investment ROI

Key Tools to Use When Researching a Mortgage Investment Corporation

In addition to obtaining advice from your financial advisor, performing your own due diligence is a first step to investing.  Beyond the Mortgage Investment Corporation’s (MIC) own publicly available information, it’s prudent to look at external, unbiased sources of information to get a clear view of where exactly you are putting your hard-earned capital.

In our previous post, Investor Tips: Selecting the Right MIC, we focused primarily on information that the particular MIC provided: offering memoranda, subscription agreements and associated fees, liquidity, portfolio composition, how dividends are distributed, frequency and transparency in reporting to shareholders, etc.  With that context in mind, this entry looks at building a more complete picture of your potential investment by looking at external sources of information.

In no particular order, here are some great places to gather information and properly vet a MIC:

1. Canadian Mortgage and Housing Corporation (CMHC) – CMHC has a superb collection of data that is regularly updated and analysed by leading economists.  Of particular interest to investors is the Housing Market Information section of the website: included are data sets and reports that range in scope from the national housing market to more local housing markets to even more granular neighbourhood details.  You can use the information here to evaluate the MIC’s lending policies against your own appetite for risk.  For example, you notice that a sizable chunk of the MIC’s portfolio is allocated to higher risk rural properties.  Using CMHC’s data sets, you can see that the market outlook for these regions is not ideal.  While the potential return is high, you decide it isn’t worth the risk and continue your search.

CMHC’s housing portal is an invaluable resource used at all levels of the industry. Best of all? It’s free.

2. National and Local Publications –  Using a keyword search into Google’s handy News filter is a great way to get a feel for how the housing market you are interested in is performing.  For example, “Ottawa Housing Market” pulls up plenty of relevant articles from reputable sources.  You can even set a custom Time filter via search tools to focus your research on a specific time period.

While National publications such as the Financial Post or The Globe and Mail do a fantastic job of covering broad housing market news, they are inherently focused on only the big stories (read: major urban centres such as Toronto, Vancouver, and Montreal). It’s important to go to local sources for specific details on a given market.

3. Statistics Canada – While slightly less focused than CMHC’s or CREA’s analysis, Stats Canada has a breadth of information on housing and other indicators of economic growth to help inform your decision.  Pro tip: use Google to search for region specific data sets.  StatsCan’s website is notoriously difficult to navigate.

4. Trade Publications – Websites such as Mortgage Broker News and Canadian Mortgage Trends offer a lot of insight into how professionals in the industry are reacting to industry changes and new MIC products.

5. The Canadian Real Estate Association – CREA provides monthly updates on home sales and home prices for a given housing market. Once you’ve navigated to their statistics page, select the community you want to research and a report for the previous month will appear. Along with the tools above, this helps create a full picture of where a potential MIC would be lending your capital.

These are just a few resources to help jumpstart your own research.  The basis for any investment decision needs to be rooted in a fact-based, methodical approach to understanding an investment product.

 

For more information, please visit Magentainvestment.ca.

Investor Tips: Selecting the Right MIC

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:

1. 1. 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).
   2. 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.
   3. 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.
   4. 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.
   5. 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.
   6. 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.

 

Follow these tips and you will be well on your way to finding the right MIC for you!

 

For more information, please visit Magentainvestment.ca.