Unlock diversification, exposure to Canadian real estate, and expert management with a MIC
Considering a Mortgage Investment Corporation (“MIC”) as part of your investment strategy? In Q4 2024, the 25 largest Mortgage Investment Entities (“MIEs”) in Canada, including many MICs (which are one type of MIE), collectively managed $10.9 billion assets, marking a 7.2% increase from the previous year. This growth not only surpassed the national residential mortgage debt growth of 4.2% over the same period but also represents the fast growth experienced by top performing MIEs in the past year and a half.
This shift points to a growing segment of the market where MICs are actively expanding their presence and providing solutions to both borrowers and investors. This article explores key considerations to help you determine if investing in a MIC can align with your financial goals.
What Exactly is a Mortgage Investment Corporation?
At its core, a Mortgage Investment Corporation is a Canadian company that allows individuals to invest in a diversified portfolio of mortgages. Instead of directly owning physical properties, investors acquire shares in the MIC, which then pools this capital to finance various types of mortgages, including residential, commercial, and construction loans. This structure positions a MIC as an accessible pathway for investors to engage with the mortgage lending landscape without the inherent complexities and direct responsibilities typically associated with property ownership.
Types of Investments at a MIC
It’s important to understand the various account types available to hold an investment in a MIC, as these can offer significant tax advantages depending on your personal financial strategy. In Canada, you can generally hold your MIC investment within registered accounts such as:
- Registered Retirement Savings Plan (RRSP)
- Tax-Free Savings Account (TFSA)
- Registered Education Savings Plan (RESP)
- Registered Retirement Income Fund (RRIF)
Each of these accounts offers unique tax benefits, from tax-deferred growth in an RRSP to completely tax-free withdrawals from a TFSA, making MICs a flexible option for diverse financial goals. This versatility allows investors to tailor their MIC investment to best suit their individual planning and long-term objectives.
Benefits of Investing at a MIC
Diversification Beyond Traditional Assets
One of the most compelling advantages of a MIC is the opportunity for diversification. Traditional investment portfolios often heavily feature stocks and bonds. However, real estate, and by extension, mortgage investments, can have a low correlation with these traditional assets. This means that when the stock market experiences volatility, a MIC’s performance may remain relatively stable, potentially buffering your portfolio against downturns. Investing in a MIC can enable you to spread your overall investment risk across various mortgage types, property locations, and borrower profiles, as compared to concentrating it in a single property, or single market. However, it is important to note that diversification can also vary between each MIC. For example, some MICs may specialize in a particular mortgage type, or specific geographic region, while others may invest in a broader range of mortgage types, and across multiple locations in Canada.
Gaining Exposure to the Canadian Real Estate Market
The Canadian real estate market has historically demonstrated resilience and consistent growth. For instance, according to the Canadian Real Estate Association (CREA), the national average home price saw a significant increase of over 50% between 2019 and 2024. Investing in a MIC can provide a straightforward way to tap into this market without the complexities of direct property ownership, such as property management, tenant issues, or the significant capital outlay required for purchasing and maintaining physical assets. MICs invest in a range of Canadian mortgages, from residential to commercial, allowing you to indirectly benefit from the historic stability and potential appreciation of real estate across the country. This is particularly appealing for investors who recognize the value in real estate but prefer a more hands-off approach.
Consistent Income Streams
For investors seeking regular income, MICs can be particularly attractive. Mortgages generate interest payments, and a significant portion of a MIC’s income is derived from these payments. By nature of qualifying as a MIC under section 130.1 of the Income Tax Act (Canada), MICs are required to distribute 100% of their net income to shareholders each fiscal year, often in the form of quarterly or monthly dividends. This can provide a stable and predictable income stream, making MICs a suitable option for many retirees or those looking to supplement their existing income.
Liquidity and Accessibility
While real estate itself can be illiquid, investing in a MIC offers a degree of liquidity that direct property ownership does not. Investors can buy and sell shares in a MIC, typically with greater ease and lower transaction costs than buying or selling physical properties. This accessibility makes MICs a more flexible investment option for those who want exposure to real estate without the long-term commitment and potential challenges of direct ownership.
The Advantage of Professional Management
MICs are generally managed by seasoned professionals with extensive experience in real estate, finance, and underwriting. This expertise is crucial for navigating the intricacies of the mortgage market, performing rigorous due diligence on potential loans, and managing risk effectively. At PHL, our team embodies this professional management. We bring together decades of combined experience in banking and real estate, leveraging this deep knowledge to provide innovative solutions and historically consistent performance for our investors. Our commitment to rigorous due diligence and ethical practices ensures we offer high-quality investment opportunities in the Canadian mortgage market.
Understanding the Risks and Considerations
While MICs offer numerous benefits, it’s essential to understand that all investments carry some degree of risk. The performance of a MIC is tied to the health of the real estate market and factors such as economic downturns, rising interest rates, or changes in real estate regulations can impact returns. While investing in MICs may offer more liquidity than direct property ownership, it is important for investors to review the specific redemption policies of the MIC, as these investments are not as liquid as publicly traded securities.
At PHL, we prioritize risk management, leveraging our seasoned expertise and rigorous due diligence to mitigate potential risks, and aim to deliver consistent results for our investors. We believe in open communication, educating our clients, and empowering them to make informed decisions with confidence.
Is a MIC Right for You?
A Mortgage Investment Corporation could be a suitable addition to your portfolio if you are an investor who:
- Seeks diversification: You want to reduce portfolio volatility by adding an asset class that can be less correlated with traditional stocks and bonds.
- Desires real estate exposure: You are interested in benefiting from investing in the Canadian real estate market but prefer a hands-off, professionally managed approach.
- Values consistent income: You are looking for regular distributions to supplement your income or for reinvestment.
Appreciates professional oversight: You prefer to have experienced professionals manage the mortgage portfolio, including due diligence and risk management.
Your Trusted Ally in the Canadian Mortgage Landscape
At PHL, we are more than just a lender or an investment firm; we are your trusted ally. We are committed to empowering both mortgage brokers and investors to achieve financial success. We offer innovative and transparent mortgage solutions that prioritize reliability and client satisfaction. We believe in building long-term partnerships based on trust, transparency, and mutual respect, helping you build a stronger financial future. Your legacy starts here.
To learn more about how you can get started on your investment journey, book a call with our Dealing Representatives.
DISCLAIMER: This article is for information purposes only, and you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on this webpage constitutes a solicitation, recommendation, or offer to buy or sell any securities. Certain information on this webpage may contain certain “forward-looking information”, and these statements are not guarantees of future performance. Such forward-looking statements involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Past performance does not guarantee future results.
