What is a mortgage investment fund?
A mortgage investment fund sells units to investors at a fixed dollar amount and lends this money to qualified borrowers through a private mortgage. Similar to conventional mortgages, the borrower is responsible for repaying the loan through a monthly mortgage payment consisting of the principal and interest. Investors in Perch Capital earn a return from the interest paid by the borrower on their mortgage.
Mortgage investing can take many forms, including mortgage investment corporations (MIC), a mortgage trust or a limited partnership mortgage fund. Each of these have a slightly different structure and tax treatment, but the concept of earning a return is largely the same.
You can hold shares of a mortgage investment corporation, such as Perch Capital, within a non-registered or registered account like your TFSA, RRSP, RRIF or RESP.
What is a mortgage investment corporation (MIC)?
A mortgage investment corporation, otherwise known as a MIC, offers shares (or units) at a fixed dollar amount to investors, and lends money out to qualified borrowers seeking a private mortgage.
A mortgage investment corporation (MIC) enables investors to come together and lend to multiple borrowers, which helps mitigate risk and diversify the portfolio. In contrast, a single investor lending to a single borrower through a private mortgage carries far more risk.
In order to be considered a MIC under the Income Tax Act of Canada, the corporation must meet these key guidelines, among others:
- Must be Canadian
- Can only invest in mortgages secured against real estate in Canada
- It cannot develop property or manage it
- Have at least 20 shareholders, and no shareholder can own more than 25% of shares in the MIC
Who should invest in a MIC?
Investing in a mortgage fund is an opportunity for capital preservation and stable income generation. If your money is sitting in a high interest savings account or GIC as excess capital, and not required for day-to-day expenses, investing in Perch Capital offers a higher rate of return. However, unlike a savings account or GIC where you can start with $100 or $1,000, a mortgage fund typically requires a higher minimum investment.
At Perch Capital, the minimum investment is $10,000.
Who is not well suited to invest in a MIC?
For those who require greater liquidity and immediate access to cash, a mortgage investment is not recommended. When you buy units in a MIC like Perch Capital, these units are not traded on a stock market and are subject to resale restrictions under securities legislation. Redeeming units require advance notice and will take time to convert into cash.
What kind of returns should I expect with Perch Capital?
Perch Capital MIC currently offers a net yield of 9.38%*. To see our fund performance, click here
Is a mortgage investment corporation (MIC) the same as a mortgage fund?
While each has a different structure and tax treatment, the concept remains largely the same. Investors of a mortgage investment corporation (MIC) or a mortgage fund buy units and earn a return from the borrowers making monthly mortgage payments. Perch Capital is a MIC, a type of mortgage fund.
What are the pros and cons of MICs?
If you’re new to mortgage investing, it’s important to understand the pros and cons and how it compares to other investment vehicles in Canada.
Benefits of investing in a mortgage investment corporation:
- Diversify your portfolio with a high yield alternative debt investment. There is no asset price volatility, since units are bought and redeemed at the same price. Historically, mortgage fund investments have limited correlation with stocks and bonds. For example, in 2022 even while stocks and bonds were down, with Perch Capital's MIC you would've earned an 8% return.
- Reduce concentration risk. By investing in a MIC, Perch Capital holds a portfolio of mortgages which reduces exposure to any individual borrower. Most people simply don’t have the financial capacity to do this themselves.
- Leverage deep industry expertise. Perch Capital’s mortgage fund team has extensive experience handling underwriting, servicing and mitigating defaults.
Cons of investing in a mortgage investment corporation:
- Lack of liquidity. Mortgage fund investing can require minimum investment periods or restrictions on redemptions. It isn't a liquid investment that you can redeem at will. As such, we recommend only investing excess capital.
- Influence is limited. Management will not run individual deals by you for approval. As an investor, you rely on the mortgage fund to assess and deploy capital wisely.
- No guaranteed returns. Mortgage investment funds will communicate their target yield, however the actual payout will depend on borrowers making their mortgage payments. Perch Capital mitigates this risk by fully underwriting the deal and assessing the quality of the borrower and the property before issuing a mortgage approval.
Are there any fees associated with investing in Perch Capital?
No. When you invest in Perch Capital, there are no additional fees charged to you.
I’m interested in real estate investing in Canada. Is a MIC the right way to do it?
By investing in a MIC, you will be exposed to the real estate market, but not necessarily investing in real estate directly. A MIC loans money to borrowers as debt. In other words, Perch Capital has a security interest in the property, however we are not co-owners of the home or entitled to property price gains or losses in any way.
In terms of real estate exposure, our collateral is the property. If there is a significant decrease in the value of a property and the borrower defaults, a mortgage fund’s ability to recoup that investment may be limited if there's not enough money from the property sale to pay it out.
Since inception, Perch Capital has not experienced any loan losses to date. Unlike other private lenders, we mitigate default risk by fully underwriting and monitoring deals through to maturity.
Is investing in a MIC safe and low-risk?
Perch Capital strives to maintain a balanced risk profile in the portfolio. However, there is always a risk that distributions or capital invested in the mortgage fund is negatively affected. For a detailed overview of potential risks, submit a request
for our Offering Memorandum.
I’m a mortgage broker interested in submitting an application.
Perch Capital offers fast processing times and fair rates for borrowers. To learn about our private lending options, click here