Do you want to invest in the real estate market while achieving consistent and stable yields? A Mortgage Investment Corporation (MIC) is one passive investment vehicle many savvy investors add to their portfolio for investment into the Canadian housing market without investing large amounts.
While the major players in the mortgage lending industry are credit unions and major financial institutions, an alternative source of mortgage lending has been consistently on the rise over the past decade- MICs.
A Mortgage Investment Corporation is an investment company created and designed for mortgage lending and provides investors with a way to tap into the real estate market while mitigating the time and risks investing in an individual mortgage entail. It’s an excellent avenue for investment because it enables shareholders to invest and diversify their portfolios collectively.
With Versa Platinum, investing in MICs means investing in a professionally managed and highly diversified portfolio of mortgages to provide you with a steady, passive income stream. This lets you benefit from Canada’s strong real estate markets without the hassle of buying or managing any property.
Let us dive deeper!
How Do MICs Work?
MICs act as both an issuer and a lending institution. This means MICs issue shares to investors in exchange for money invested and then invest the proceeds into mortgages secured by real property. MIC shareholders then earn income from the borrowers’ mortgage payments as dividends, which they can redeem as cash or reinvest for compounded growth. Below is a chart showing the steps:
Investors buy shares from MIC
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MIC lends money to mortgage borrowers
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Borrowers make mortgage payments to MIC
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MIC passes net profit to investors
A MIC is also considered a flow-through investment vehicle, which means it must pass 100% of its annual net income to the shareholders. The dividends are paid to investors regularly, usually every month or quarter.
What Are The Requirements As Per The Income Tax Act?
The Income Tax Act under Section 130.1 details the requirements that a corporation must meet to qualify as a MIC:
- At least 20 shareholders
- A minimum of 50% of assets are residential mortgages or cash deposits insured by the Canada Deposit Insurance Corporation (CDIC)
- Less than 25% of capital for each shareholder
- Maximum 25% of capital invested into real estate
- Cannot be involved in construction
- Distributions filed under T5 tax forms
- Only Canadian mortgages are eligible
- 100% of net income goes to shareholders
- Annual financial statements audited by an independent accounting firm
Conclusion
When you have no option left, MICs come into play to help you with your requirements in the long run. Before you step into the procedure, you ought to know what it is and how it works. While Canada has several investment corporations, choosing Versa Platinum can bring several benefits of MIC investment, including historically better returns. Investors can find the appropriate fund to fit their risk appetite!
