The Ontario Securities Commission’s Investor Office recently published “Investing in Real Estate”. The article notes that low interest rates have increased the popularity of real estate investing as people have looked for higher rates of return than they may be able to achieve through conventional instruments such as stocks and bonds.
The article also describes different ways of investing in real estate. One approach is to invest in a mortgage investment entity (MIE), also known as a mortgage investment corporation, or MIC. MIEs pool money from investors to lend to people who may not be able to obtain a mortgage from traditional lenders like banks or credit unions. The loans form the MIE’s portfolio and can include residential mortgages, commercial mortgages and land mortgages. Investors purchase a security issued by the MIE, typically in the form of shares, limited partnership units, or trust units. These securities derive their value from the value of the underlying pool of mortgages. The OSC article stresses some of the risks that might be involved when investing in MIEs including the lack of liquidity, security and the lack of guarantees, high risk loans, declines in investment value, and the low priority of some loans.
The OSC’s publication of this article suggests that real estate investments are an area of investor protection concern for the regulator. For anyone considering creating a MIE, there are a number of regulatory, corporate and securities law questions that must be considered. These were discussed in AUM’s February 2016 article Mortgage Investment Corporations in a Nutshell. AUM Law can assist businesses wishing to create a MIE and can assist existing MIEs with their regulatory, corporate, and securities law questions.