tag:blogger.com,1999:blog-42125548293651354252024-03-13T04:36:58.243-07:00Investment Insider by Fisgard CapitalFisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-4212554829365135425.post-92052924723555098192011-12-15T09:00:00.000-08:002011-12-15T09:00:08.882-08:0043 Years Later<div><div><div>“In July 1968 I made my first mortgage loan and started investing client money in mortgages. Forty-three years later I’m still investing my own savings as well as the savings of 3,700 or so investors in mortgages secured by Canadian real estate property. Nothing has changed fundamentally; however, nowadays we not only invest cash but we also invest funds from a growing array of registered pension and <a href="http://www.fisgard.com/default.aspx?PageID=1011">registered savings plans</a>, including the RRSP, RRIF, TFSA, LIRA, LIF, LRIF, IPP, RESP and RDSP. We still invest exclusively in mortgages secured by Canadian real estate and backed by the personal guarantees of our borrowers.<br /><br />Canadian real estate is recognized around the world as a sound investment. It is not only local need, but international interest that will sustain<a href="http://www.fisgard.com/default.aspx?PageID=1012"> Canadian real estate </a>values in the long run. Fisgard’s mortgage security is based on Canadian real estate values. We are satisfied with that.<br /><br />WHY WE INVEST IN MORTGAGES:<br /><ul><li>We like Canadian real estate</li><li>We like bricks and mortar security. What is more tangible that an owner occupied home?</li><li>A mortgage produces a regular income</li><li>Mortgages contain specific maturity (payout) dates, allowing us to plan our finances.</li></ul><p><br /><a href="http://www.fisgard.com/default.aspx?PageID=1003">Mortgage investments</a> are simple and straightforward. We won’t run the risk of losing money on a hunch that this or that stock or mutual fund might make us a fortune. We are just interested in regular income and steady growth. We have confidence in the enduring value of real estate and we are advocates of compound interest to achieve steady predictable growth. Mortgages are<br />relatively trouble free and stress free. They are healthy investments compared to speculations that you have to keep a sharp eye on every day, hoping that you will not wake up one day, read the newspaper, and find that your stock has simply evaporated. </p><p><br />Security is everything. I’m always impressed by the fact that all home-owners I’ve talked to think of the mortgage on their home as their most important and pressing debt and, if a choice must be made, they would pay their mortgage before most other debts. Think of that from the point of view of a lender in terms of security. As an investor/lender, this makes a mortgage a relatively safe investment.</p><p><br />Unlike many stocks and mutual funds, mortgages aren’t just graphs and projections on paper; they have a physical reality backing them – real estate. Our investments may be boring, but at least we have security – real buildings that are insured and are situated on real land that is basically indestructible.</p><p><br />Better than a colorful graph. Works for me . . . and <a href="http://www.fisgard.com/default.aspx?PageID=1076">thousands of others</a>.”</p></div></div></div>Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com0tag:blogger.com,1999:blog-4212554829365135425.post-76133503582117777722011-12-08T08:47:00.000-08:002011-12-08T09:23:53.838-08:00Risk & Reward<div><div>It varies from one fund to another but generally speaking the cost of operating a <a href="http://www.fisgard.com/default.aspx?PageID=1145">Mortgage Investment Corporation</a>, including setting aside a reasonable reserve, is about 3%. Therefore when a MIC delivers a <a href="http://www.fisgard.com/default.aspx?PageID=1001">5% net dividend </a>to you, the MIC must lend its money out on mortgages at 8% interest.<br /><br />This is possible and reasonable for a <a href="http://www.fisgard.com/default.aspx?PageID=1044">private lender</a> such as Fisgard. However, a MIC that offers a 9% net dividend to its shareholders must be lending its money at about 12%, which is quite high.<br /><br />Who would pay 12% on his or her mortgage? Under what circumstances would you pay 12% interest to borrow money on the basis of mortgage security? It’s a question that needs to be asked, as you could be stretching your risk a bit too far by reaching for such a high return. In today’s real estate market borrowers would have a hard time paying 12% except under unusual circumstances, and would run the risk of default.<br /><br />Our policy is safety first, so we avoid the level of risk associated with high interest rates. Fisgard investors are satisfied with a more modest return and better security.</div></div>Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com0tag:blogger.com,1999:blog-4212554829365135425.post-88929352822023886612011-06-21T09:38:00.000-07:002011-06-21T10:55:00.861-07:00<span style="font-weight:bold;color:#54B948;">Fisgard is the only private issuer of the REGISTERED DISABILITY SAVINGS PLAN (RDSP) in Canada, and its <span style="font-style:italic;">income</span> investment is the perfect fit for the RDSP.</span><br /><br />If you have a disability or a limiting medical condition you should definitely check out the Registered Disability Savings Plan (RDSP), a federal government program to help people with disabilities save. The federal government will pay up to $20,000 lifetime to a person’s RDSP without any personal contributions and up to $70,000 in matching contributions. Tax on investment earnings is deferred until funds are used. Neither disability benefits from the provincial governments nor federal seniors’ benefits are reduced when people use the RDSP. It’s simply the best way for people with disabilities to save for their future.<br /><br />If you are a parent the RDSP is the best way to save for your child’s future and to achieve peace of mind knowing that your son or daughter has financial security.<br /><br />The RDSP Resource Centre provides information and makes qualifying easier for people. Headed by Jack Styan, Canada’s lead advocate of the RDSP, the RDSP Resource Centre is the site for RDSP information and application processing. The Centre makes the process simple and understandable. The RDSP Resource Centre’s website, help desk and qualifying services make it easy for you to determine if the RDSP should be part of your plan, and how to qualify for the Disability Tax Credit (DTC). You will be pleasantly surprised at the outcome of your call to the Resource Centre. Many applicants end up with a tax refund that they can contribute to their RDSP; money they didn’t even know was available to them!