MIC Investments

[MonteDobson]

Hi All,We have been looking into some investment alternatives and have come across a number of MIC or Mortgage Investment Corporations. MICs are a convenient way to add mortgage-based investments to your portfolio and typically pay between 10-15% interest paid either monthly or quarterly. The money invested in a MIC becomes part of a pool of funds. Those funds, in turn, are used to provide mortgage loans to select real estate borrowers. Funds invested in a MIC are secured by real property, and aren`t subject to the fluctuations of stock and bond markets.

My Question - What kind of due diligence should a person be doing on MIC`s to reduce risk?

Obvious things are track record of the company, management team, examples of past lending, max LTV, current projects etc.

Let me know your thoughts/experiences!

 

[Thomas Beyer]

further due dilligence:

% of development deals of overall mortgages

% LTV

% of 1st vs. 2nd

 

[petermerabian]

QUOTE (C2Ventures @ Jan 19 2009, 12:37 PM) Hi All,We have been looking into some investment alternatives and have come across a number of MIC or Mortgage Investment Corporations. MICs are a convenient way to add mortgage-based investments to your portfolio and typically pay between 10-15% interest paid either monthly or quarterly. The money invested in a MIC becomes part of a pool of funds. Those funds, in turn, are used to provide mortgage loans to select real estate borrowers. Funds invested in a MIC are secured by real property, and aren`t subject to the fluctuations of stock and bond markets.

My Question - What kind of due diligence should a person be doing on MIC`s to reduce risk?

Obvious things are track record of the company, management team, examples of past lending, max LTV, current projects etc.

Let me know your thoughts/experiences!


Has anyone else done research on MICs and what were your findings? Has anyone researched the Edgeworth eMIC? Thanks

 

[llee]

QUOTE (C2Ventures @ Jan 19 2009, 01:37 PM) Obvious things are track record of the company, management team, examples of past lending, max LTV, current projects etc.

Here`s a link to a blog with a list of MICs with comments.

Why not invest in individual mortgage (1st or 2nd) instead, so you can pick who and where you want to lend to directly? My experience has been positive so far.

 

[GarthChapman]

QUOTE (llee @ Sep 26 2009, 08:17 AM) Here`s a link to a blog with a list of MICs with comments.

Why not invest in individual mortgage (1st or 2nd) instead, so you can pick who and where you want to lend to directly? My experience has been positive so far.

Careful - only do this if you really know what you are doing. Meaning you must be able to expertly evaluate the Borrower and the Asset (the property). I see many people doing this themselves and ending up with mortgages in deliquency and foreclosure. If you are not expert in underwriting loans leave it to the experts - and inverst in good MICS.

 

[llee]

QUOTE (GarthChapman @ Sep 26 2009, 04:44 PM) Careful - only do this if you really know what you are doing. Meaning you must be able to expertly evaluate the Borrower and the Asset (the property). I see many people doing this themselves and ending up with mortgages in deliquency and foreclosure. If you are not expert in underwriting loans leave it to the experts - and inverst in good MICS.

Very good tips. Would the following be a safe self-guideline?

1. Have a mortgage broker representing the lender (not the borrower) with effective loan agreement
2. Have a good lawyer who specializes in mortgage investing/
3. Invest in properties in areas strong resale value
4. Have a recent appraisal (within 30 days). Also check MLS about the recent listings
5. Low LTV with fair interest rate
6. ‘Owner Occupied’ residential properties only
7. No 3rd or subsequent mortgages
8. Borrower`s credit report and application handy

 

[GarthChapman]

QUOTE (llee @ Sep 27 2009, 12:59 AM) Very good tips. Would the following be a safe self-guideline?

1. Have a mortgage broker representing the lender (not the borrower) with effective loan agreement
2. Have a good lawyer who specializes in mortgage investing/
3. Invest in properties in areas strong resale value
4. Have a recent appraisal (within 30 days). Also check MLS about the recent listings
5. Low LTV with fair interest rate
6. `Owner Occupied` residential properties only
7. No 3rd or subsequent mortgages
8. Borrower`s credit report and application handy

Good list! Add a maximum LTV% you are prepared to go to, and a good understanding of how to evaluate the borrower`s credit report and earnings vs bedts and you are about there. And, of course, you must have a properly written form of mortgage to use.

 

[asifghayoor]

I invested with Gibraltar Mortgage Crop last year and have not ever seen a penny! they stopped paying intrest and i cannot even sell my shares!!! anyone else invest with Gibraltar?

