IN FOCUS: The inside track on mortgage investing

Are Canadians ready to embrace alternative estate investments?

Sep 29, 2017
As more Canadian investors grow frustrated with traditional real estate, stock and bond investments, awareness around alternative investments, like Mortgage Investment Corporations (MICs) and individual mortgages, is growing rapidly. It’s a space that was little known to many Canadians 10 years ago. But, as the market grows and takes a larger share of the alternative investment space, interest has increased significantly.

Although this growth brings many positives, new players are entering the space without the expertise or resources needed to properly serve investors. 

“One of the areas we worry about as a market participant is junior lenders who don’t have large investor bases and have incentives to place investors into any transactions rather than the right transaction,” says Bryan Jaskolka, VP of Canadian Mortgages Inc. (CMI). “Some investors are under the mistaken impression that because it is a real estate secured loan there is no risk, but that is a fallacy. We tell our investors that there is always risk. And of course, the higher the return, the higher the risk.”

Some people look to MIC and mortgage investments as a space where they can get paid a return with no risk. Worryingly, some lenders are happy to encourage investors to believe that. One of the biggest challenges for the industry is to ensure that investors are properly educated and they know that any investment with the potential to provide a decent return does carry a risk.

Despite the need for investor caution, Jaskolka does believe that MIC and mortgage investments can be excellent vehicles for passive and fixed income returns with a low correlation to the stock market. Jaskolka considers MICs and direct mortgages to be an effective defensive play, even in markets undergoing downward pricing pressure.

“Investors still get to be involved in real estate but with a built-in buffer,” Jaskolka says. “Even if the property market declines and real estate holdings may lose money, it doesn’t necessarily mean the MIC or mortgage investment will lose money. Generally, people pay their mortgages, particularly when they live in the home. Furthermore,
investments are generally limited to 80% or less of the property value (75% or less in the CMI MIC), and as a result, these investments represent a good defensive play while still achieving healthy returns and maintaining exposure to the real estate sector.”

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