Pooled Mortgage Investment Corporations and Private Equity Mortgage Investing: A Comparison
Back in the 1970s, the Canadian government put together a company class specifically designed to help investors with small or medium portfolios to invest in the mortgage market. These companies were known as mortgage investment corporations (MICs).
You may still hear about these now and then from different brokers as you find new ways to boost your retirement portfolio. However, these investments come with a great deal of risky, and here’s why:
- You don’t actually invest in the real estate. Instead, you invest in a company, which means your principal can vanish.
- When the loan matures, you still can’t get your money out.
- You don’t have the right to hire your own lawyer to represent your position within the company.
- You have to have a special license from a Securities Regulator to sell this investment.
- If you’re the buyer, you have to go over an “offering memorandum” (OM) with the broker, which is a detailed list of all of the reasons why an MIC is so risky for you to consider.
- You can’t resell your interest in the company easily. In fact, some investments keep you from reselling your interest for an indefinite period of time.
- In Canada, there has been no independent assessment by a regulator or auditor about the possible merits of investing in an MIC. You might read that there has been in a brochure, but that is not true.
An alternative to the MIC is private mortgage investing, or (PEM Investing). Here are some differences between the two products:
- You can invest in a private mortgage through any licensed Mortgage Broker. There is no special license required to sell just these products.
- Obviously, any investment carries some degree of risk unless you’re investing in a government-insured savings account. However, with PEM investing, you are buying a share in actual real estate, which means that you will at least have a share in the sale of collateral in the unlikely event of default and foreclosure.
At Amansad Financial, we do not offer our clients pooled mortgages. We make the following commitments to all of our investor-clients:
- Each investment has a direct link to a property, not just to a company.
- Our mortgage investments offer greater liquidity than pooled investments.
- Because the mortgages that we sell are self-administered, there are no management expenses. If you want third party mortgage administration, we refer our clients to Olympia Trust.