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RRSP investment in a Mortgage Investment Corporation (MIC)
November 22, 2020
9:03 am
dwdrajesh
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Hi, new member here, apologies if this question should be asked in a different forum. I was listening to a radio show on real estate investment where the guest was someone who owned a Mortgage Investment Corporation. I did a quick google search and apparently there are a couple of them in Ottawa, Toronto, etc. The person made a point of owning shares in his company which is local to the city they are based on and said that they provide mortgage for short term, typically 12 to 18 months for small businesses or individuals who normally don't qualify due to some reason. The shares in these companies seem to give a return of around 5-7%, which I confirmed by going to a couple of these companies' websites and checking their last 5 year returns on investment. Also, they say the shares could be bought as part of RRSP and TFSA which is good too. The only catch, other than the obvious fact that the return is not guaranteed, is how rigorous are they in verifying the borrower before they lend the mortgage. Does anyone here have any experience in investing in these MICs? Sounds like the typical return on investment is much better than the 1-2% we can get from a GIC :). Thanks for reading the question.

@Loonie, @topgun thanks

November 22, 2020
9:18 am
AltaRed
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Why not look at publicly traded MICs rather than some shadowy private placements? The former at least have some regulatory oversight and more public governance while the latter can be a boiler room of sharks in a wild west free-for-all.

A dated article but worth a read https://www.alexisassadi.net/2015/09/08/list-of-mics-in-canada/

November 22, 2020
10:14 am
Dean
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dwdrajesh said

. . . Mortgage Investment Corporation . . . for small businesses or individuals who normally don't qualify due to some reason (Guess Why) . . . a return of around 5-7% (Not Worth The Risk) . . . the return is not guaranteed (Guess Why) . . . how rigorous are they in verifying the borrower before they lend the mortgage (It Can Vary Quite Widely) . . . Does anyone here have any experience in investing in these MICs? (My Parents) . . . the typical return on investment is much better than the 1-2% we can get from a GIC (Not Comparable) . . .   

I wouldn't touch those things (MICs) with a Ten Foot Pole ... I'd rather keep my money in a Sock. MICs are generally 'High Risk', and not in Anyway comparable to GICs ❗

Though they should have known better, my own parent's lost a Boatload of $$$ investing in those *&^%$# MICs. It was a Classic case of chasing after better returns, while ignoring the 'High Risks' involved. Do yourself a favour, Dwdrajesh ... stay away from that 'Trap'.

      Dean

sf-cool " Live Long, Healthy ... And Prosper! " sf-cool

November 22, 2020
10:39 am
Norman1
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The catch is, as Dean's parents found out, one's initial investment is also not guaranteed.

One definitely won't be seeing one's initial investment back should the mortgage investment corporation fail. They do fail.

According to April 1, 2017 Globe & Mail subscriber-only article How to lose money in real estate about MIC's, Infinivest MIC and Trimor Mortgage Investment Corp. went bankrupt.

Also, don't believe that line about lending to small businesses and individuals. The Globe & Mail article mentioned that there aren't many such borrowers left that the banks and alternative lenders haven't already snapped up. Consequently, the MIC's are pressured to do risky construction loans in order to sustain those high payouts to investors.

November 22, 2020
10:40 am
AltaRed
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I agree there is substantial risk. Registered accounts would be a bad place for risky investments.

FWIW, as one example, Capital Direct has been flinging high deposit rates for some time. Look up Capital Direct Income Trust.

Fact sheet https://www.incometrustone.com/pdf/Capital-Direct-1-Income-Trust-FundFactSheet_Class-A-C_Sep30_2020.pdf

November 22, 2020
11:53 am
dwdrajesh
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AltaRed said
Why not look at publicly traded MICs rather than some shadowy private placements? The former at least have some regulatory oversight and more public governance while the latter can be a boiler room of sharks in a wild west free-for-all.

A dated article but worth a read https://www.alexisassadi.net/2015/09/08/list-of-mics-in-canada/  

Thanks for the link. The one I was looking at is a local MIC, called Westboro MIC. It seems to be a privately funded one though as their website says, has been providing at least 4% since 2004: https://www.westboromic.com/fund-performance/

Also, thanks for the link to the podcast as well, will definitely listen to those.

November 22, 2020
12:29 pm
dwdrajesh
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Norman1 said
The catch is, as Dean's parents found out, one's initial investment is also not guaranteed.

One definitely won't be seeing one's initial investment back should the mortgage investment corporation fail. They do fail.

According to April 1, 2017 Globe & Mail subscriber-only article How to lose money in real estate about MIC's, Infinivest MIC and Trimor Mortgage Investment Corp. went bankrupt.

