Even if you’ve just begun researching alternative investment options, you’ve likely come across the term Mortgage Investment Corporation (MIC). While MICs are not new investment vehicles, they are gaining popularity as a key piece in an investor’s strategy whether they are in the wealth accumulation or preservation phases of their financial journey. The advantages of investing in a MIC are numerous (reduced risk through diversification, strong and predictable rates of return, etc.) but choosing which MIC is right for you is not as simple as who has the highest return on investment (ROI).
Here are six tips for selecting the right MIC to invest in:
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- How liquid is the investment?
Read the subscription agreement closely to see how quickly you can withdraw your investment. You don’t want to find yourself in a situation where you suddenly need access to capital but are stuck in a long waiting period to withdraw the investment (some MICs will only allow redemptions once per year). - Look beyond the target ROI for the current fiscal year.
Ask for information on the past 5-10 years’ actual ROI vs. target ROI. Not only will this give you a sense of how accurate the MIC is at estimating ROI but it will also indicate whether or not the MIC is consistently meeting or exceeding target ROIs. While macroeconomic factors such as the Bank of Canada overnight lending rate directly affect MIC ROIs, it’s important to look for trends in the data to determine the growth trajectory of the MIC. - Ask to see the MIC’s Portfolio composition.
It’s important to know which housing markets you are investing in and what types of mortgages your money is being lent out to. The specific housing market and type of mortgage (i.e. first, second, urban, rural, multi-unit residential, construction, etc.) are important factors in determining interest rates and subsequently the risk associated with the property. You need to match MIC’s accepted level of risk with your own. - Ask how and when are dividends distributed to shareholders.
Not all MICs issue dividends on the same schedule. Some issue monthly, some quarterly, and some annually. This can be an important factor to consider if you plan to reinvest the dividend in the MIC as the investment is compounded based on a predetermined schedule. - Find out how often the MIC reports to shareholders on portfolio performance. Prudent investors keep tabs on their investments. You need to be able to access relevant information related to your investment at a moment’s notice. Check to see not only that the MIC reports regularly but can handle ad hoc requests for information.
- When in doubt, ask for more information.
It’s important to look beyond the marketing material when making any investment decision. Most MICs will have an Investor Relations Manager ready to take your call and answer questions. They are there to help you understand the product, provide additional information, set up face-to-face meetings, or point you in the direction of someone who can answer your questions.
- How liquid is the investment?
Follow these tips and you will be well on your way to finding the right MIC for you!
