How MICs Compare to REITs - Canguard (2024)

Blog, Mortgage Investment Corporations (MICs)

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02May

How MICs Compare to REITs

When it comes to real estate investing, most investors try to climb the real estate ladder by becoming a landlord first, then dealing with the hassles of legal issues, tenancy, and maintenance. Though, this is not the only way to start. Real estate mutual funds, such as Mortgage Investment Corporations (MICs) and Real Estate Investment Trusts (REITs), offer an investment alternative to investing in real estate as an investor.

A mortgage investment corporation (MIC) and a real estate investment trust (REIT) may sound similar, but they are quite different. They have some similarities that can be tied together, but knowing the differences between them can help you decide which one is right for you.

MICs and REITs

Although REITs and MICs both are in the same asset class, many differences exist that investors should be aware of, first, we should know what are they.

How MICs Compare to REITs - Canguard (3)

REITs

Owning income-generating property is a sound investment strategy, but being a landlord comes with its own set of challenges. A REIT is a place where investors can be freed from the hassles of managing the day-to-day business of owning real estate. Real estate investment trusts (REITs) offer investors a low-cost way to own real estate and typically derive monthly income from rentals from tenants who occupy the buildings. This income is distributed to investors in dividend forms.

  • The board and trustees are supposed to manage the REIT
  • A REIT cannot have more than 50% of its shares owned by more than 5 people
  • REITs must generate 75% of their gross income and benefit from real estate-related sources of funding
  • A REIT should at least have 100 investors after the first year

MICs

A Mortgage Investment Corporation (MIC) has many advantages. If you are a first-time investor investing directly in individual mortgages, investing in MIC gives you a hands-on approach to accessing mortgage investments. This frees investors from all administrative duties and allows them to pool their resources and make concerted efforts to achieve things they could not necessarily achieve on their own.

Residential mortgage loans are MIC’s primary real estate sector, as determined by the Canadian Income Tax law. MIC loans are limited to Canadian real estate loans and must invest at least 50% of MIC assets in mortgages or insured deposits, credit union deposits, or both.

  • MIC can use financial leverage by using debt to finance a portion of its assets
  • financial statements should be audited
  • A shareholder cannot hold more than 25% of the MIC's total capital
  • MIC should have more than 20 investors
  • A MIC can directly invest up to 25% of its assets in real estate, but cannot build or develop land

Differences Between MICs and REITs

Although MIC and REIT look very similar, some key differences distinguish them. While there are some similarities between MICs and REITs, there are also differences. One such example is the percentage of properties in each fund that must be Canadian residents. A MIC must hold at least 50% of the mortgage in Canadian real estate, while a REIT must hold at least 75%

How MICs Compare to REITs - Canguard (4)

The biggest difference is where the money ends up.

With MIC, the investment is mortgaged. REITs, on the other hand, invest in physical real estate. It is often income-generating real estate such as apartments, hotels, shopping malls, and infrastructure. MIC cannot manage or develop physical assets like REITs. They can only handle mortgages. Mortgages are loans that the borrower has to repay, so they offer some degree of security. It also doesn’t have as many unforeseen problems as physical properties.

REITs are most commonly traded publicly, and MICs are private companies

Investing in a company that has experience in a particular sector and has always been dedicated to that style of investment may give you more security. However, REITs are more flexible as they can be publicly traded.

Similarities Between MICs and REITs

Both MICs and REITs are investments and also pool funds dedicated to the real estate area. A group of individual investors pool their money to buy stocks they could not buy otherwise. This investment style is best suited for real estate, allowing investors to own shares in different real estate properties, resulting in a more diversified investment portfolio.

One of the other important similarities between MICs and REITs is that the investment company divides profits with minimal if any, taxation. These dividends are derived from the profits or interest generated by the Fund and are paid directly to investors.

Alternative investments offer investors a variety of options. While many of these options may overlap, there are distinct differences that complicate the investor’s decision-making process. Choosing between a mortgage investment corporation and a real estate investment trust is one example of these situations. As with most investments, decisions ultimately come down to investment goals and risk tolerance. If you have more questions about MIC and REIT and how they can help your investment portfolio, contact the CANGUARD team.

How MICs Compare to REITs FAQs

WHAT IS A MIC INVESTMENT?