Also, don't believe that line about lending to small businesses and individuals. The Globe & Mail article mentioned that there aren't many such borrowers left that the banks and alternative lenders haven't already snapped up. Consequently, the MIC's are pressured to do risky construction loans in order to sustain those high payouts to investors.  

Thanks for mentioning the article. By the way that article says, in Ontario, ordinary investors can't put more than $10,000 into MICs.

November 22, 2020
12:38 pm
Norman1
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dwdrajesh said

… The one I was looking at is a local MIC, called Westboro MIC. It seems to be a privately funded one though as their website says, has been providing at least 4% since 2004: https://www.westboromic.com/fund-performance/

I don't see how that private MIC is better than investing in one of the Big Banks.

Right now, for example, Bank of Montreal common shares are yielding around 4.5%. Had one invested in the BMO common shares around 2009 to 2010, the dividend would have been around 7% of cost. With the dividend increases, the yield now is around 15% of cost.

The BMO common shares have gone up substantially. Uniike with the MIC, one would receive 3X one's original investment if one decided to cash out now.

One relative did just that in 2009 and has been quite pleased to date.

November 22, 2020
1:38 pm
Loonie
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I know nothing about this particular investment, so have no comment on it, but you have gotten good input from reliable forum members above.

The one thing I will say though, is, don't take your advice from some guy on the radio or TV. There will ALWAYS be someone telling you to buy into something or other, and they have even less responsibility to give you good advice than the rep at RBC. It's journalism; it's not financial education.

I remember a friend of mine was persuaded, largely by media coverage, to invest in a Labour-sponsored Fund. I think they don't even exist now. It came with government support in the form of some kind of rebate, and high expectations for great returns over longer term. My friend lost all the money he put into this Fund except for what was reimbursed from the government for buying it.

Another year, the media were very excited about a mining company called Bre-X. I no longer remember what they were mining but the public were told they'd found an outstanding mine. The stock went up astronomically until it was discovered to be fake.

November 22, 2020
2:07 pm
Norman1
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Loonie said

The one thing I will say though, is, don't take your advice from some guy on the radio or TV. There will ALWAYS be someone telling you to buy into something or other, and they have even less responsibility to give you good advice than the rep at RBC. It's journalism; it's not financial education.

The problem is that lots of the radio and TV investment talk shows are not journalism. They are actually infomercials packaged to look like journalism.

Disgraced financial commentator Brian Costello is an example what some of those talk shows really are. What looks like independent commentary to the audience was actually undisclosed paid shilling! Details are in this February 2003 OSC decision In the Matter of Brian K. Costello.

November 22, 2020
2:16 pm
Norman1
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dwdrajesh said

Thanks for mentioning the article. By the way that article says, in Ontario, ordinary investors can't put more than $10,000 into MICs.

That's not quite accurate. There's no limit for publicly traded MIC's.

For private MIC's, the Ontario limit is the same as the limits for other private shares:

  • $10,000 in a 12-month period under the crowdfunding (crowdfleecing) exemption.
  • $30,000 or $100,000 in a 12-month period for a "qualified investor".
  • No limit for an "accredited investor".
November 22, 2020
10:34 pm
Loonie
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Norman1 said

Loonie said

The one thing I will say though, is, don't take your advice from some guy on the radio or TV. There will ALWAYS be someone telling you to buy into something or other, and they have even less responsibility to give you good advice than the rep at RBC. It's journalism; it's not financial education.

The problem is that lots of the radio and TV investment talk shows are not journalism. They are actually infomercials packaged to look like journalism.

Disgraced financial commentator Brian Costello is an example what some of those talk shows really are. What looks like independent commentary to the audience was actually undisclosed paid shilling! Details are in this February 2003 OSC decision In the Matter of Brian K. Costello.  

Good catch, Norman.
I don't know about radio, but on TV, it appears they seem to normally state that the infomercials are paid ads..

However, there are commentators who appear regularly on TV and radio who appear to make their living from having opinions! A distressing amount of journalism is now opinions and columns.
And if they're not marketing opinions, they appear to be marketing the organizations they work for - anything from themselves ('consultant") to an investment house to a bank.

As I've said before, if they aren't legally responsible for giving you the most appropriate advice for your circumstances, I wouldn't take any of them too seriously.

November 23, 2020
7:21 am
pwm
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As AltaRed said, I wouldn't touch a private MIC, but I have some Firm Capital (FC.TO) and I feel comfortable holding it in my non-registered account. Very high yield, currently 7.6 % but there is some risk. One downside is that the income is 100% interest. It represents only about 3% of my total investments.