<br /><br /><span style="font-weight:bold;color:#54B948;">EXAMPLES OF THE RDSP AT WORK</span><br /><br />Angela, 28, is an entrepreneur who makes luxury bath products. She qualifies for the Disability Tax Credit and has a yearly adjusted net family income of less than $24,183 which is the cut-off amount to receive the full $1,000 Canada Disability Savings Bond per year. Apart from new carry-forward provisions, Angela qualifies for $1,000 per year to a total of $20,000 without her or her family making any contributions. Projecting average investment earnings of 5% per year, Angela will have approximately $55,000 when she is 58. Not bad considering neither she nor her family have had to contribute a cent.<br /><br />Victor’s family opened his RDSP when he was 8 and they plan to contribute $1,500 per year for 20 years. Their adjusted net family income is below $83,088 and they expect that Victor’s will be below $24,183 once he turns 19. Projecting average investment earnings of 5% per year, Victor’s RDSP will be worth approximately $316,000 when he is 38. Here’s how it works:<br /><br /><table cellpadding="0" cellspacing="0" width="100%"><tr><td>Family contributions</td><td>$</td><td align="right">30,000</td></tr><tr><td>Canada Disability Savings Grant</td><td>$</td><td align="right">70,000</td></tr><tr><td>Canada Disability Savings Bond</td><td>$</td><td align="right">20,000</td></tr><tr><td>Investment Income</td><td>$</td><td align="right">196,000</td></tr><tr><td colspan="3"><hr></td></tr><tr><td>Total RDSP at age 38</td><td>$</td><td align="right">316,000</td></tr></table><br /><br /><span style="font-weight:bold;color:#54B948;">ELIGIBILITY FOR THE RDSP</span><br /><br />To open a Registered Disability Savings Plan, the beneficiary must:<br /><br /><ul><li>qualify for the Disability Tax Credit, be under the age of 60 (the RDSP must be opened before December 31st of the beneficiary’s 59th year),<br /><li>be a Canadian resident, and <br /><li>have a Social Insurance Number.</ul><br /><br /><span style="font-weight:bold;color:#54B948;">FEDERAL GOVERNMENT CONTRIBUTIONS</span><br /><br />The federal government provides generous incentives for people to save through two programs: the Canada Disability Savings Bond and the Canada Disability Savings Grant. The Bond Program pays up to $1,000 per year to a lifetime maximum of $20,000 to the RDSPs of people with lower incomes, even if they are unable to make contributions themselves. The Grant Program matches personal contributions by as much as 300% to a yearly maximum of $3,500 and a lifetime maximum of $70,000. The government matches the contributions of any person, organization or company. The amount of Grant and Bond depend on the beneficiary’s income or the family’s income if the beneficiary is a child. The Grant and Bond are available through age 49. People can receive both the Grant and Bond. Visit the Resource Centre’s website (<a href="http://www.rdspresource.ca" target="_blank" style="color:#00A4E4;">www.rdspresource.ca</a>) for more details.<br /><br /><span style="font-weight:bold;color:#54B948;">WHO QUALIFIES FOR THE DISABILITY TAX CREDIT (DTC)?</span><br /><br />The Disability Tax Credit (DTC) is not granted on the basis of having a specific disability. A person might have a physical disability, visual or hearing impairment, developmental disability, mental illness, learning disability, acquired brain injury or medical condition. Eligibility depends on how the condition impacts his or her life on a daily basis. This may include mental as well as physical restrictions. Your best advice is to call the RDSP Resource Centre for a free eligibility assessment.<br /><br />With the specialized RDSP knowledge and experience of Ability Tax Group, the Centre can walk you through the application process, including filing an appeal, if necessary. The Centre makes it easy for you. In addition to handling your application the Centre will review and re-file your taxes and where appropriate, transfer the available credit to an eligible family member to enable you to claim retroactive credits that may be owed to you. These credits may be substantial. Don’t miss out! <br /><br />Eligibility for the RDSP is not the only benefit of qualifying for the Disability Tax Credit. Other benefits include: <br /><br /><ul><li>tax savings from $1,443 to $2,344 (2010 tax year) plus an additional amount for children under 18. The tax credit and any transfers may be claimed retroactively for the previous 10 years! This often means lump sum refunds and future tax savings for the person or an eligible family member;<br /><li>access to, or enhancement of, other tax credits, deductions or social benefits (e.g. Working Income Tax Benefit – Disability Supplement); and<br /><li>estate planning advantages such as superior tax status for trusts and tax free rollover of RRSPs and RRIFs to RDSPs.</ul><br /><br /><span style="font-weight:bold;color:#54B948;">CARRY-FORWARD PROVISIONS FOR RDSP GRANTS AND BONDS</span><br /><br />Effective 2011, a person’s Canada Disability Savings Grant and Bond entitlements back to 2008 will be carried forward and paid where applicable. With the carry-forward a person who opens an RDSP in 2011, and who has had low incomes since 2008, will be eligible for up to $4,000 in Bond money.<br /><br /><span style="font-weight:bold;color:#54B948;">RDSP RESOURCE CENTRE</span><br /><br />The RDSP Resource Centre has professional resources to help you: <br /><br /><span style="font-weight:bold;color:#006892;">WEBSITE</span> - Visit <a href="http://www.rdspresource.ca" target="_blank" style="color:#00A4E4;">www.rdspresource.ca</a> for information about the RDSP and to post questions and comments.<br /><br /><span style="font-weight:bold;color:#006892;">HELP DESK</span> - provides answers to your RDSP or Disability Tax Credit questions by phone, email and live chat.<br /><br /><span style="font-weight:bold;color:#006892;">QUALIFYING SERVICES</span> - provides help in applying for the Disability Tax Credit.