WHAT IS A PRIVATE MORTGAGE INVESTMENT CORPORATION?
A Mortgage Invest Corporation is an investment fund that pools money from various investors to invest in the real estate market, ultimately allowing investors to share the risk associated with the Mortgage Investment Corporation’s investment. The Mortgage Investment Corporation’s net income is distributed among shareholders in the form of dividends meaning that Mortgage Investment Corporations are not taxed at the entity level. A Mortgage Investment Corporation must meet certain criteria including but not limited to:
- A Mortgage Investment Corporation must have at least 20 shareholders.
- No individual shareholder may own, directly or indirectly, more than 25% of the Mortgage Investment Corporation’s shares.
- A Mortgage Investment Corporation must be a Canadian corporation.
- A Mortgage Investment Corporation may attract investments from overseas, but all its residential mortgage investments must be situated in Canada.
- A Mortgage Investment Corporation cannot manage property or develop real estate.
- At least 50% of the corporation’s assets must be in the form of residential mortgage loans, deposits, and cash.
Please note that the above list is not exhaustive and there are many other requirements for forming and maintaining a Mortgage Investment Corporation.
WHAT ARE THE ADVANTAGES OF INVESTING IN A MORTGAGE INVESTMENT CORPORATION?
- The risk of investment is spread between various investors and investments. This means that in the event there are losses on a specific transaction, that loss is passed down to all the investors, ultimately reducing the dividends received by all the investors.
- The Mortgage Investment Corporation is generally operated by mortgage brokers, brokerages, real estate agents, and lawyers. This means that decisions regarding investments will likely be carefully made based on the experience of the professionals sitting on the board of directors of the Mortgage Investment Corporation, ultimately reducing the chance of poor investment decisions.
- The investors receive regular dividends for their investments.
WHAT ARE THE DISADVANTAGES OF INVESTING IN A MORTGAGE INVESTMENT CORPORATION?
- When you invest your money in a Mortgage Investment Corporation, you are generally not involved in the decision-making process related to individual investments.
- The administrative cost of maintaining the Mortgage Investment Corporation is deducted from the income of the Mortgage Investment Corporation prior to dividends being declared for the shareholders. Administrative costs may be expensive and eat into the profits of individual investors.
- Mortgage Investment Corporations, although an easier and safer form of investment for most investors, may yield lower interest rates than direct private lending.
HOW WE CAN HELP
At Jahanshahi Law Firm, we have the knowledge and experience to represent a Mortgage Investment Corporation in its lending transactions. A Mortgage Investment Corporation must also comply with various rules and regulations set out by the Income Tax Act. We can help ensure compliance with such rules and regulations for Mortgage Investment Corporations operating in the province of Ontario. For more information regarding our legal services related to Mortgage Investment Corporations, contact us today to set up an initial consultation.