If you have more questions, contact us.

What is a private mortgage investment?

A private mortgage is simply a mortgage held by an individual, group of individuals, or private corporate entity, such as a Mortgage Investment Corporation (MIC), instead of a bank or other institutional lender.

The legal status of any mortgage is the same, regardless of who holds the mortgage. The mortgage borrower is legally obligated to effect repayment, at a stated interest rate, to the mortgage holder, or mortgagee, within a stated time period. The mortgage loan is secured by a charge on the underlying real estate owned by the mortgage borrower.

Private mortgage interest rates are typically higher than bank mortgage rates. Accordingly, private mortgage investors have the potential to achieve appreciably higher investment returns than those afforded by other fixed income type investments, such as GICs, bonds, and preferred shares. Refer to What is a Mortgage Investment Corporation (MIC)?

Who are the Companies’ auditors?

Ernst & Young LLP, 99 Bank St. Suite 1200, Ottawa, ON, K1P 6B9 Stephen McIntyre, Partner (613) 598-4285

How can I monitor my investment?

All shareholders receive a copy of the annual audited statements and an individualized statement reflecting dividend calculations and share related activity, as well as quarterly management prepared financial statements.

Shareholders holding their shares outside of a registered plan, also receive a T5, reflecting the amount of their annual taxable dividend. Activity pertaining to shares held within an RSP, RRIF or TFSA will also be reflected in the statements provided by the registered plan trustee.

We welcome shareholder inquiries at any time, and are always happy to discuss the Companies’ results and progress.

How and when are Magenta’s profits distributed to shareholders?

The Income Tax Act requires that 100% of a MIC’s net income, as verified by Independent audit, be distributed annually to shareholders in the form of a dividend. Magenta Class “A” Share dividends are paid monthly and may be received in cash or re-invested in additional shares by way of the Company’s Dividend Re-investment Plan (DRIP). Cash dividends are remitted by way of electronic bank deposit.

The dividend is taxed as interest income, in that it essentially represents a flow through of mortgage interest income.  Both cash and stock dividends earned outside of an RSP, RRIF or TFSA are fully taxable in the calendar year received.

Monthly dividends are paid at a rate sufficient to achieve an annual effective rate of return equivalent to the Target Yield set on June 1st, the first day of the fiscal year.

The Target Yield is equivalent to the Government of Canada 2 Year bond yield on June 1st plus 5.50%.

The Target Yield for fiscal 2018 ending May 31, 2018, is 6.20%.

At the conclusion of the annual audit, a “top-up” dividend is paid in the event that net income exceeds that level of income required to fund the monthly dividends based on Target Yield.

Shares issued by way of stock dividends at the conclusion of the audit are allotted on June 1st and accordingly are fully eligible for dividends commencing on that date.

Magenta Class “A” Share dividends have alwasy been at least equvialent to the Target Yield.

Shares issued by way of stock dividends at the conclusion of the audit are allotted on June 1st and accordingly are fully eligible for dividends commencing on that date.

How and when can I liquidate my investment?

Shares may be retracted at any time with a minimum of one month’s notice.

Retraction fees equivalent to a percentage of the value of the shares being retracted apply in the first year following purchase only, as follows: (i) first 6 months, 3.75%; (ii) second 6 months, 2.00%.  The retraction fee does not apply once the shares have been outstanding for 1 year or more. 10% of the investment may be retracted in the first year following purchase without a retraction fee.

Terms and conditions with respect to the purchase of shares for cancellation are specified in the subscription agreement, available upon request.

What are the minimum investment amounts? Will share subscription be closed to new investors?

Refer to How to Invest, I. Direct Cash Investment. Magenta Class “A” Participating Shares

Minimum initial subscription: $25,000
Subsequent subscription amounts: $5,000
Subscription deadline: Issuance of new shares may be suspended without notice at the sole discretion of the Board of Directors

Who can invest in Magenta shares?

Canadian and U.S. residents as well as non-residents may subscribe for shares. Shares may be held individually, jointly, in trust, in a corporation, or in a self-directed RRSP, RRIF or TFSA. Refer to How to Invest

Are Magenta shares RRSP, RRIF and TFSA eligible?

Yes. Refer to How to Invest, II. RRSP/RRIF INVESTMENT, for complete details.

What rate of return may I reasonably expect?

Magenta Class “A” Participating Shares have a Target Yield equivalent to the Government of Canada 2 Year Bond Yield at the beginning of the fiscal year (June 1st) plus 5.50%.

Magenta has exhibited consistent performance over its entire 23-year history, never failing to generate an annual return at least equivalent to Target Yield, and achieving an average annual compounded return of 10.6% over this 23-year period.