<br /><br /><span style="font-weight:bold;color:#54B948;">FISGARD’S EASY ACCESS RDSP</span><br /><br /><span style="font-weight:bold;text-decoration:underline;color:#006892;">Register for the Program</span><br />Call Fisgard at 1-866-382-9255 and ask to register for the Easy Access RDSP Program. If you have no taxable income, the RDSP Resource Centre will help you free of charge.<br /><br /><span style="font-weight:bold;text-decoration:underline;color:#006892;">Get Informed about the RDSP</span><br>Visit <a href="http://www.rdspresource.ca" target="_blank" style="color:#00A4E4;">www.rdspresource.ca</a> or call the RDSP Resource Centre help desk at 1-855-773-RDSP (7377) to find out more about the RDSP.<br /><br /><span style="font-weight:bold;text-decoration:underline;color:#006892;">Get Your Disability Tax Credit</span><br>Contact the RDSP Resource Centre at 1-855-773-RDSP (7377) for a free eligibility assessment and to get your Disability Tax Credit application underway. The Centre will also ensure your taxes are filed properly.<br /><br /><span style="font-weight:bold;text-decoration:underline;color:#006892;">Start Saving NOW!</span><br>Call Fisgard at 1-866-382-9255 to open your RDSP, apply for the Canada Disability Savings Grant and Bond and make your first contribution!<br /><br /><span style="font-weight:bold;color:#00A4E4;">CALL NOW. YOU’LL BE GLAD YOU DID!</span><br /><br /><span style="font-weight:bold;color:#54B948;">JACK STYAN - RDSP RESOURCE CENTRE FOUNDER</span><br /><br />Jack Styan is the purveyor of the Registered Disability Savings Plan. After working with disabled people and their families for twenty years Jack realized success in 2007 when federal Finance Minister Flaherty implemented a plan to assist disabled people and their families to secure their financial futures. On December 23, 2008 Canadians started opening RDSPs and saving for their futures.<br /><br />Two years later 43,000 people have opened RDSPs and saved over 250 million dollars. Jack estimates that nearly 500,000 people qualify for the RDSP, meaning that less than 10% of Canadians who qualify for the RDSP have taken advantage of the program. <br /><br />In conjunction with Ability Tax Group (‘Ability’), Canada’s foremost professional service for people with disabilities, the RDSP Resource Centre was launched in November 2010. Ability is Canada’s leading disability tax specialist. The RDSP Resource Centre raises awareness of the RDSP financial resources that are available and provides professional friendly assistance to those who need RDSP assistance. The RDSP Resource Centre makes the RDSP process simple and user friendly. It is the best in Canada. <br /><table width="100%"><tr><td width="20%"><img src="http://www.fisgard.com/upload/images/RDSP/JackStyan_webPic.jpg"/></td><td><span style="font-style:italic;">“The RDSP was designed to help people in many different situations. For example, if you want to assist a relative or friend, your contributions will be matched by the federal government. If you know people with no means to contribute themselves, they can benefit from the Bond Program. Please tell family and friends about the RDSP. One of our biggest challenges is getting the word out!”</span></td></tr><tr><td colspan="2" align="right" style="font-weight:bold;color:#54B948">Jack Styan<br>RDSP Resource Centre Founder</td></tr><br /></table>Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com0tag:blogger.com,1999:blog-4212554829365135425.post-40969027475360725092011-04-28T13:02:00.000-07:002013-06-05T13:38:25.830-07:00Inside Mortgage Investment CorporationsTo learn about an exciting and fast-emerging investment class, Rob McLister, editor of Canadian Mortgage Trends, interviewed veteran investor and mortgage lender, Wayne Strandlund, who is the founder and CEO of Fisgard Capital, a $250 Million Canadian Mortgage Investment Corporation (MIC). In this wide-ranging interview Wayne shares his thoughts on how the simple, interesting and unique tax-exempt MIC works, how it is managed, its formidable investment potential, and how investors can take advantage of the opportunities the MIC offers.<br />
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<strong><span style="color: #3333ff;">CMT: Wayne, let’s start off with why the MIC was created.</span></strong><br />
<strong>STRANDLUND: </strong>The purpose of the MIC, and the Residential Mortgage Financing Act, is explained by the Honourable Ron Basford, Minister of State for Foreign Affairs, in this 1973 excerpt:<br />
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<i>By amendments to the Loan Companies Act and the Income Tax Act, the bill also provides for a new form of Canadian Financial Institution, the Mortgage Investment Company, which is intended to make investment in residential mortgages and real estate more accessible to the small investor. It is extremely difficult at the present time for smaller investors to make this kind of investment. Unlike investment in securities through mutual funds, mortgages and real estate investments are legally and administratively cumbersome to split in such a way that investors can become owners of separate, divided interests.</i><br />
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<i>Backed by expert management service and the security of a diversified portfolio, mortgage investment companies will be able to provide opportunities for the smaller investor to participate in mortgage and real estate investments on much the same lines as mutual funds, and in this way attract new savings into residential mortgages and real estate investments.</i><br />
<em><br /></em><a href="http://fisgard.com/default.aspx?PageID=1155">Click here</a> to read Statute 130.1 of the Income Tax Act in its entirety.<br />
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<strong><span style="color: #3333ff;">CMT: So essentially, MICs let the average investor participate in mortgage lending?</span></strong><br />
<strong>STRANDLUND: </strong>Yes; and enhance their earnings by leveraging their investment in residential mortgages and enjoying the spread between the interest paid on borrowed funds and the interest charged on mortgages. Since 100% of a MIC’s income can flow through to registered plans (RRSPs, RRIFs, TFSAs, RESPs, RDSPs, etc.) without intermediary tax, and be reinvested, the investor can grow the entire return on a tax-exempt basis until the funds are withdrawn. Essentially, the MIC allows the <i>little guy</i> to share in the benefits of the lucrative and relatively secure mortgage business.<br />
