When it comes to alternative investment options, investing in mortgage funds or pools is growing in popularity for a good reason. Many choose to turn to a qualified Mortgage Investment Corporations (MIC) to manage the mortgage pool and their investment. Like many things in life, however, all MICs are not created equal. It’s always important to do your due diligence when committing to new investments in an alternative investment stream. It’s also vital to do the same amount of due diligence when choosing an MIC to manage your investment. When it comes to the right MIC, there are a few things to look for.
First and foremost, can they deliver? How long has this company been around and what is their track record like. Nothing is better than experience and being able to tangibly see what kind of results a MIC has been able to deliver in the past. It is also worth looking at their employee and management turn over and qualifications. A novice team and a company with a revolving door of new employees and managers is a red flag.
It’s essential to look at the consistency of dividends and the payout schedule for investors. Does the MIC have predictable patterns or are the amounts of past dividends all over the place and fluctuating between quarters? Volatility is a red flag. Ask to see past dividend statements and make sure they’re easy to read and understand.
What are the cash-out provisions? When you want to cash out on your investment, what are the processes and the date? If they cannot provide a clear answer, be wary.
Understand how they approve a project for funding. What’s the application process like for a borrower? If you do choose to invest, you should feel comfortable knowing that the Mortgage Investment Corporation you’ve trusted does their homework on each project that your money will be used for.
A few other things to understand before choosing an MIC are what their early redemption process is like. If you want out early, what is the process? And what are the fees associated with pulling your investment out early? You should also be well aware of the insurance on mortgages and the liquidity of the investment should something go wrong. Understand all the terms and conditions in their paperwork and how they operate as a business. Their way of working affects you directly, and they should be able to answer all your questions related to how they conduct business.
Nothing says trustworthy like a stack of positive references and reviews, great past reports, and a reliable listing with the Better Business Bureau. An established and reputable MIC should be able to offer at least some if not all of these things.
Here’s the big one. What do the numbers say? What is the risk of the MIC? Ask to see the portfolio based on the percentage of funds allocated to each project. Too much invested in one particular project is risky.
Similarly, a fund that involves relatively little projects with higher investment amounts is still quite risky. Funds with a high percentage of rural or low economic growth regions are risky. You should clearly understand how many of the projects within a fund are considered 1st or 2nd mortgages. You should not trust a MIC that is going to play a high-risk game and put all of your eggs in one basket and not explain why or how they are going to deliver with this strategy. Understand the percentage of commercial and residential projects within the mortgage fund. The Income Tax Act states that 50% of investments must be into CDIC insured deposits and/or residential mortgages. Be wary of MICs that are not open books when it comes to the balance of a portfolio and the reasoning behind each project approval.
Once you understand how balanced a portfolio is, you should ask to see past records to understand the performance. What has been their target return on investment (ROI) in the past and have they met it? Look for an MIC that offers consistency and potential for growth.
How are the employees, managers and directors at the company being paid? What is the fee structure like? If a fund manager receives fees from both the investor and the borrower you want to know. Understanding the fee structure of a MIC will help you notice if there are any areas where they may be more inclined to conduct business in a way that is not beneficial to you but beneficial still to the fund manager.
Are their employees, owners, managers etc. invested in the fund as well? If not, why not? Are the employees, managers, or family members of those involved in the MIC etc. being lent to for projects? This could be a conflict of interest and could bring sentimentality and emotion to the investment that clouds the judgement of fund managers.
When it all comes down to it, you should be able to easily understand all reports and conversations with the MIC and all employees at the company. You should follow the reports that will be sent out to you as an investor, and you should understand precisely when these reports will be sent. If a Mortgage Investment Corporation cannot offer open and clear communication and reporting, you cannot be expected to trust them with your investment.
Alternative investments can be scary by their very nature — they’re the alternative to the standard. They often involve some more due diligence and research before getting involved. When it comes to MICs and investing in real estate projects, it’s crucial that you find a corporation you can trust and rely on. Part of being able to trust a company is finding one that is an open book and knows what they’re doing. At Cooper Pacific, we’re a proud and reliable company with years of experience and knowledge. If you’re interested in learning more about us, reach out to Jordan on our team today.
19 Sep, 2024
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Since 1994, Cooper Pacific Mortgage Investment Corporation has been helping communities and investors across Western Canada grow and prosper. As real estate experts, our goal is to offer investors outstanding mortgage investment opportunities with an attractive rate of return. We do this by offering short-term construction financing and interim mortgage funding to help builders and developers take projects from planning to completion.
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