Asif Ghayoor

 

[GarthChapman]

QUOTE (asifghayoor @ Sep 27 2009, 01:09 PM) I invested with Gibraltar Mortgage Crop last year and have not ever seen a penny! they stopped paying intrest and i cannot even sell my shares!!! anyone else invest with Gibraltar?

Asif Ghayoor

I see their website is down `undergoing reconstruction`. Hmmm...

Questions:
What have they told you?
What are they doing to rectify mortgages they hold that are in arrears?
Have they met with their MIC investors (I am assuming this is a MIC product of theirs)?
Have you met with them?
Have you contacted a lawyer to investigate your position and options?

 

[MikeMcCrae]

Talk with your mortgage broker. We deal with MIC lenders all the time. We have a pretty good idea about some of the players and get a feeling for some of them. Is their model sustainable? Do they actively solicit on both sides ie. look for lenders as well as borrowers?

 

[rforgiel]

I agree with Lucas`s approach of having your mortgage broker finding you mortgages to invest in. Pooled funds always seem to be trouble.
I would also add to the list have a good realtor on your team as a sanity check to the appraiser, plus they know how quickly and at what price the property can be sold at in an emergency.

 

[GarthChapman]

QUOTE (MikeMcCrae @ Sep 28 2009, 03:02 PM) Talk with your mortgage broker. We deal with MIC lenders all the time. We have a pretty good idea about some of the players and get a feeling for some of them. Is their model sustainable? Do they actively solicit on both sides ie. look for lenders as well as borrowers?

I`ll second that! Many mortgage brokers know which of the outfits are in trouble right now, and that goes well beyond the likes of Concrete Equities and the others that have made the news lately.

Always be careful when investing your dollars with a lender that is funding their own deals with money raised in MIC`s, LP`s, Syndicated Mortgages, etc. I also like to see lots of grey hair and experience in the industry of at least 20 years, preferably back to 1980, as those are the people who have been through the tough times at least once and know how to handle problems/deliquencies/work-outs, etc.

Our money is invested both in mortgages that I underwrite myself and in a MIC with a Private Banker that only funds 3rd party projects with conservatve underwriting practices.

 

[rforgiel]

Good to see private mortgages start to get accepted as a good investment. Eight months ago I was pushing this theory on this board and it was not received well.







Yes you can get a 10-15% return with private mortgages:



The breakdowns are: interest rate 8-14%



Lenders Fee ` 2-3%



Early Termination Fee ` 1 month`s interest



If the borrower pays off the mortgage before the term ends usually after 1year, taking into account the fees and the time the money was tied up, a 15% return is not unreasonable for a low to medium risk mortgage.







It strikes me that an MIC has the same fees required for a mutual fund:



Office expenses, marketing, underwriting, administration, legal, referral and broker fees.



The investor`s money touches too many hands before it goes into the investment. The MIC people touch the money through a trust account and then their lawyers touch the money to register the mortgage.



Yes the marketing states the MIC returns 10-15% just like stock markets have returned 10% or whatever. A question you need to ask the MIC is what is the real return to the investor because you know mutual funds do not return the same as the market returns.







Also, I like looking at the property and into the whites of the borrowers eyes. Just like mutual funds, do you know what basket of properties you are getting involved with.







We joined REIN to take control of our financial futures and have become sophisticated investors to be able to analyze deals. Why go back to the same bunch of charlatans under a different label with your investment dollars.







Private mortgages are good. They offer high returns and involve you in the fun part of real estate; analyzing deals and using your REIN knowledge without the hassles of dealing with tenants and all the rest. That becomes someone else`s problem. You will require the right team to minimize the risk should a property go into power of sale or foreclosure.

 

[llee]

QUOTE (GarthChapman @ Sep 28 2009, 04:50 PM) Our money is invested both in mortgages that I underwrite myself and in a MIC with a Private Banker that only funds 3rd party projects with conservatve underwriting practices.

I see properties in Maritimes usually have low LTV (60% first mortgage, some even 40%), because the property value is low. Do you think it`s too risky to do mortgage investment to properties too "remote" (although you have the appraisal with pictures and comparable)?

 

[GarthChapman]

QUOTE (llee @ Sep 29 2009, 10:12 AM) I see properties in Maritimes usually have low LTV (60% first mortgage, some even 40%), because the property value is low. Do you think it`s too risky to do mortgage investment to properties too "remote" (although you have the appraisal with pictures and comparable)?

Low LTV`s are not due to low property values, but more likely due to other risks like tougher or longer time required to sell the property in event of default, or high likelyhood of borrowers losing their jobs, etc. The appraisal tells you what the property is worth but other factors also come into play. The risk analysis that must be made on the borrower and the asset by the lender. You have to do the analysis and make the assessment when deciding whether and how much to lend.