Private Mortgage Investment Corporations (also known as MICS) are corporations designed to operate as mortgage lenders and generally focus on residential or multi-family mortgages. Some MICs trade on public exchanges, like the New York Stock Exchange and Toronto Stock Exchange but the majority are private.
Suitability
Private MICs are suitable for medium-to-longer-term investors, although some have relatively short redemption schedules. Suitable for investors seeking to generate stable income as an alternative to investing in publicly traded MICs, bonds or GICs or for those seeking returns in the mid to high single digits, without the volatility of equity markets.
Why invest in
Mortgage Investment Corporations?
Professional Management
By working with professional managers, who have experience and expertise in managing pools of residential or multi-family mortgages, investors can diversify from traditional fixed income investments and in other private lending concepts, to “Be the Bank” and generate above GIC and bond returns.
Diversification
Better diversification than lending money to friends and relatives.
Lending Opportunities
MICs (Mortgage Investment Corporations) often lend to entrepreneurs and people new to the county who have good equity but do not have the credit ratings needed by the bank.
Often borrowers are referred by the banks who return at better rates when they establish better credit ratings.
Redemption Advantages
Most mortgages issued by more reputable MICs are short-term (often one-year) which allows them the ability to provide shorter redemption schedules as they can ladder their portfolio so roughly 1/12th comes due each month.
Steady Performance
Managers of MICs with larger pools of mortgages have the experience and scale to deal with delinquent borrowers so investor performance is generally not affected.
Risks & Volatility
Understanding risks and volatility is critical to being successful investing in both public and private markets and both share similar risks, but others are quite different.
- Manager Risk
- There is always the possibility that a manager may make a series of bad investments or allow self-interest to put investment capital at risk. Through our due diligence and manager selection process, we work to minimize this risk.
- Liquidity Risk
- Investments in Mortgage Investment Corporations are less liquid than traditional investments, such as publicly traded equities and bonds.
- Investors may have limited options to sell their shares or exit the investment before the end of the investment term.
- Private funds can be “gated” (investors may be restricted or limited in their ability to add or withdraw funds) mostly due to high volumes of redemptions during short periods of time, which can last for long periods of time. This has happened when the reputation of the fund or manager comes into question or when significant losses are experienced.
- This lack of liquidity could result in challenges if you need to access your capital unexpectedly.
- Valuation and Transparency
- Investments in Mortgage Investment Corporations are not subject to the same level of regulatory oversight and reporting requirements as publicly-traded REITs.
- This can lead to challenges in accurately valuing the underlying mortgage pools and a lack of transparency regarding the financial performance and operations.
- Limited Exit Options
- Exiting investments in Mortgage Investment Corporations can be more complex and restricted compared to publicly traded equities, bonds, or REITs but they tend to be more flexible than other Private investment options.
- To mitigate these risks, thorough due diligence and partnering with experienced management teams are essential.
- Volatility
- Private investments, such as private debt and equity, are not traded on public exchanges. Their valuation and trading occur less frequently and are often based on third-party valuations. This is advantageous as it removes investor stress caused by volatility of publicly traded securities, but investors should understand and be comfortable with pricing mechanisms.
Liquidity
- MICs tend to have better liquidity than other private lending concepts.
- As discussed above, open ended funds are relatively liquid, but each issuer has its own specific terms and conditions. If you are interested in a private mortgage pool, you can arrange an in-depth discussion with us to help you fully understand whether it is right for you.
Potential Returns
- Every investment has many moving parts so predicting the future should be used for estimation purposes only.
- As a rule of thumb, target ranges for professionally managed MICs is in the 6 to 8% range with low performance volatility.
Taxation
- Income from MICs is generally interest income.
