Which is better for you: MIC or private lending?

 



Private lending or Mortgage Investment Corporations (MICs) are options for investors who want to diversify their portfolios beyond stocks and bonds. Both options provide you with access to mortgage financing and real estate, but they work in different ways and are better for people with different levels of risk. This is how they stack up.

What does private lending mean?

In private lending, an individual investor gives money directly to a borrower, usually with real estate as collateral. The investor gets paid interest for taking on the risk of lending.

Pros:

A direct connection with the borrower.

The borrower has the ability to modify the terms of a loan.

Possibility of higher returns.

Risks:

There is a concentration risk associated with lending to only one person.

The likelihood of defaulting on the loan increases.

It takes time, work, and knowledge to handle.

What 's an MIC?

A mortgage investment corporation takes money from many investors and uses it to buy a variety of mortgages. People who work for the MIC underwrite, monitor, and service the loans. People who invest in the company own shares and get paid with the interest that is collected.

Pros:

Having more than one mortgage to spread out your risk.

Professional management and oversight of compliance.

Regular payments are typically made either once a month or once a quarter.

You can keep investments in registered accounts like RRSPs or TFSAs.

Risks:

There is typically less control over selecting individual loans.

Returns are usually lower than those from direct private lending.

Which One Is Right for You?

If you want to be directly involved, are okay with taking on more risk, and want to set your own loan terms, choose private lending.

If you want a variety of investments, professional management, and stable, predictable distributions, choose a MIC.

Getting in line with your investment goals

In the end, your investment strategy will determine whether you want to use private lending or MICs:

If you want to keep your income stable, MICs might be the better choice.

Higher risk, possibly higher yield: private lending might be a beneficial option.

Balanced Portfolio Diversification: Many investors use both methods.

Last Thought

Both private lending and MICs make it possible to invest in real estate. You can choose the path or combination that works best for your long-term financial goals by knowing how they are different.
To explore your options and understand how MICs could fit into your portfolio, explore MIC investment opportunities with Versa Platinum.


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