November 23, 2020
7:58 am
dwdrajesh
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pwm said
As AltaRed said, I wouldn't touch a private MIC, but I have some Firm Capital (FC.TO) and I feel comfortable holding it in my non-registered account. Very high yield, currently 7.6 % but there is some risk. One downside is that the income is 100% interest. It represents only about 3% of my total investments.  

Thanks. Is Firm Capital an MIC? and lets say you wanted to sell the shares you hold, how easy or quick is it to sell the shares? any experience with that? I read online that some MICs keep a long time for selling shares or create hurdles when you want to sell your holdings. Thanks

November 23, 2020
8:25 am
AltaRed
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Loonie said

Good catch, Norman.
I don't know about radio, but on TV, it appears they seem to normally state that the infomercials are paid ads..

However, there are commentators who appear regularly on TV and radio who appear to make their living from having opinions! A distressing amount of journalism is now opinions and columns.
And if they're not marketing opinions, they appear to be marketing the organizations they work for - anything from themselves ('consultant") to an investment house to a bank.

As I've said before, if they aren't legally responsible for giving you the most appropriate advice for your circumstances, I wouldn't take any of them too seriously.  

I think what Norman is saying is to be careful of who says what online. The first thing is to separate commentators from journalists. A good portion of what sees/hears on TV and radio is 'opinion' and 'analysis', not news. It carries bias and is ultimately selling a product (the commentator him/herself) or the bias of the commentator. The difference between a paid infomercial and stealth marketing is simply that an infomercial pays the broadcaster for air time. The stealth marketers are actually paid to appear on a program, or to host a program.

There are very few true journalists left that actually investigate sources of material they speak too and provide disclosure of sources. They are a subset of those that provide actual newscasts.

November 23, 2020
8:27 am
AltaRed
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dwdrajesh said

Thanks. Is Firm Capital an MIC? and lets say you wanted to sell the shares you hold, how easy or quick is it to sell the shares? any experience with that? I read online that some MICs keep a long time for selling shares or create hurdles when you want to sell your holdings. Thanks  

Read up on it yourself. Firm capital is a publicly traded corporation traded on the TSX. You can buy/sell your holdings in micro-seconds if you wish from your brokerage account. It is way different from private placements.

November 23, 2020
11:11 am
savemoresaveoften
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invest in well established REIT a much better way to "earn the return" that are tied to real estate. I wont touch any MIC no matter how "well established" they claim to be.

November 23, 2020
11:29 am
Ambilogue
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Hey, new member also. Google brought me over to this conversation via a Google alert for "mortgage investment corporation."

TLDR: All private investments are risky. Some MICs are good. Do your homework. Non-bank 90 day arrears rate lower than CBA 90 day arrears rate.

I work in the space as an exempt market dealer (I get paid for selling MIC shares) and as a mortgage broker (I get paid for selling mortgage debt to borrowers). My personal opinions expressed here should not be taken as individual advice but rather as general comments.

Exempt market investments like private MICs are classed as high risk as they are typically illiquid (compared to exchange traded investments), uninsured by deposit insurance providers, lack reporting transparency when compared to public stock markets, and can result in a loss of income or principal. No exempt market dealer in Ontario that is selling MIC shares should accept your investment unless they can make a positive suitability determination for you.

I've worked in the MIC space now since 2008 and I can confirm first hand that there are prudently managed mortgage investment corporations in Ontario that do have what we would term to be "vanilla" residential portfolios. Not all MICs are required to bolster yield by engaging in construction lending.

I also want to add that there is still lots of good "vanilla" residential business left on the table for MICs who have properly priced their operating costs and management fees. Watch for MICs that advertise low rates but pay a high yield. Those are the ones that I would dig in to for how they can maintain their yield - I'd look for use of leverage, or elevated levels of investment in second mortgages or construction mortgages. MICs that pay low management fees are also suspect (in my opinion) as the manager may be taking part or all of the origination fees. In my opinion this practice puts the manager's interests out of alignment with the investors' interests. (The proposed changes to the eligible investor exemption and form 45-106F2 take care of this.)

Prudently managed MICs are typically careful with transaction underwriting as they are "flying without a net." What I mean here is that most private MICs are (unlike mortgage finance companies or banks) lending without the benefit of portfolio insurance or (CMHC) default insurance. Most prudently-run and compliant MICs will go above and beyond on their underwriting and borrower scrutiny in order to avoid default or loss.

If you're looking at investing a MIC, don't be shy about asking for them to show you the due diligence they perform on borrowers. They won't be able to show you individual borrowers' data due to privacy constraints but they can provide

If you are looking at a MIC, take the time to ask for a portfolio summary report. There are three or four software providers that provide MIC management tools. Each platform can provide a simple portfolio report.

