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First Time Investing in MICs? Here’s what to Look For

23 November 2012

Investing in MICs is becoming hugely popular in Canada as investors start to turn away from risky investments such as the stock market (which is giving super-low yields right now) and turn towards safe investments that they know will be there for years to come. But because MICs are becoming a mainstream form of investment, after years of flying under the radar, there are also a lot of investors treading these waters for the first time. And of course, you want to make sure you’re putting your money into good hands. So, what should you look for?

Information packages

Most likely just about any MIC you work with will supply you with some type of information pamphlet at the start of your investment. But it’s what’s in that package that matters. You need to make sure that it includes: the maximum loan-to-value ratio on any property you’re investing in; maximum amount (given as either a percentage or a total dollar amount) that can be invested in any one mortgage; policies regarding mortgages on commercial or industrial properties; construction financing policies; location of the mortgages you’re investing in; and policies on luxury properties.

Committee reviews?

In most cases, no matter which MIC you’ve chosen to invest with, a mortgage broker will most likely be the manager of the MICs. However, there should also be a credit committee that will review the mortgages and place them with investors. Otherwise, it may be a conflict of interest.

Are the MICs levered? 

Sometimes MICs will leverage their mortgages with a chartered bank, who in turn will take them in exchange for a line of credit for the MIC – with the mortgages securing the line of credit. Doing it this way, the MIC can then borrow from the line of credit and provide funds to their investors at higher rates. When MICs do this, the mortgages available for investment are typically given at a much higher rate, but the mortgages in any one package are also scrutinized much more closely.

Do the committee members of fund managers have their own funds invested?

Knowing that the manager of committee member of the MIC has invested their own money shows a great deal of faith on their part that the mortgages are good investments.  While this isn’t a fail-safe by any stretch, it can give investors a little more confidence if they’re given a resounding “Yes!” to this question.

Will you receive copies of audited financial statements?

Any MIC you’re going to be working with should be totally transparent about all financial doings and dealings that have to do with the mortgage investments. And that means investors need to be given all paperwork – including those obtained from an audit. It’s the only way to be sure that your money is going towards an honest investment, and that it’s being kept safe.

Are there any other specifics you personally look for when dealing with an MIC? Have you overlooked one of these points, or another, and paid the price for it? We, as well as other investors, want to learn from you! Leave your comments in the section below, and tell us your own MIC story!

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