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<strong><span style="color: #3333ff;">CMT: Is it a requirement that all MICs distribute 100% of net income annually to investors?</span></strong><br />
<strong>STRANDLUND: </strong>Yes. The Section 130.1 Mortgage Investment Corporation (MIC) is a flow-through investment and 100% of its net income must be distributed to investors. The MIC may deduct ordinary expenses as well as reasonable reserves for doubtful accounts. In addition to operation expenses and reserves MIC dividends are deemed to be expenses for tax purposes and deducted as such. After these deductions all remaining net profit must be distributed to the MIC’s shareholders at least once a year.<br />
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<strong><span style="color: #3333ff;">CMT: If an investor asks for the current market value of the investment, do MICs typically quote a NAV on a per share basis, like a mutual fund?</span></strong><br />
<strong>STRANDLUND: </strong>I can’t speak for my MIC colleagues, but I’ve never been asked for the MIC’s Net Asset Value. I suspect that NAV is stock-speak. MIC Investors ask about mortgage portfolio mix, mortgage priority (1st or 2nd positions) loan-to-value ratios, types of mortgages (residential or commercial), geographical concentration and so forth, but they don’t ask about NAV as they might when referring to a stock or mutual fund or some other financial construct. Unless a capital loss has occurred – or is imminent – a MIC’s share value ideally equals its original subscription price. Its shares should be worth the market value of the mortgage portfolio divided by the number of shares issued and outstanding.<br />
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<strong><span style="color: #3333ff;">CMT: Is there any way around the requirement that MICs invest 50% of their capital in residential mortgages or CDIC-insured deposits? I ask this because some MICs purport to invest only in commercial real estate. Are those commercial MICs just letting half their money earn money market returns?</span></strong><br />
<strong>STRANDLUND:</strong> No. A MIC must comply with Section 130.1 of the Income Tax Act to preserve its tax-exempt status, so it must hold at least 50% of the cost of its assets in <i>residential</i> mortgages or CDIC-insured bank deposits or credit union deposits or a combination of the above.<br />
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I suspect that when MIC reps say they only invest in <i>commercial </i>mortgages they may be using the term <i>commercial </i>referring to mortgage investments in larger multi-family residential complexes such as <i>condominium</i>, town-home, multi-lot residential subdivisions and so forth, as opposed to the typical residential home. In lender jargon these larger projects are often referred to as <i>commercial</i>, but they are classified as <i>residential </i>for MIC regulation purposes. The definition of <i>residential </i>is found in Canada’s National Housing Act (NHA). The definition is broad and includes, for example, mobile home parks, nursing homes and school dormitories.<br />
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<a href="http://fisgard.com/default.aspx?PageID=1150">Click here</a> for the National Housing Act.<br />
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<strong><span style="color: #3333ff;">CMT: What percentage of capital should a well-run MIC hold in reserve to cover defaults and draws from borrowers? Does this money just sit earning money market rates?</span></strong><br />
<strong>STRANDLUND: </strong>There is no legislated reserve requirement for MICs as there is for banks and credit unions. However, a responsible MIC manager should at least have a reserve regime in place that provides for mortgage-specific reserves to cover losses anticipated in specific mortgages as well as a general reserve to cover losses that apply to the entire mortgage portfolio. Although there is no legislated formula for the amount of such reserves, a prudent manager is wise to set aside amounts sufficient to cover anticipated losses. Reserve provision is not a perfect science, but professional managers have a good idea of what loan loss provisions should be, and they provide for such amounts.<br />
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A well-run MIC exhibits excellent cash management. From day to day a MIC deals with money flowing in and out of the fund, new mortgages being funded, progressive development and construction draws being funded, dividends distributed, shares redeemed, new share capital coming in, mortgage payments being received, mortgages being paid out. Cash management is critical, and adequate cash-on-hand balances and reserves vary depending on the type of mortgages in the MIC’s portfolio. A MIC that finances development and construction, for instance, must account for unfunded draw commitments, whereas a MIC that carries only fully-funded mortgages does not.<br />
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It sounds odd, but ideally a MIC is flat broke all the time, with 100% of its capital working in the market. In my MIC world we strive to be in a situation where we have to raise capital all the time to fund mortgage investments. We want mortgage investments chasing money, not the other way around. Sustaining this balance is a tough job for any MIC, always feast or famine so it seems. Famine is good; too much money in the MIC is a curse – a poverty of riches. “Lina”, a respondent to Part I of our MIC interview on February 10/11, commented most astutely when she suggested it was possible there could be an oversupply of MIC capital resulting in some MICs taking greater risk than they would if they were scrambling for capital. Absolutely. Prudent MIC managers know when to turn off the tap. It’s not something they like to do, but they have to do it; idle money costs money. Take a $40 million MIC earning 8% for instance; $5 million of idle money represents a cost of 1%. That’s a lot when you’re trying to deliver a dividend of even 5%.<br />
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Given cash flow dynamics and variation in mortgage mix there is no tidy formula for establishing prudent capital reserves. Basically a well-run MIC must have enough capital on hand – or readily available through a line of credit – to meet its funding obligations. The LOC should also be sufficient to allow the MIC to forward-commit to mortgages it wishes to fund in the future but for which it does not have funds immediately on hand. A reliable LOC is important for the efficient operation of a MIC.<br />
