There is often a lot of confusion about the difference between what is a MIC and what is a REIT. This article aims to explain some of the differences. However, both are good options for institutional asset management.
Like REITs, MICs or mortgage investment trusts are a type of syndication that allows a group of people to pool resources to reduce risk and maximize income. However, MICs differ from real estate investment trusts, and are a tool that invests in mortgages secured by real estate, rather than the real estate itself (this is what a REIT does, as do REITs). RELP).
However, again, like REITs and MICs, mutual funds are an investment tool with a low barrier to entry, and that also leaves unitholders without the responsibility of managing the day-to-day operation. .
A MIC investment also allows the pooling of investor funds, and this is an important point. By working together, investors can bundle smaller individual investments and can accomplish much more by working together.
Like their complementary investment vehicles, mortgage investment corporations are intended to provide equity holders with stability. In the case of MICs, this is done by investing in a diversified portfolio of mortgage loans. This means that the whole can absorb the effect of possible defaults. Contrast this with this situation of an individual investor investing in an individual mortgage that defaults: there is no protection at all.
Also, with a MIC, the loan rates are locked in at the beginning of the contract, so changes in bank rates won’t affect things for investors right away, at least not until the renewal dates.
Like the typical Canadian REIT, MIC investors benefit from a strong management team. Managers handle day-to-day operations, establish and execute credit strategy, secure beneficial interest rates, and also manage principal and returns for unitholders. And, it goes without saying that the management team, rather than the individual investor, bears all the risks and responsibilities of the investment. It is a win-win situation.
Another benefit of mortgage investment corporations is that they invest in mortgages, rather than real estate. Although real estate is generally insulated from market fluctuations and is a safe and stable bet, mortgages are considered even safer. Regardless of whether or not the value of the mortgage declines, the borrower must make predetermined monthly payments, and if there is a default, the MIC can still foreclose on the property.
