The Main Difference between REIT's, MIC's and Mortgage Trusts
These are the main differences between REIT's MIC's and Mortgage Trusts
What is the difference between a real estate investment trust (REIT), mortgage investment corporations (MICs), and mortgage trust?
Most REITs are publicly traded shares of a company whose primary business is buying, owning, and managing groups of income-producing properties such as apartment buildings. Income in the form of rent or leases is distributed to investors as dividends.
You could think of them as the mirror twin of mortgage trust, REITS borrow the maximum amount they can in order to make the best returns for the investors, from banks, and secondary lenders such as MIC’s and Mortgage Trusts. The profitiblity of REIT is highly effected by vacancy and interest rate increases. These factors make them much riskier propositions then being the lender. Generally the lender wants the most equity it can possibly get from the borrower in the property and the borrower wants the least if they are trying to show superior returns to their participants. Slight fluctionions in interest rate increase and or vacancy has been known to topple many REIT’s.
Mortgage Investment Corporations
are similar to mortgage trusts, but have additional restrictions with respect to the types of mortgages it can invest in. At least 50% of its assets must be in residential mortgages.
RRSP eligibility and tax treatment
Most mortgage trusts are 100% RRSP, RRIF, RESP, and TFSA-eligible. Outside of a registered fund, distributions are received as interest income, which is treated favourably by Canada Revenue Agency.*
Mortgage Mutual Fund Trusts
Which is how the Tri City Funds are legally structured, are the same legal format as all other mutual funds and have a number of advantages over MIC’s Mortgage Investment Corporations. The largest being, they can hold real-estate over the long term. Unlike MIC who are not allowed by law to hold releastate ove the long term, mortgage trusts can. And while we are not planning on a 1930’s type of depression, Henry Goodman, always thought there was the possibility of another depression around the corner. In line with that thinking, if another severe depression comes around, our plan is to take back the real-estate and hold it and rent it until the depression passes. The history of Vancouver and many other major centers is that real estate always comes back and exceeds it value prior to a down turn.