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Differences Between an MIC and a REIT

9 November 2012

When looking at real estate through the eyes of an investor, you have a few options to you available in Canada. You could go the way of flipping houses, putting in a ton of sweat equity for a questionable return. Or you could become a landlord and deal with the hassle of tenants, repairs, and legal issues. Or, you could make the maintenance-free choice of MICs. MICs (mortgage investment corporations) often get confused with REITs, especially by investors that are new to the real estate market. So what are the differences? And which one is a better investment vehicle?

REITs and MICs actually work very differently, although they both deal with real estate investments. The biggest difference though, is that with a REIT you will invest in a package of properties that are either commercial or residential properties (or a mixed bag of each.) When you invest, you’ll do so on a certain package containing certain properties. Those properties can then be sold, and more can be purchased. Of course, your investment package could also remain steady, with no new activity occurring while appreciation profits continue to add up. But whatever’s occurring within that package, REITs are attached directly to the properties themselves, and not the mortgage.

MICs on the other hand, are not tied directly to a property. MICs are companies (usually private) that help investors invest in a mortgage on a property. Mortgages that are used as investment tools with MICs can still be packaged, just as they can with REITs. But in this case, it’s the actual mortgage that is being invested in, not the property. This means that that property can be sold or vacated without actually affecting the investor, unless activity on the mortgage changes.

MIC investments are typically considered safer, because they’re not vulnerable to the changes that can occur with a property. The amount remaining on a mortgage will always stay the same, while that can’t be said with today’s real estate prices. And, it’s not as easy for someone to give up their mortgage, as it is for them to give up their home. This also means that MIC investments are more predictable and therefore, more stable.

Many investors opt for the way of REITs, simply because they’ve heard more about them than they have MICs, but this is a mistake. The reason why REITs get more attention is because REITs are bought and exchanged on the stock market; whereas MICs are private companies that help investors. It’s also this very fact that makes working with MICs the better choice of the two, because they are more stable, and you are put in full control – not a fund manager.

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