FAQ
1) So what is a Mortgage Investment Corporation (MIC)?
Mortgage Investment Corporations are businesses established specifically for mortgage lending in Canada. MIC's invest primarily in residential mortgages, but can also invest in commercial, industrial, development and construction mortgages. All of these mortgages are pooled together and shares are issued to investors. The investor benefits by having a large pool of secured and diversified mortgages.
MIC's are similar to other corporations in that they elect directors and officers, appoint committees, hire employees , and issue shares. Generally, a MIC will authorize and issue several different classes of shares including common voting shares and preferred non-voting shares. While both share classes are entitled to receive dividends, it is the non-voting shareholder who normally receives them.
The MIC itself pays no income tax as the profits flow through to the shareholders. This is advantageous to an investor who has purchased shares through a self-directed registered retirement savings plan (RRSP) or a self-directed registered retirement income fund (RRIF), as the tax is deferred until the funds are redeemed or annuitized. In the case on Tax Free Savings Accounts (TFSA), the dividends and income earned are tax free when withdrawn. Individuals and other corporations are generally eligible to purchase MIC shares; however, all MIC dividend payments are deemed interest income for taxation purposes.
In essence, a MIC is like a mortgage mutual fund.
2) Why doesn’t everyone invest in this type of opportunity?
Term deposits, GIC, stock markets, etc. have no limit on availability. MIC’s have a finite availability and are not generally sold by banks, stock brokers or other financial advisors.
3) Who is best suited to invest in MIC’s?
Investing in MIC’s in suitable for all ages. Most people that invest in MIC's are between the ages of 35 and 75 mainly because, by that age, a lot of people have experienced the low returns of term deposits or the fluctuations of the stock market and mutual funds and seek a positive alternative. Most MIC investors have invested in real estate in the past and seek a higher return than offered by traditional investments.
4) Is the MIC a substitute for an investment in the former income trusts?
Yes. Like the former Canadian Income Trust investment vehicles, MICs retain flow-through share status meaning MICs pay no corporate income tax and all net profits flow through to the investor.
5) What is the difference between a Mortgage Investment Corporation (MIC) and a publicly traded Real Estate Investment Trust (REIT)?
A MIC invests primarily in mortgages as required under the CRA legislation in the Income Tax Act. REIT's invest primarily in revenue producing real estate.
6) Is the investment guaranteed?
No, the underlying security is the Canadian real estate against which the MIC has mortgage charges plus the personal guarantees of the owners of the property.
7) Is investing in a MIC as secure as owning real estate?
Yes. When a MIC lends money, an interest rate is fixed for the term of the mortgage and is not subject to real estate market fluctuations. As the maximum loan to value ratio is 85%, the risk is greatly reduced.
8) What are the advantages of a MIC?
There are several advantages of being a MIC investor:
All of the MIC’s profits are paid to its investors.
Under the Income Tax Act (Canada), a MIC is required to pay 100% of its annual net income to its shareholders in the form of dividends. This means, after the payment of any over-head expense, the MIC does not keep any profits for itself. 100% of the profits are paid to the shareholders.
The MIC is a secured lending vehicle.
As a mortgage lender, every loan made by the MIC is secured by a mortgage. As you know, a mortgage is the most secured financing vehicle possible in real estate investing. Thus, in a worst case scenario, which is a mortgage default and resulting foreclosure, the MIC has sufficient collateral and security to adequately cover all of its investments.
Regular, steady and predictable cash flow.
The MIC invests primarily in mortgages in Western Canada. Mortgages produce steady and reliable cash flow for the MIC each and every month the mortgage is in place. This cash flow is paid out to the investor.
Trillium is regulated to be investor friendly
Trillium is subject to provisions of the Income Tax Act (Canada) and various Securities Commissions. Trillium financial statements are audited each year similar to the way a publicly traded company would be. As such, it is regarded as a prudent and investor friendly investment vehicle.
9) Can I transfer my current registered plan to Trillium?
Yes, you can. We handle the details for you. Just provide us with the name of your current plan holder and plan number and we take care of the rest.
10) Is Trillium RRSP, RESP, RRIF and TFSA eligible?
Shares in the MIC are RRSP, RESP, RRIF and TFSA eligible in accordance with the Income Tax Act (Canada). If shares in the MIC are held within a RRSP/RESP/RRIF, any dividends paid to the investor are tax deferred allowing an investor the potential to access regular, steady and predictable cash flow on a tax deferred basis and a higher compounding effect.
11) Where will Trillium be investing?
Trillium’s intention is to invest substantially all, if not all, of its funds in the Provinces of British Columbia and Alberta. By investing in a high growth region such as British Columbia and Alberta, the MIC will be able to invest in mortgages paid by high income individuals and families living in British Columbia and Alberta on properties located in a stable and ascending real estate market. The MIC can also make limited investment in income producing real estate.
12) Why invest in Trillium Investment Funds?
Trillium Investment Funds have several competitive advantages:
- Better yields
- Strong management team
- Diverse fund portfolio
13) What type of over-head does Trillium have?
A MIC typically has expenses that any real estate lender would incur legal, accounting, and book keeping expenses. A MIC is also managed by a management company which charges an annual fee based on a percentage of the fund under management.
14) I have an investment advisor. Why have they not included MIC’s in my investment portfolio?
Most investment advisors work for large institutions which decide which investments are sold. They have quotas and sales commissions which influence what products are offered. At Trillium, we bypass the complex infrastructure of these institutions and sell directly to the consumer.
15) If I choose to redeem my shares, what are the restrictions?
Your investment is committed for a one year, three year or five year term. You choose.
16) Do these high returns also mean high risk?
Although there is no such thing as a risk free investment, the relatively high return of a MIC has a disproportionately low risk. This has been the case since MICs were established.
17) How secure are the mortgages?
BC and Alberta are home to some of the fastest appreciating property values and fastest growing income in Canada. This means that borrowers will have sufficient income to service mortgages which results in a secure and steady cash flow to MIC investors.
18) What are some questions a prudent investor should ask before investing in a MIC?
a) Does the MIC provide information outlining the investment policy and costs?
Included should be the following information:
- Maximum loan to value on any one property;
- Maximum amount as a percentage or in total dollars that can be invested in any one mortgage or to any one mortgagor;
- Policy towards mortgages against commercial and industrial properties and against bare land;
- Policy against construction financing;
- Location of the mortgages;
b) Does the MIC credit committee review each mortgage? In most situations, mortgage brokers manage MIC's. The broker should not act as a member of the credit committee, as this puts him/her in a direct conflict of interest given that brokers usually earn a commission for placing the mortgages.
c) Do the directors, members of credit committee and fund manager have their own funds invested? Although a yes to this question does not provide a risk-free investment, it should provide some increased security if assessed in conjunction with other prudent lending policies.
d) Is the MIC leveraged? Some MIC's are leveraged by a financial institution like a chartered bank. The financial institution will accept certain mortgages owned by the MIC as security for a line of credit. The MIC will then borrow from their line of credit and lend the funds at a higher rate. Generally, levered MIC's will be subject to strict lending policies by the financial institution. This should provide further scrutiny for each mortgage.
e) Can I have copies of audited financial statements? The MIC is audited after its first full year of operation. It is important that an accountant coversant with MICs prepare these statements. Audit procedures should ensure strict adherence to the policies stated in the information package.
I am interested in becoming an investor. What do I do now?
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