Is investing in a MIC a good idea for your cash or RRSP ?

[Thomas Beyer]

Mortgages can be good investments, if done well. One pooled mortgage option is called a MIC. A MIC is a mortgage investment corporation, i.e. a corporation you own shares in that invests primarily in mortgages. In principal it is easy to deliver 8-12%, "secured by real estate". Monthly cheques "secured by real estate" are seductive.









However, it is easier said than done.









High ratio
mortgages have very high risk, especially in second position over 80%
LTV, over 65% in secondary locations, or in construction loans
(especially those in second or third position) !!







Therefore ask some tough questions about the operator and the asset !







Consider return OF your capital before you consider return ON your capital !







Total capital loss is a possibility in a
MIC, with a capped upside, unlike equity based investments that have
unlimited upside with similar (total) loss potential.







Investors need to consider the following items before they decide a MIC is a good investment.

• target ROI
• fees charged by operator
• track record of MIC
• track record of key operating personnel
• type of loan (construction ? turn-around/short term ? long term ? )
• what % loan-to-VALUE
  
  
• what value ? current value ? future value (of to be constructed properties) ?
  
  
• position of typical loan (first ? second ? third ?)
  
  
• minimum investment / maximum investment
  minimum investment time period
  minimum notice time to redeem (i.e. make it liquid)
  default rate
  typical loan
  # of total loans under management
  typical target property
  screening process (income / credit score / life "score" of typical applicant)
  RRSP / TFSA eligibility

Do your due diligence, then decide !