Long term Magenta returns compare extremely favourably with all asset classes including short and long term bonds and stocks. Moreover, this superior long term growth was achieved without the often extreme volatility that characterizes stocks and to a lesser extent bonds. Your investment grows consistently year in and year out.

Magenta shares do not fluctuate in value and there is typically only modest variation in annual dividend yields largely in response to changes in market interest rates. Refer to Investment Performance. Past performance is not necessarily an indicator of future performance or expected returns.

How do mortgage investment corporations compare with other investments?

Most homeowners who have had a mortgage would have a good understanding of what a mortgage is and how it works. Most other investments, such as stocks, bonds, income trusts and mutual funds, are affected by variables not always readily understood by the average investor looking at mortgage investment corporations.

MIC share values do not fluctuate in response to market forces like publicly traded stocks, bonds and income trusts, or mutual fund unit values. MIC share values are always equivalent to the share issue price, because of the Income Tax Act (ITA) rule requiring 100% of a MIC’s net income to be paid out to the shareholders by way of an annual dividend. The share value would only decrease if the MIC experienced an annual operating loss.

For example, a MIC commences operations with $1 million in share capital, comprised of 1 million shares issued for $1.00. each, contributed by a number of individual investors. It utilizes the share capital to acquire a mortgage portfolio, in the amount of $1 million. At the end of the first operating year, the MIC earns an annual net income of $100,000., or 10 cents per share, representing an annual shareholder return on investment of 10.00%.

The Income Tax Act requires that all of the net income must be distributed to the shareholders in the form of a dividend. If all of the shareholders take a cash dividend, the MIC’s assets would remain at $1 million, which when divided by the 1 million shares outstanding, means that the shares are worth $1.00., consistent with the issue price. Conversely, if all of the shareholders elected to receive their dividend in the form of additional shares, the MIC’s assets would be $1,100,000., which when divided by the 1,100,000 shares now outstanding by virtue of the stock dividend, would again equate to a share value of $1.00. However every investor would have 10% more shares, worth 10% more than their original investment.

MIC share values are a function of the quality of the Company’s mortgage portfolio, which in turn is principally determined by the value of the real estate securing the mortgages. Real estate values are affected by a number of factors, including the condition, location and type of the property, and local market conditions. These are factors that can be readily seen, measured and compared. Real estate values tend to be much less volatile than stock and bond prices. Even if the borrower defaults, the mortgage investor is protected by collateral that is stable and immoveable.

Magenta’s mortgage portfolio is low risk for a number of reasons: (i) The real estate security is residential, comprised primarily of single family owner occupied homes; (ii) First mortgages are heavily over weighted; (iii) Lending is concentrated in stable, largely recession proof real estate markets dominated by the public sector, such as Ottawa and Kingston, Ontario. MIC shares typically produce consistent returns, primarily because of the nature of mortgage investments. Mortgage interest rates are fixed, and repayment must occur at regular intervals.

Magenta MIC returns have exceeded those generated by Canadian short and long term bonds and major stock indices over the last 1, 5, 10 and 20 year periods.  Refer to Investment Performance.

MIC shares generate substantial regular income relative to alternative investments. In short, investments in mortgage investment corporations are typically characterized by constant share values, attractive, consistent returns, and the potential to generate regular income.

What is a Mortgage Investment Corporation (MIC) and how does it differ from directly held mortgages as a mortgage investment vehicle?

Refer to What We Do and What is a Mortgage Investment Corporation (MIC)?

An individual investor may fund 100% of an individual mortgage, and hold the mortgage directly. The investor is solely responsible for sourcing and evaluating the mortgage investment, negotiating the interest rate and other terms and conditions applicable to the mortgage, and instructing the solicitor preparing and registering the mortgage.

Subsequently, the investor has to collect the payments, and deal with any arrears or default problems that may arise. Given the typical principal amount of mortgages in today’s real estate market, the investor would require a huge amount of capital to fund even a small mortgage portfolio. The investor would also typically be restricted to sub-prime mortgages falling outside of the strict lending criteria employed by a large mortgage lender like Magenta.

A Mortgage Investment Corporation (MIC), is a private mortgage investment vehicle wherein individual investors pool their investment capital through share acquisition. The MIC employs a professional manager to source, scrutinize and acquire individual mortgages with the best risk/return profile. The manager is responsible for all aspects of mortgage portfolio administration.

The mortgage portfolio is continuously managed, with newly invested share capital, and the proceeds from repaid and discharged mortgages, being utilized to fund new mortgages. 100% of a MIC’s net income, as verified by external audit, is paid out to the shareholders by way of an annual dividend.

