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FAQs ; s( _0 @4 z$ Y/ G$ ~" C6 M
1. What is a Mortgage Investment Corporation (“MIC”)?
( ^4 O, o. O3 @* G6 h1 I7 vA MIC is an investment vehicle governed by the Income Tax Act (Canada) whereby the MIC invests primarily in a pool of mortgages and all of the profits from the mortgage payments are paid out to the MIC shareholders each year.
& r |" O; }& w) Y2. Why Invest in a MIC? " N$ a( K+ X7 ^6 c
Most individuals do not have the means, the time or the expertise to invest in individual mortgages directly. However, investors in a MIC can pool together capital and, combined with the expertise of the MIC management, gain access to investing in mortgages which they otherwise would not have means to. The MIC Management team sources the investment opportunities, negotiates the mortgage terms, manages the mortgages and distributes money to investors. In essence, a MIC investor is party to a lending institution, with its investments backed by mortgages, without having to do any work after the initial investment. 7 x/ X, b2 x7 X6 [. E% [0 H
3. What are the advantages of a MIC?
& t5 k1 g; ^, | _There are several advantages of being a shareholder in a MIC:
0 G1 O7 R+ R6 |$ R& I(a) All of the MIC’s profits are paid to its investors $ k3 ~ j8 N) m/ d$ n" v' g2 X
Under the Income Tax Act (Canada), a MIC is required to pay 100% of its annual net income to its shareholders in the form of dividends. This means, after the payment of any over-head, the MIC is not keeping any profits for itself. 100% of the profits are paid to the shareholders. - ] w* Q! K5 J
(b) The MIC is a secured lending vehicle
( K( L: o( f$ d: H; S; c/ PAs a mortgage lender, every loan made by a MIC is secured by a mortgage. As you know, a mortgage is the most secured financing vehicle possible in real estate investing. Thus, in a worst case scenario, the MIC has sufficient collateral and security on all of its investments unlike investing in stocks, hedge funds or other speculative ventures.
9 X5 [: l0 ?1 Y$ v* X- n. M(c) Regular, steady and predictable cash flow
a) `# \9 {1 L& t& x( OIt will invest primarily in mortgages in Alberta. Mortgages produce steady and reliable cash flow for the mortgage holder each and every month the mortgage is in place. This cash flow will be paid out to the investor.
2 r& z3 L+ j$ I6 f# e% B" a" f, F1 q(d) The MIC is RSP, RESP and RRIF Eligible ! j2 O6 p7 ?" D( h. u& v) h1 e
Shares in the MIC are RSP, RESP and RRIF eligible in accordance with the Income Tax Act (Canada). If shares in the MIC are held within a RSP/RESP/RRIF, any dividends paid to the investor are paid tax free allowing an investor the potential to access regular, steady and predictable cash flow on a tax free basis. 4 _1 S2 o% |% B! N) ~. X# j
(e) The MIC (but not the investor) is regulated to be investor friendly 0 O9 S+ | y1 p' n4 i$ L# n
The MIC is subject to the provisions of the Income Tax Act (Canada) and various Securities Commissions. The MIC’s financial statements must also be audited each year similar to the way a publicly traded company would be. As such, it has been regulated to be a prudent and investor friendly investment vehicle. ; r6 C& p; G, o
(f) The Management of the MIC are also investors and are equally committed to achieving a high return on investment
g3 s! Q$ x6 a Z' t9 @The management team of the Edgeworth MIC are also shareholders. The management team has also made a commitment to receive the bulk of their compensation from their investment in the MIC and not as salary. As such, the Edgeworth MIC management team are in substantially the same position as its shareholders and are motivated to operate the MIC in an investor friendly manner. Management will only profit as the shareholders profit.