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<strong><span style="color: #3333ff;">CMT: Should a MIC be concerned about using leverage if a bank can call in its line of credit (LOC) at any time?</span></strong><br />
<strong>STRANDLUND: </strong>Yes. Leverage is a powerful tool – and a dangerous tool. The concept of leverage was a major consideration in the legislation that gave rise to Section 130.1 of the Income Tax Act in the first place. Ottawa viewed leverage as a good opportunity for the average person to take advantage of the lucrative investment opportunities in the real estate and mortgage market. Ottawa expected MICs to optimize leverage as a revenue generator, and facilitated the process by allowing the MIC to borrow <i>five </i>times the cost of its assets (provided at least 2/3rds of the MIC’s assets amounted to the aggregate of residential mortgages and CDIC-insured deposits and credit union deposits) or <i>three </i>times the cost of its assets (if the aggregate of its residential mortgages and CDIC-insured deposits and credit union deposits was less than 2/3rds of the cost of its assets). Leverage was a big deal in drafting Section 130.1.<br />
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It’s exciting to dream of borrowing five times your assets at 5% and investing that money at 10%. However, banks, credit unions and other institutions who offer lines of credit take a rather more pragmatic view. A MIC that can negotiate a LOC of 25% of its assets, let alone 500% of its assets, is lucky.<br />
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Some MICs use leverage as a key revenue generator, but I think most MICs simply use a LOC as a short-term forward-commitment facility. Leverage is good business and used prudently and effectively it can really beef up a MIC’s bottom line, but it takes good knowledge, experience, timing and vision to make it work well. Leverage can make or break a MIC; it is a double-edged sword.<br />
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<strong><span style="color: #3333ff;">CMT: Do MICs ever pay finders’ fees or commissions to people who refer investors?</span></strong><br />
<strong>STRANDLUND:</strong> In the past some MICs have paid finders’ fees to raise capital, but that has changed as a result of recent securities legislation. Regulation NI 31-103 prohibits paying finders’ fees to non-qualified people or companies. Finders must now <i>register </i>under NI 31-103. Since qualifications for registration now include onerous audit, bonding, education, reporting and working capital requirements the industry may expect finders’ fees to be paid only to qualified agents.<br />
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<strong><span style="color: #3333ff;">CMT: How do you feel about MICs who lend at 90% LTV? In other words, do the high rates and fees offset the risk?</span></strong><br />
<strong>STRANDLUND: </strong>MICs are not legislated as to LTV ratios, and loans vary substantially in terms of risk – high risk to one manager may be low risk to another; it’s a matter of opinion and particular circumstance. A LTV of 90% is pretty high risk <i>in my opinion</i> as we know from experience that real estate values can, and have, swung dramatically (in excess of 20%) in uncomfortably short periods of time.<br />
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In my opinion charging high rates and fees to compensate for excessive risk is not worth the trouble. But that’s a business decision and judgment call for MIC managers.<br />
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We've published a guide for investors who may be shopping for MICs to invest in. <a href="http://investmentinsider.blogspot.com/2010/08/pic-mic.html">Pic-a-Mic</a> covers a number of issues discussed in this interview.<br />
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<strong><span style="color: #3333ff;">CMT: What is the “average” management fee in a MIC? For every $100 the MIC earns, how much can investors typically expect back, after management is paid its fee, and after the cost of running the fund?</span></strong><br />
<b>STRANDLUND:</b> There are as many management fee arrangements as there are MICs, so it is impossible to answer your question with any degree of accuracy. I don’t think there is such a thing as an <i>average </i>management fee. From my reading of several MIC offerings I see that some MIC managers charge a fee based on the amount of capital under management. Others charge a fee based on a percentage of profit. Some charge a percentage of profit over and above a base dividend rate. A number of managers who are licensed mortgage brokers also take all or part of the lender fee and/or brokerage fee paid by the borrower. The manager may also take various fees associated with the mortgages in the portfolio, such as discharge fees, progressive draw fees, extension fees, inspection fees, even mortgage prepayment penalty fees. And, of course, some management fees are an amalgam of some or all of the above. And then there’s the usual assortment of additional costs a MIC must take into account such as audit fees, legal fees, security filing fees, mortgage licensing fees, securities (NI 31-103) registration fees, advertising, banking, postage, communication and so forth.<br />
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With hesitation, and deference to my MIC colleagues, I would hazard a guess that a prudent MIC investor might consider accounting for 3% as an average cost, including management. Simply put, this means that a MIC that purports to pay 8% net to its investors must be earning 11% by way of mortgage interest and other fees associated with the mortgage portfolio. With some MICs it might be lower (say 2%) and with some it may be higher, I don’t know for sure. After over four decades of lending and investing experience I can assure you that sustaining a <i>secure </i>mortgage portfolio income of 11% is extremely hard to do. More than a few mortgage investment professionals agree with me that in a fund of significant size it is simply not possible without undue risk. Only in exceptional circumstances can borrowers sustain that level of carrying cost.<br />