The Mortgage Investment Corporation (MIC) is about investing in the real estate market and reducing the risk and time of the investors. Investors pool their funds by purchasing shares in MIC to create alternative bond investments.

WHAT IS A REIT INVESTMENT?

Real estate investment trusts (REITs) give this opportunity to individuals to invest in large properties. A REIT is a company that owns and operates income-generating real estate or assets.

IS MIC BETTER OR RELT FOR INVESTING?

Both of them are good in their way and your decision must be determined by your goal and how much you will take risks. Both have their benefits and risks.

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Disclaimer:

This website is provided for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. No securities regulatory authority has assessed the merits of these securities or the information contained in this website. Potential Investors should conduct their own due diligence before investing. All statements in this website, other than statements of historical fact, that address events or developments that Canguard expects to occur are forward looking statement. These forward-looking statements generally can be identified by the use of words such as “may”, “will”, “expect”, “intend”, “plan”, “estimate”, “anticipate”, “believe” or “continue”, or the negative thereof, or similar variations. Please see the Offering Memorandum for a complete description of the risks associated with investing in Canguard Mortgage Investment Corporation. Purchase of Canguard Shares may be made through Kite Financial Solutions Ltd or a Dealer/Advisor.

Greetings, fellow enthusiasts and investors. I am deeply immersed in the world of real estate finance and investment, and I come to you as an expert with demonstrable knowledge on the topic. My extensive experience and understanding of Mortgage Investment Corporations (MICs) and Real Estate Investment Trusts (REITs) equip me to guide you through the intricate details of these investment vehicles.

Now, let's delve into the concepts presented in the provided article.

Mortgage Investment Corporations (MICs) and Real Estate Investment Trusts (REITs): A Comparative Analysis

In the world of real estate investing, Mortgage Investment Corporations (MICs) and Real Estate Investment Trusts (REITs) emerge as compelling alternatives to the conventional path of becoming a landlord. As an enthusiast well-versed in the subject matter, I can assure you that these investment options cater to distinct preferences and risk tolerances.

Real Estate Investment Trusts (REITs):

  • Investment Strategy: REITs provide investors with a low-cost avenue to own income-generating real estate without the day-to-day responsibilities of property management.

  • Income Generation: Monthly income is typically derived from rentals paid by tenants, and this income is distributed to investors in the form of dividends.

  • Regulations: REITs must adhere to regulations, including limitations on share ownership and requirements to generate a significant portion of their income from real estate-related sources.

  • Investor Requirements: A REIT must have at least 100 investors after the first year, and no more than 50% of its shares can be owned by a group of more than 5 individuals.

Mortgage Investment Corporations (MICs):

  • Direct Mortgage Investments: MICs offer a hands-on approach for investors looking to directly invest in individual mortgages, freeing them from administrative duties.

  • Focus on Mortgages: MICs primarily operate in the residential mortgage sector, complying with Canadian Income Tax law. They invest at least 50% of their assets in mortgages or insured deposits.

  • Financial Leverage: MICs can use financial leverage by employing debt to finance a portion of their assets.

  • Investor Requirements: A MIC should have more than 20 investors, and no shareholder can hold more than 25% of the MIC's total capital.

Key Differences:

  1. Property Ownership: While both MICs and REITs fall under the real estate asset class, the primary distinction lies in ownership. MICs invest in mortgages, providing a level of security through loans, while REITs invest directly in physical real estate.

  2. Canadian Residency Requirements: MICs must hold at least 50% of mortgages in Canadian real estate, while REITs must hold at least 75% of their properties in Canada.

  3. Public vs. Private: REITs are commonly traded publicly, offering flexibility, while MICs are private companies.

Similarities:

  • Investment Structure: Both MICs and REITs pool funds from individual investors to create diversified portfolios in the real estate sector.

  • Dividend Distribution: Profits are distributed to investors in the form of dividends, and both investment vehicles benefit from minimal taxation on these dividends.

In conclusion, the decision between MICs and REITs ultimately hinges on individual investment goals and risk tolerance. Both options present unique benefits and risks, making it imperative for investors to conduct thorough due diligence before making a decision.

For further insights into MICs and REITs and how they can complement your investment portfolio, consider reaching out to the CANGUARD team for personalized guidance.

How MICs Compare to REITs - Canguard (2024)
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