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.
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 🙂
Learn about the potential benefits and risks of MICs
Find and make a list of MICs
Research and narrow down the list to 2 or 3 candidates
Scrutinize the short list even more and interview the companies
Choose the MIC that’s best aligned with my goals as an investor
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.
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]
Random Useless Fact: How to offend four groups of geeks with one picture.
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?
That’s a great way to build trust between friends and family. I’m glad all your loans were paid back 🙂 I’m thinking about putting $10K into buying MICs first, and if I like the results I’ll increase my exposure to it over time.
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 .
Good point. That’s where I plan to hold mine as well. All of them pay interest income so it’s best to buy them in a tax sheltered account. Congrats on the large tax refund and crossing $50K net worth 🙂
Thank you Liquid,
Feel good to see my net worth. Tax is the our biggest expensive, if we can find a way to reduce it, then we could save more.
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?
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?
Not sure about who I’ll be lending to. Only know that these borrowers will likely be self employed or looking for short term bridge loans, which conventional banks wouldn’t normally do. The MICs I’m looking at has mostly first mortgages and do not lend over 65% loan to value and there’s recourse if borrower doesn’t pay back. So there would need to be a 35% housing correction in Canada before my principle would be in jeopardy.
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.
That’s great FU 🙂 Success stories like yours make me want to get into this market as well 😀 There are many MICs in Western Canada. I’m glad the one you found sounds like a real winner.
Cool Concept but the lock up terms kinda suck. Better off going into REITs imo.
Anyways I find your blog very useful and helpful
Thanks. Yes I have a lot of REITs as well. The lock up for MICs is a bit annoying, so I have to make sure I won’t need the money for at least 2 years. I like how you can pull out early though and just pay a 2% early redemption fee if you absolutely have to.
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.
Yay, fellow BC resident! Yeah, this MIC idea is pretty cool 🙂 Essentially, it lets the average investor participate in mortgage lending 😀 It’s becoming an increasingly popular investment option for retired investors looking for regular cash income, while their principle investment is secured by real property. Definitely sounds like a good part of a diversified portfolio. Good luck with your Freedom 45 goal 🙂
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?
Yeah, those kinds of high rates are not sustainable long term. Most amortization periods for these kinds of mortgages usually last 1 to 3 years so that should help reduce some risk. Nevertheless, many loans still become delinquent and sometimes the MIC has to foreclose on a property. The default rates are higher than conventional mortgages that banks regularly give out. It’s an unfortunate part of the business but it doesn’t eat up too much of the gains because most loans are paid back without problems, and MICs generally don’t loan out more than 70% of a property’s value so least at the principle is safe for the most part 🙂 Just have to be careful because some MICs are more aggressive and loan up to 85% which risks losing part of the initial investment if real estate prices correct by 15% or more. These types of more risky lenders produce more volatile returns for their investors from 4% to 12% so it depends.
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.
Cool beans. Another mortgage investor 🙂 Thanks for the suggestion :0)
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!
Sounds like you already know quite a bit about finances Mary 🙂 I spoke with a representative at Fisgard as well. I also like their minimum $1,000 investment. MICs and GICs are both fixed income products that we can put inside a tax sheltered vehicle like a TFSA. Both MICs and GICs provide a steady stream of income and have to be locked in for a certain number of years. The primary difference between the two is the risk factor. GICs are less risky and our principle is guaranteed to be paid back to us in full at the end of the investment term, so they tend to produce safer, but lower returns. MICs on the other hand are riskier, but generally pay higher interest based on their nature. There’s a limit to how much money we can invest in a TFSA. So the way I would think about it is to put investments that pay a higher interest rate into a TFSA first to benefit from maximum tax efficiency. And if there’s still room left in there afterwards, put in other products. Fisgard MIC would lock up our money for 1, 3, or 5 years, which we can choose… Read more »
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.
Looks like you have done a lot of research into MICs yourself. Maybe you already own some publicly traded ones 🙂 I would like to start by putting maybe 3% of my net worth in a MIC and work my way up to 8% or 10% maximum. It’s great for an income focused investment plan, since the yield beats dividends from stocks. But on the downside there’s no capital appreciation lol.
Actually, the publicly traded ones are essentially stocks,so even though there is a relatively high dividend or return of capital, the underlying stock can still go up or down – so there can be capital appreciation. Check out MCAN or tse ticker symbol MIC for a couple of examples.
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).
I’ve only been with them for a little under 2 years. So far it’s been pretty good for me too. 🙂
[…] 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 […]
[…] 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 […]
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?
I don’t have MCAN. But I a few other MICs such as Atrium, Firm Capital, and Timbercreek Financial.
Noted. Wondering if there will be MIC ETFs.