. m" n6 |+ Y; G! ?; S' T, O5 T& a3 X4. Where will the MIC be investing? 6 f$ M* T/ y: [+ Z# {! D \
The MIC’s intention is to invest substantially all, if not all, of its mortgages in the Province of Alberta- the oil-sands capital of the world. By investing in a high growth region such as Alberta, the MIC will be able to invest in mortgages paid by high income individuals and families living in Alberta. " X2 [3 ]" R- g" @4 l8 Y$ u
5. What Makes Edgeworth Mortgage Investment Corporation Different?
& h- G" I1 Y- F, j/ E& @The Edgeworth Mortgage Investment Corporation has several competitive advantages:
" Q2 }. s# K* e4 a(a) Strong Management ' X1 X& k' R# @
The Edgeworth Mortgage Investment Corporation is managed by executives with experience in large-scale real estate development, sophisticated financing structures and capital raising activities. The Chief Executive Officer and Chief Financial Officer are trained and qualified to practice as a lawyer and accountant respectively. Thus, they are able to manage the Edgeworth Mortgage Investment Corporation through a myriad of legal, tax and finance issues effectively. This management team is augmented by an advisory board which also has extensive experience in the real estate, financing and project management including the State of New York businessman of the year.
% J0 {' P* o; e( o, I(b) Quality Mortgages * t0 K; o# ]0 f" A
Edgeworth Mortgage Investment Corporation will be lending substantially most of its funds to a large real estate developer with mortgages to secure such financing. Partnering with such a prestigious developer will allow the Edgeworth Mortgage Investment Corporation to invest in quality mortgages with a quality borrower which will mean more secure cash flow for its investors.
& c0 A" K0 C _; r" `0 x7 ^(c) It invest primarily in mortgages in Alberta
3 P+ @/ ~% `- k! o' C* b+ MAlberta, the oil-sands capital of the world, is home to some of the fastest appreciating property values and fastest growing wages in Canada. This means that borrowers will have sufficient income to pay off mortgages which results in a secure and steady cash flow to its investors. 5 k$ P, b8 o* J
6. What restrictions does the MIC have?
6 J3 z1 ]+ P* F# h4 jUnder the Income Tax Act (Canada), the MIC must adhere to the following rules: / |8 s" h4 s) Y D
(i) Must have at least 20 shareholders with no one shareholder holding more than 25% of the MIC’s total capital; 0 l. J7 P8 w9 @' f6 U+ o
(ii) 50% of the MIC’s assets must be in residential mortgages and/or cash and insured deposits at a Canada Deposit Insurance Corporation member institution;
+ }" @2 |" b4 j! p9 w(iii) Up to 25% of the MIC’s assets may be directly in real estate (as opposed to financing real estate through mortgages) but the MIC cannot be a real estate developer or engage in construction;
! \. j4 Q9 m7 q _5 k) I(iv) Real estate must be in Canada but investors can be outside of Canada (subject to applicable tax laws) ; T \- X' t% R6 N; X
(v) Dividends received outside of a RSP/RRIF are classified as income in the shareholder’s hands. + G! v8 m' t5 s8 P8 e
2 q! h6 N# H3 L7 `' Q7. What type of property can the MIC finance? " ~ y% {9 k; L3 r, J) F
The MIC is allowed to invest in the following types of investments subject to the limitations set out in the Income Tax Act (Canada):
0 Q4 B z4 P' p% ^: d) o(i) residential mortgages including houses and condos
% t$ o9 U- n' `: S5 [(ii) project equity loans
' I, } I- O; R) X! y(iii) construction loans 0 i) M- `" r, r. @( x
(iv) interim loans
3 F1 o' R4 T, `" B/ f(v) land servicing loans " y% L. ?8 n5 o6 \9 l1 {
The MIC can lend to non-resident Canadians as long as the property which is subject to the mortgage is located in Canada.
G! Z, i3 H6 j5 A. m5 C8. Can I become a borrower from the MIC? 7 Q( p" J# q2 G) Q- D* ~
If you have purchased shares in the MIC outside of your RSP, you are entitled to become a borrower of the MIC subject to available funds. If you have purchased shares of the MIC inside of your RSP account, the Income Tax Act (Canada) prevents you from becoming a borrower of the MIC. ) w; ~, h. I6 ]: |8 x& g
9. What type of over-head does the MIC have?
- {2 P6 `+ p6 ^$ fA MIC typically has expenses which any real estate lender would incur legal, accounting and book-keeping expenses. A MIC is also managed by a management company which charges an annual fee based on a percentage under management.
; T, r8 [1 O/ B6 g ]3 j7 s10. I am interested in becoming an investor? What do I do now? ) ~) c' a2 B( o2 i
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