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.