Alternative investments are an interesting way to make your savings work and earn a return that can be higher than traditional investment options. Mortgage Investment Corporations and Real Estate Investment Trusts, among others, are part of the alternative investment family. These are often confused with each other, as they have some similarities, however, they are two different investment options. So, let’s dive into it!
A Mortgage Investment Corporation (MIC), is an investing and lending company specialized in mortgage lending in Canada. MICs manage a pool of secured mortgages, that can be residential and/or some commercial, depending on the MIC. Investors purchase shares of the MIC, and are paid returns on a monthly, quarterly, or yearly basis. On the other hand, a Real Estate Investment Trust (REIT), is a company that operates, finances, or owns real estate that will generate income. Investors in a REIT purchase shares and earn the income produced through that investment, without having to buy, manage or fully finance the property.
In terms of similarities, it is fairly simple; both are alternative investments and are pooled funds that manage real estate. Additionally, both alternatives allow investors to purchase shares in either a variety of properties or a variety of mortgages and this diversifies their portfolio.
When it comes to the differences between MICs and REITs, these are more extensive. An important difference is where the investor’s capital is invested. In a Mortgage Investment Corporation, the capital is invested in a pool of property mortgages, whereas in a Real Estate Investment Trust, the capital is invested in the physical properties. For a REIT these are usually income-generating properties such as shopping centres, hotels, and apartment buildings. Investing in a REIT has a different risk profile compared to a MIC, because not only are they excepted from physical property issue management, but also, a mortgage is a loan that the borrower is required to pay back.
Overall, both Mortgage Investment Corporations and Real Estate Investment Trusts offer great benefits such as more diversified risk, along with higher return, than many traditional investments sometimes offer. It is important that investors thoroughly understand and research both alternatives before deciding which investment is better suited for them. As with all decisions, it is a case-by-case basis that is dependent upon the goals and risk-taking preference of each investor.
If you are interested in learning more about MICs, and more specifically, Nest Capital MIC, don’t hesitate to email us at info@nestcapital.ca or book a call here with us.