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<strong><span style="color: #3333ff;">CMT: What is your opinion on whether MIC managers’ compensation should be linked to profit and/or default rates?</span></strong><br />
<strong>STRANDLUND: </strong>No matter how you slice it management compensation will always be tied to dividend performance, which is related to the quality of the mortgage portfolio, which in turn is related to the quality of management. When I say dividend performance I don’t mean only the rate of return, but just as importantly the consistency and reliability of return. MICs are essentially income vehicles so it is important that a MIC not only distributes reasonable returns that reflect current market conditions but also distributes returns that are predictable. In the offering documents I’ve read, typically the Offering Memorandum and the Prospectus, I see a variety of compensation arrangements, each with its own merits, and it’s hard to say which compensation arrangement is best.<br />
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My personal opinion is that the manager should be paid a percentage of MIC capital. This type of compensation not only reflects the amount of work and responsibility the manager assumes, but it is also a simple compensation formula that recognizes that capital will walk if it is not satisfied with the manager’s performance in terms of security as well as returns. For every dollar that walks from the fund the manager loses income. To retain capital the manager must prove to investors that they are wise to keep the investment rather than redeem it at maturity. Therefore it benefits the manager to maintain a quality mortgage portfolio that produces reasonable returns without undue risk. This is a compensation formula that investors easily understand. Simplicity is the key to its success.<br />
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<strong><span style="color: #3333ff;">CMT: MICs have to deal with a lot of regulation it seems. If a MIC has fewer than 50 investors, can it avoid much of this regulation?</span></strong><br />
<strong>STRANDLUND:</strong> I will give you my layman’s understanding, not legal advice. The 50-person requirement is not significant. If the MIC has fewer than 50 shareholders, and issues shares only to family, friends and business associates, it doesn’t have to file private placement reports with the provincial securities commissions. The MIC will probably still be required to register as a mortgage broker and be subject to regulatory scrutiny from the mortgage authority of the particular province. To sell MIC shares to the public you must be registered as an Exempt Market Dealer under securities legislation.<br />
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I was pleased to read solicitor Jeremy Farr’s recent article (CMT April 6/11) dealing with regulations regarding investment in MICs in various provincial and territorial jurisdictions in Canada, including the Accredited Investor Exemption. Excellent article. Securities legislation is very complex.<br />
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<strong><span style="color: #3333ff;">CMT: What, if any, are the difficulties and shortfalls of the MIC; and are there any ways the MIC can be improved?</span></strong><br />
<strong>STRANDLUND: </strong>The MIC’s greatest attribute is its simplicity. The MIC has a clear business purpose and is easy to incorporate and manage if one takes the time to learn the rules and follow them. It has fair tax rationale, and has clearly weathered the test of time as evidenced by the fact that so few changes have been made to the regulation over the years. This is because the MIC was well thought out in the first place.<br />
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Not surprisingly, as years of practice have revealed, modest enhancements should now be considered for MIC regulations. Here are a couple of modifications that may be worth considering:<br />
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<ol><br />
<li>The MIC, in addition to mortgage lending, is permitted to hold up to 25% of its assets in Canadian real estate property. The MIC’s property investments can be acquired either on the open market or can be acquired as the result of taking title to property through foreclosure.<br /><br />The designers of the MIC in 1973 conceived the structure as a combination of mortgage lender and real estate investor with 25% of the MIC’s assets being the limit of its real property holdings – almost a REIT-like position. The real estate provision was innovative but has been used sparingly; underutilized in my opinion. The reason may be that, at the same time as the MIC is permitted to hold 25% of its assets in real estate (typically income-producing property), it is specifically precluded from managing or developing property. This places the MIC in a dilemma; it can own real estate, but it is not permitted to manage it. The MIC can take title to a construction project through foreclosure, for example, but it is not permitted to complete the project to protect its investment, nor to manage it until it is sold. This is an unreasonably awkward situation.<br /><br />MIC regulations should be modified to allow the MIC to do what it must do to protect a foreclosed property, managing it until it is sold, and finishing the construction or development if necessary. The many complications associated with foreclosures don’t appear to have been anticipated in the drafting of MIC regulations. The change I propose would simply permit the MIC to develop and manage <i>but only under special limited circumstances</i>, i.e. foreclosure circumstances. The MIC would not become a manager or developer per se..<br /><br />I also suggest that the MIC’s manager be permitted to manage the fund’s <i>qualified </i>real estate holdings like any outside property manager.</li>