Like any company, a MIC’s net income is equivalent to its revenues, less its expenses. Revenue is earned in the form of mortgage interest, and fees and penalties. Principal expenses are the management fees, and audit and other professional fees. A MIC may utilize funds borrowed from a bank or other lender, in addition to its share capital, to fund a portion of its mortgage portfolio. Some of the salient differences between direct mortgage investing and a MIC, may be summarized as follows:

Direct MIC
Investment Amount Substantial to achieve even minimal diversification Relatively small
Management Individual investor wholly responsible Professional manager
Return Depends on mortgage type and the expertise and diligence of the investor A professionally managed MIC, employing the prudent use of financial leverage (debt), should achieve higher returns, with lower risk
Risk Depends on portfolio size and composition and the expertise and diligence of the investor Portfolio size, and the underwriting and portfolio administration expertise of the Manager, serve to reduce risk
Liquidity Mortgage repaid at maturity provided borrower is capable of doing so Shares may be retracted any time
RRSP/RRIF/TFSA Eligibility RSP/RRIF Only High trustee feesLarge principal amounts reduce flexibility Yes Minimal fees depending on the TrusteeAny share amount may be deposited; greater flexibility

How risky are non-institutional mortgages that don’t satisfy bank lending criteria?

Canadian chartered banks are extremely conservative lenders, functioning in a very rigid, tightly controlled regulatory environment. Banks are the major players in the mainstream mortgage market, denominated in billions of dollars. In this market, the rigid, computer generated, “one size fits all” lending policies, employed by the banks, make good business sense.

Given their size and structure, banks are not equipped to underwrite mortgages on an individual, “deal by deal” basis, carefully scrutinizing individual applications to ascertain whether or not real risk is within reasonable limits.

Most fundamentally, banks are not “equity lenders”. In assessing a mortgage application, a bank’s primary focus is on the question of whether or not the prospective borrower has the capacity and commitment to make the mortgage payments. In answering this question, factors relating solely to the borrower, such as income, employment stability, and credit history are assessed. Only if the borrower meets or exceeds the requisite computer generated credit score, will the bank consider the question of the adequacy of the real estate securing the mortgage loan.

Banks routinely decline mortgage applications for a variety of borrower specific reasons including credit history, the inability of self-employed applicants to sufficiently document income, job tenure, and debt service ratios that exceed regulatory and policy defined limits.

The fact that the underlying real estate security adequately limits the real risk is irrelevant. Non-bank mortgage lenders are typically “equity lenders”, in that their primary focus is the strength and quality of the underlying real estate security. Risk is limited as long as the real estate security is sufficient to protect the lender in the event of a default.

The vast majority of Magenta’s portfolio is comprised of mortgages on owner occupied, single family homes. Experience and commons sense tell us that these mortgagors will default on other obligations such as credit cards and loans, before missing a mortgage payment. Banks also operate in a very narrow policy box, with respect to mortgage and property type, preferring to avoid or limit mortgages on recreational properties, building lots, and raw land, or construction or residential second mortgages.

These sorts of mortgages are not necessarily inherently risky. The real issue is whether or not the private mortgage investor has the expertise to carefully scrutinize and structure the mortgage investment, so as to limit the risk to an acceptable level. In short, banks are precluded by government regulation and corporate policy, from underwriting a wide variety of mortgages, wherein investor risk may be limited to reasonable levels, largely by virtue of the strength and value of the underlying real estate security.

Successive regulatory changes imposed by the Federal Government since the 2008 financial crisis have also served to make it progressivley more difficult for many borrowers to obtain a bank mortgage. As a result, the strength of our portfolio has been enhanced by the addition of many mortgages that until very recently would have been funded by the banks.

Refer to What is a Typical Magenta Mortgage? to see some recent illustrative examples of the types of mortgages Magenta funds.

What is a non-bank mortgage investment?

A non-bank mortgage is simply a mortgage held by an individual, group of individuals, or private corporate entity, such as a Mortgage Investment Corporation (MIC), instead of a bank or other institutional lender. The legal status of any mortgage is the same, regardless of who holds the mortgage.

The mortgage borrower is legally obligated to effect repayment, at a stated interest rate, to the mortgage holder, or mortgagee, within a stated time period.

The mortgage loan is secured by a charge on the underlying real estate owned by the mortgage borrower. Non-bank mortgage interest rates are typically higher than bank mortgage rates. Accordingly, private mortgage investors have the potential to achieve appreciably higher investment returns than those afforded by other fixed income type investments, such as GICs, bonds, and preferred shares.

Refer to What is a Mortgage Investment Corporation (MIC)?