For MICs that are using the eligible investor exemption, the financial statements are embedded right in the OM. The financial statements would be subject to IFRS audit standards and the auditors would have included a respectable amount of information about the portfolio composition, actual loan loss and default, and loan loss allowances.

Yes, MICs are not typically regulated by OSFI, the federal agency that regulates the banks et al. But the MICs are typically subject to OSC, FSRAO, OBSI and Fintrac rules, plus IFRS audits.

If you really want to know: Statscan and CMHC have recently been conducting a compulsory survey of non-bank lenders including MICs. The interesting thing to me is that up to Q1 2020 (the last reporting period for the survey) the non-bank lenders' uninsured mortgages (this is where MIC deals fall) have a lower 90 days arrears rate than the Canadian Bankers' Association.

AMA.

November 24, 2020
1:26 pm
dwdrajesh
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Ambilogue said
Hey, new member also. Google brought me over to this conversation via a Google alert for "mortgage investment corporation."

TLDR: All private investments are risky. Some MICs are good. Do your homework. Non-bank 90 day arrears rate lower than CBA 90 day arrears rate.

I work in the space as an exempt market dealer (I get paid for selling MIC shares) and as a mortgage broker (I get paid for selling mortgage debt to borrowers). My personal opinions expressed here should not be taken as individual advice but rather as general comments.

Exempt market investments like private MICs are classed as high risk as they are typically illiquid (compared to exchange traded investments), uninsured by deposit insurance providers, lack reporting transparency when compared to public stock markets, and can result in a loss of income or principal. No exempt market dealer in Ontario that is selling MIC shares should accept your investment unless they can make a positive suitability determination for you.

I've worked in the MIC space now since 2008 and I can confirm first hand that there are prudently managed mortgage investment corporations in Ontario that do have what we would term to be "vanilla" residential portfolios. Not all MICs are required to bolster yield by engaging in construction lending.

I also want to add that there is still lots of good "vanilla" residential business left on the table for MICs who have properly priced their operating costs and management fees. Watch for MICs that advertise low rates but pay a high yield. Those are the ones that I would dig in to for how they can maintain their yield - I'd look for use of leverage, or elevated levels of investment in second mortgages or construction mortgages. MICs that pay low management fees are also suspect (in my opinion) as the manager may be taking part or all of the origination fees. In my opinion this practice puts the manager's interests out of alignment with the investors' interests. (The proposed changes to the eligible investor exemption and form 45-106F2 take care of this.)

Prudently managed MICs are typically careful with transaction underwriting as they are "flying without a net." What I mean here is that most private MICs are (unlike mortgage finance companies or banks) lending without the benefit of portfolio insurance or (CMHC) default insurance. Most prudently-run and compliant MICs will go above and beyond on their underwriting and borrower scrutiny in order to avoid default or loss.

If you're looking at investing a MIC, don't be shy about asking for them to show you the due diligence they perform on borrowers. They won't be able to show you individual borrowers' data due to privacy constraints but they can provide

If you are looking at a MIC, take the time to ask for a portfolio summary report. There are three or four software providers that provide MIC management tools. Each platform can provide a simple portfolio report.

For MICs that are using the eligible investor exemption, the financial statements are embedded right in the OM. The financial statements would be subject to IFRS audit standards and the auditors would have included a respectable amount of information about the portfolio composition, actual loan loss and default, and loan loss allowances.

Yes, MICs are not typically regulated by OSFI, the federal agency that regulates the banks et al. But the MICs are typically subject to OSC, FSRAO, OBSI and Fintrac rules, plus IFRS audits.

If you really want to know: Statscan and CMHC have recently been conducting a compulsory survey of non-bank lenders including MICs. The interesting thing to me is that up to Q1 2020 (the last reporting period for the survey) the non-bank lenders' uninsured mortgages (this is where MIC deals fall) have a lower 90 days arrears rate than the Canadian Bankers' Association.

AMA.  

Thanks a lot, I didnt get what you meant by "No exempt market dealer in Ontario that is selling MIC shares should accept your investment unless they can make a positive suitability determination for you". New member here, sorry if this is obvious for pros.

November 24, 2020
3:00 pm
Ambilogue
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Hi. In order for a private MIC to sell shares to you there must 1. be a valid prospectus exemption e.g. the eligible investor exemption as previously mentioned and 2. even with a valid exemption the transaction still has to be suitable for you. The dealing rep makes a suitability determination based on your KYC form and interview with you, and then matches the product to your risk tolerance, time horizon, income needs, etc. If it does not match, even though the prospectus exemption appears to exist, they should not proceed. Some firms will use what is called a client-directed trade but this is (rightly) becoming an outdated practice with exempt market products.

Opinions are my own, etc.

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