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<li>A person who has invested in a MIC through a registered plan (RRSP, RRIF, TFSA, etc) may not borrow from the MIC without jeopardizing the tax-deferred status of his or her plan. CRA sanctions include penalties as well as setting aside tax-deferred interest. The MIC creators were mindful of potential abuses and recognized that investors ought not to use their registered funds for personal purposes. The prohibition makes sense, keeping borrowers at arm’s length from their registered savings and registered pension funds.<br /><br />I wish to advance an idea that would modify this regulation somewhat while maintaining the integrity of the registered plan of the MIC shareholder who is at one and the same time a borrower of MIC funds for mortgage purposes. A reasonable modification would be to restrict a person with registered funds invested in the MIC from borrowing mortgage money from the same MIC <i>except under special limited circumstances</i>, the objective being to ensure an arm’s length relationship between the borrower (the borrower’s registered plan) and the MIC.</li>
</ol>
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I offer a possible modification. Throughout the period the mortgage is outstanding:<br />
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<ul><br />
<li>the borrower must not be a director or officer of the MIC nor have any control of the MIC;</li>
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<li>the borrower must not hold more than 5% of the MIC’s issued shares;</li>
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<li>the fully-advanced mortgage must not exceed 5% of the MIC’s capital; and</li>
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<li>the borrower’s MIC shares must be escrowed – including voting rights – to the directors of the MIC.</li>
</ul>
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Perhaps the above requirements would also have to be met by all parties that are not at arm’s length to the borrower (spouse, partner, children, parents, siblings, borrower-controlled corporations, for example).<br />
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Just some food for thought. Perhaps modest modifications would allow MIC investors to borrow from the MIC while remaining at arm’s length to the MIC. The spirit and intent of the MIC would be maintained.<br />
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<strong><span style="color: #3333ff;">CMT: Those seem like reasonable suggestions. Let’s move now to the firm you started, Fisgard. What is the most common type of borrower that comes to Fisgard looking for financing?</span></strong><br />
<strong>STRANDLUND: </strong>Fisgard is a full-spectrum non-bank lender; we consider ourselves primarily <em>special situation</em> lenders. We are not strictly equity lenders. In addition to the value of the property in relation to the loan amount, we consider the borrower’s credit worthiness and ability to repay. We are more traditional and mainstream than most people think. We perform as much diligence as a bank does in terms of qualifying our mortgage loans. To enhance portfolio balance we also carry some low-interest <em>insured</em> loans in our portfolio. We have a title insurance contract and we are a qualified insured lender. We provide large and small residential and commercial 1st and 2nd mortgage financing for the full range of mortgage situations. Fisgard has been referred to as a “B” lender, an “alternative lender”, a “private lender”. All of these shoes fit.<br />
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Although we can finance conventional and insured mortgages, this is not our main strength. Most borrowers come to Fisgard for <i>special situation</i> financing: new construction, renovation, development, mezzanine, inventory and equity takeout financing. We don’t receive many applications for ordinary long-term mortgages, but we do underwrite them as well. From time to time we have bought portfolios of mortgages from other lenders and we have co-ventured mortgage loans with other conventional as well as private lenders. Our typical borrower is a short-term special situation borrower. This is Fisgard’s well-established market niche.<br />
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If it weren’t for the Fisgards of the world – MICs that specialize in mezzanine and start-up financing – development and construction in Canada would have been much less vibrant than it has been over the past ten years. Canada’s many excellent well-managed MICs have been instrumental in financing numerous projects that would not have gotten off the ground had they relied on conventional mortgaging. The start-up money pumped into the economy by MICs has been huge – and fortunately continues to be so – and MICs are significantly responsible for the robust economic activity related to construction and development.<br />
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At present about 90% of Fisgard’s mortgages are originated by mortgage brokers. We value our excellent relationship with brokers; it is a Fisgard hallmark and an integral part of our business plan. Day by day we are developing more partnerships with mortgage brokers. With our hands-on experience in mortgage lending, real estate sales and valuation, property management, construction, development, trust management and project management, we feel we can offer brokers a leg up. We’re a family company that has been in business since 1968. We have lots of experience, and there are very few mortgage situations we haven’t dealt with.<br />
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<span style="color: #3333ff;"><strong>CMT: How</strong> </span><strong><span style="color: #3333ff;">big is Fisgard compared to other Canadian MICs?</span></strong><br />
<strong>STRANDLUND: </strong>At $250 million spread over about 400 mortgages I think that Fisgard is probably medium-to-large compared to other MICs in Canada. I don’t know for sure.<br />
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<strong><span style="color: #3333ff;">CMT: May we ask, what is Fisgard’s average LTV?</span></strong><br />
<strong>STRANDLUND: </strong>Between 70% and 75% across the portfolio. Our 3,600+ investors are comfortable with that risk profile. Like most MICs we do not work in a box, so the LTV differs from mortgage to mortgage, but we try to keep our overall LTV under 75% to be on the safe side.<br />
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<strong><span style="color: #3333ff;">CMT: Does Fisgard have any expansion plans nationwide?</span></strong><br />
