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What is a Mortgage Investment Corporation (MIC)?

By Jason Anbara | Posted on March 25, 2024

A house figurine in a hand showcasing what MIC investments are

For many Canadian investors, purchasing mortgages is simply beyond their budgets. If you are looking to invest in the forever-hot Canadian real estate market, MIC investments might be the answer. By bringing together several investors under one roof, MICs, or Mortgage Investment Corporations, can invest in multiple mortgages, distributing the risk among individually contributing members. In this post, we’ll take a closer look at everything you need to know about Mortgage Investment Corporations in Canada.

What is a Mortgage Investment Corporation?

A mortgage investment corporation, or MIC, is an investment management company with a portfolio of loans secured against real estate. Such organizations allow individual investors to invest in the real estate market by pooling their contributions and investing them in multiple private mortgages.

How Do MICs Work?

MICs operate by pooling capital from individual investors and lending it to borrowers through private mortgages. As a result, the corporation increases the flow of money available for investing, while individual investors get an opportunity to participate in the residential or commercial real estate market despite limited capital. Mortgage Investment Corporations generate most of their income through interest and mortgage borrower fees.

Individuals may participate in MIC investments by purchasing their shares and, therefore, becoming entitled to dividend payments. The dividends can then be withdrawn or reinvested into the corporation. As such, MICs are a form of alternative fixed-income investment that enables individuals to receive income from a diversified pool of mortgages.

 

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Pros of Using MICs

High and steady returns, moderate entry barriers, and diversification advantages are some of the key benefits offered by Mortgage Investment Corporations. Let us take a closer look at these pros:

Attractive Returns

One needs to review alternative fixed-income investments to fully understand the allure of MICs. Even with the recent rate hikes, the GoC bonds are expected to produce a return ranging roughly between 3% and 5% over the next two years. In this light, the 8% to 10% yield associated with MICs looks attractive.

Moderate Initial Investment

While traditional real estate investments like income properties or private lending demand substantial upfront investments, MIC investments do not. Since MICs pool their funds from multiple investors, these organizations allow individuals without significant capital to finance a diverse portfolio of mortgages collectively.

Read more: What is Private Mortgage Lending?

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Reduced Risk

Mortgage Investment Corporations invest in various pre-qualified mortgage assets, including residential, commercial, and construction mortgages. This diversification spreads the risk across different loan types, borrowers, and properties, thus reducing the overall credit risk for individual investors.

Steady Income

MICs are a form of fixed-income investment, providing a steady flow of income through regular interest payments from borrowers. With each mortgage investment a MIC makes, this interest rate is pre-determined, which allows the organization to issue regular, fixed distributions to its investors.

Tax Advantages

Under the Income Tax Act of Canada, MICs enjoy favourable tax treatment, with capital gains and cash inflows exempt from taxation. This prevents double taxation, thus providing higher returns to shareholders.

Cons of Using MICs

As with any other investment vehicle, MICs do have a few limitations:

  • Fluctuations in the Housing Market: As housing prices fluctuate, the value of properties used as collateral may decline. This fluctuation may negatively impact the MIC’s profitability.
  • Uncertainty: While MICs conduct thorough background checks on borrowers, it is never possible to identify subprime borrowers with 100% certainty.
  • Risk and Return Rate: According to the Risk-Return Tradeoff investment principle, higher yields associated with investing in a MIC also mean higher investment risks.

Read more: How To Become A Private Mortgage Lender

MIC Requirements

To qualify as a Mortgage Investment Corporation in Canada, an organization must:

  • Be located in Canada and incorporated under the laws of Canada or a province.
  • Only focus on investing corporation funds and not managing or developing any real property.
  • Include 20 or more shareholders, with no shareholder owning more than 25% of the issued shares.
  • Invest at least 50% of the cost of all corporation’s property in mortgage-secured debts, money, or deposits in Canadian banks or credit unions.
  • Own real estate or land assets that cost no more than 25% of the total cost of all assets owned by a corporation.
  • Comply with the liability thresholds under the ITA

Business people discussing deals related to MICs

Is a MIC the Best Way to Invest in Real Estate?

While MICs offer an excellent opportunity for finance-savvy individuals to get their foot in the door of private mortgage investments, they are not always the best way to invest in real estate. 

Rather than contributing your funds directly to a MIC, you may want to consider working with a certified mortgage administrator like NorthLend Financial instead. In addition to offering similar investment opportunities to a Mortgage Investment Corporation, mortgage administrators provide a number of unique advantages. By going a mortgage administrator route, you will benefit from a more personalized approach, with the administrator’s real-estate connections and extensive expertise in the industry playing in your favour.

 

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Up To 14% Returns For Investors

Our secured mortgage investments have yielded passive returns of 10-14% for our clients.

Start Investing

 

Final Thoughts on MICs

Without a doubt, MICs present a compelling opportunity for individuals looking to invest in a diversified portfolio of private mortgages. With a plethora of pros associated with MIC investments, they offer a well-rounded investment option for those seeking a steady stream of income from the real estate market. 

Nonetheless, investors should remember to conduct their due diligence and consider alternative mortgage investment avenues. Get in touch with us today to learn more about your private mortgage investment options.

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About Our Founder

Jason Anbara, Founder, CEO, and Principal Mortgage Broker, has been dedicated to realizing the homeownership dreams of countless clients through his mortgage services business. A distinguished graduate in International Management with Honours, Jason also holds a Bachelor of Commerce from The Telfer School of Management at the University of Ottawa.

Driven by a passion for his community and the positive influence his team has on both new and existing residents, Jason has garnered multiple accolades and awards. These recognitions underscore his unwavering commitment to providing exceptional customer service.

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