Mortgage Investment Corporation has come a long way since its founding in 1973. MIC industry in Canada is now popular with investors for its balanced risk and reward profile, with more and more companies looking to leverage their hard-earned capital.
But not all MICs are created equal. The most successful investors recognize that mortgages, like any other investment, come with risks and these risks should be mitigated through careful evaluation, responsible management, and transparency. In that sense, investing in a mortgage doesn’t start with a signed document or writing a check. It starts with the due diligence of interested investors.
What maximum LTV ratio does the MIC keep?
The loan-to-value ratio speaks to the MIC’s risk appetite. The higher the LTV, the less buffer the loan has against real estate depreciation.
Is the MIC private or publicly traded?
This type can provide more liquidity, but we have to consider that the risks of relying on markets of volatile stock affect the benefits of safer private investments.
When can you expect any income?
MIC has a variety of payment plans and can pay dividends monthly, quarterly, or annually. Some investors prefer to earn income more frequently, while others prefer to receive larger sums in the form of annual payments.
Does MIC have a good reputation?
Pending and ongoing litigation may affect MIC’s operations. Litigation can affect shareholder confidence in management and the market value of the company, especially if it is publicly traded.
Another issue that can have a significant impact on investments is MIC’s compliance with government regulations. One of the biggest advantages of investing in MIC is that income is not taxed until it is paid to the investor. If a company loses its status as a MIC, the ITA will tax earnings before releasing dividends and further shares if received as income.
How diverse is the portfolio?
Portfolio diversity is positively correlated with risk diversity. MIC must invest 50% of the investment in mortgages, while the rest can be spread across commercial, industrial, and even real estate loans. The lack of portfolio diversity and transaction volume may indicate that MIC is investing in too few mortgages for too much money.
Do they choose borrowers well enough?
It is also prudent to review the composition of borrowers in the MIC’s portfolio. Who a company lends to affects its risk profile. Just because the private lending industry offers more flexibility than traditional lending doesn’t mean MICs need to deal with highly risky borrowers. For example, if the MIC’s borrower mix consists largely of non-revenue developers, investors may experience slower returns and a higher risk of not getting their money back.
How can you withdraw your investment?
An investor must consider the exit strategy. Early withdrawals may involve penalties and fees, and it is wise to know of the MIC’s redemption policies in case you suddenly need liquidity.
What is the percentage of the first mortgage out of the second and third mortgages?
It’s not uncommon for a private lender to take out his second and third mortgages, but if there are too many of them in the portfolio, it could indicate poor risk regulation. In the event of default or foreclosure, the first loan has priority and is paid off first. The second and third mortgages may not have enough money left over for the MIC to recover the money.
What are the MIC’s underwriting practices?
Mortgage investment corporations must act in the interests of investors and mitigate risks as much as possible. Experienced teams know what they are doing, and their MIC has a team or pool of underwriters in the form of industry experts and real estate attorneys. All loans must be valued according to reasonable criteria aimed at hedging risks and optimizing the likelihood of business success.
Does MIC have a history of growing and stable ROI?
As they say, past behavior is the best predictor of the future. The same applies to MIC performance, but like any investment, there are certain economic cycles in which it may perform differently. Still, we recommend looking at MIC’s performance reports and ROI patterns to get an idea of how MIC treats its investors and how likely they are to get their money back.
The correct answers to these questions will vary from investor to investor. The skills you acquire when choosing a MIC will depend on your risk tolerance, expected return, and other personal investment preferences. These questions will help you determine your metrics and ultimately guide you to the right MIC. Though if you need more information or guidance, we’re here to help you.
10 Questions That Lead to the Right Choice of MIC FAQs
- They are an excellent choice for many Canadians: Mortgage investment firms provide money to people who have been turned down by banks, credit unions, or other major alternative lenders. This allows them to charge significantly higher mortgage interest rates.
- Developing a sustainable portfolio: When you buy MIC stock, you can watch your investment grow. MIC regularly informs you about investment progress and pays dividends according to a fixed schedule.
- Investment risk is greatly reduced: When you invest in MIC, you greatly reduce your risk by buying shares in a very diversified mortgage portfolio.
However, like many things in life, not all MICs are created equal. It is always important to exercise due diligence when making new investments in alternative investment streams. The same level of care is important when choosing his MIC to manage investments.