up with and will probably do some research of my own. I’m also from BC but am already 32, so may need to call this a Freedom 45 for myself.

Financial independence
Guest

I think it is a fantastic idea and very interesting revenue stream. My only concern is that lending somebody at 8-10% a year. I could not possibly maintain such payments myself. How long do you think it is going to last?

Chris
Guest
Chris

I own shares of mcan mortgage and …..I can’t remember the name of the second, but the ticker symbol on the TSX is MIC. Mcan is treading water but paying a hefty dividend. MIC has appreciated significantly, and also pays well. Worth looking into both as they are public and therefore can be treated like stocks, no minimum investment amounts or holding periods etc.

Mary
Guest
Mary

I thought about MICs about 5 years ago, but didn’t know enough about finances and numbers back then (I’m 34 now) – well, I still don’t know that much. Anyway, I live close to Fisgard and had a talk with one of the guys once during a work related meeting, so I didn’t feel pressure to get in on it or anything, but it did sound intriguing. What I thought was the most interesting was that you can invest very little ($1000? I can’t quite remember) and still get back approx 5% (that’s been the average return rate). At the time, I was thinking I would make an investment towards MICs much like I would for a TFSA or GIC. I’d like to know if that’s a good way to think about them. How is investing in a MIC any different, such as if I end up needing the chunk of money, is it simple withdrawl that money and what sort of penalty would I pay?

Thanks for doing this research; I can’t wait to read what you find!

Chuck
Guest
Chuck

The publicly traded MIC is a good option. You can buy them thru your discount broker. Low fees that way. Keeping them in a TFSA will mean the interest earned is not taxed. (You can also use an RSP ) . Check the profile of the MIC (particularly geographical location and product).
Many residential investments are development loans for subdivisions or Condo developments. The higher interest rates are offset buy the buyout of the project. The developer recovers the higher interest in the selling price of the units and low market interest rates encourage more purchasers to enter the market, spreading out the risk.
Check the distribution of the MIC’s investments and do a projection for your investment term (usually 3 to 5 years). A diversified MIC investment i.e. Commercial, industrial,residential usually results in the higher risk and highest long term gains. I would keep this product at a maximum of 10% of your portfolio. It makes a good couch potato investment and is not as volatile as equity investments.

JP
Guest
JP

Hi There
I’ve been with Antrim for 3 years now and have never looked back. Their rate of return and service is unbeatable to this day. I’m so very proud to be investing with them. Money is easily accessible should I require it for an emergency (which I did need).
Sincerely,
JP

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[…] Exchange lost about 9% last year. But one group of investments that performed well in 2015 were mortgage investment corporations (MIC.) In the beginning of 2015 I held three different MICs. Since I didn’t add any new positions […]

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[…] I went with a mortgage investment corporation instead of a traditional company. Unlike most stocks, MICs generate profit from debt because they are in the business of lending. They tend to be less volatile than the TSX Composite […]

PwedePadala
Guest

Thanks for this post, I owned MCAN and happy with the return. I noticed that most indices went down this week but my MCAN paper gain didn’t budge. I’ll definitely keep on reinvesting the dividends and adding more. Have you invested in other MIC?