<strong>STRANDLUND: </strong>Fisgard is an established investment fund and lender in Western Canada, where our roots are. We grow at a sustainable manageable pace. Expansion is part of our business blueprint; but we are in no hurry. Expansion comes at a cost, and must be managed carefully. We are good partners, and we expand by building partnerships with established lenders in areas where we do not have a physical presence but our partners do – areas that are economically stable and demonstrate short as well as long-term growth prospects. Quality partnerships are necessary to Fisgard expansion. They help us safely <i>test the water</i> so to speak. We are satisfied with our progress.<br />
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<span style="color: #3333ff;"><strong>CMT: Wayne this is fantastic information for those interested in MICs. Thank you for the time you’ve taken to share it with our readers.</strong></span>Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com1tag:blogger.com,1999:blog-4212554829365135425.post-84579675772656033742011-04-07T15:35:00.000-07:002011-04-07T15:44:11.418-07:00Dangers of Lending Money on Your Own - A Word of Caution<span lang="EN"> <br /><p dir="ltr" align="left">Recently we’ve received a number of enquiries from Fisgard investors regarding private mortgage money they have lent outside of their Fisgard MIC investment. In these cases the investor lent money <i>directly</i> to a borrower. In short, things did not go well. These mortgages looked appealing at first and it appeared that the investors would receive a higher return than by investing in the MIC. Unfortunately this did not turn out to be the case, and the investors not only lost their interest but a portion of their capital as well. They also experienced a lot of stress through the collection and foreclosure process. Risk and reward were simply not assessed properly at the outset, and technical experience was sorely lacking.</p><span lang="EN"><br /><p dir="ltr" align="left">In reviewing the cases presented to us we noted a troublesome trend in the decision-making process. Most investors did not choose the appraiser that valued the subject property; in fact in many cases the <i>borrower</i> had ordered the appraisal! That should never happen. Most investors did not understand the contents of the appraisal, including value adjustments made on comparable properties, nor had they been given an <i>original</i> copy or the authority to rely on the appraisal for legal purposes. In all cases the investors had not reviewed the borrower’s credit report, nor confirmed the borrower’s employment and ability to pay as agreed. In all cases the investors did not understand the enormous complexities and costs associated with the default, demand and foreclosure process. No one likes to talk about what can – and too often does – go wrong when lending mortgage money privately with the expectation of a higher-than-average return. It looks good at the beginning, but all too often turns sour.</p><span lang="EN"><br /><p dir="ltr" align="left">There are a number of reasons a borrower cannot get a mortgage from a conventional lender or a Mortgage Investment Corporation such as Fisgard, and it`s usually because the borrower simply does not qualify for the mortgage (cannot service the mortgage debt or has insufficient job security or poor credit) or, most seriously, there is simply not enough equity in the property used to secure the mortgage.</p><span lang="EN"><br /><p dir="ltr" align="left">These are just a few important aspects of the mortgage lending process that were missed or not given proper consideration by the well-meaning but unfortunate private mortgage investor; aspects that became very costly oversights in the end, resulting in large losses and enormous stress.</p><span lang="EN"><br /><p dir="ltr" align="left">In contrast, at Fisgard your investment is managed by a dedicated team of professional underwriters and mortgage support staff with over 100 years combined experience in residential and commercial mortgage lending, property valuation and assessment of credit risk. Fisgard has financed over 2,500 mortgages and our investors enjoy good security and reasonable returns. We evaluate each mortgage proposal carefully not only with an eye to fair and adequate return for the particular loan, but security of capital. We also have a highly experienced default management team of lawyers, appraisers, realtors and construction consultants in addition to our in-house staff. These people are trained to act promptly and decisively when problems arise.</p><span lang="EN"><br /><p dir="ltr" align="left">If you have made a private mortgage loan on your own and have any questions, we will be happy to assist you. Fisgard also purchases mortgages from individuals or companies wishing to sell their mortgages.</p><span lang="EN"><br /><p dir="ltr" align="left">More than 4,000 investors have wisely chosen to place their mortgage investment funds with the professional people at Fisgard, where their investment is secure and stress-free.</p></span></span></span></span></span></span></span>Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com1tag:blogger.com,1999:blog-4212554829365135425.post-2222179022339335902011-02-04T16:07:00.000-08:002011-04-29T15:43:35.830-07:00Inside Mortgage Investment CorporationsTo learn about an exciting and fast-emerging investment class, Rob McLister, editor of Canadian Mortgage Trends, interviewed veteran investor and mortgage lender, Wayne Strandlund, who is the founder and CEO of Fisgard Capital, a $250 Million Canadian Mortgage Investment Corporation (MIC). In this wide-ranging interview Wayne shares his thoughts on how the simple, interesting and unique tax-exempt MIC works, how it is managed, its formidable investment potential, and how investors can take advantage of the opportunities the MIC offers.<br /><strong>Intro to MICs</strong></p><p>Before we begin, let’s define what a MIC is.</p><p>A MIC is an investment that lets people pool their money to be lent out as mortgages. 100% of the net profits from those mortgages flow through to the investors.</p><p>MICs have been around since 1973 when federal legislation was enacted to promote private financing and make it easier to invest in mortgages.</p><p>MICs are one of the lesser known asset classes, despite yielding solid long-term returns and despite being RRSP, TFSA, RRIF and RESP eligible in most cases.</p><p><strong><span style="color:#0000ff;">CMT: To what extent would you say MICs are an undiscovered or underrated asset class in Canada?</span></strong></p><p><span style="color:#7f007f;"><strong>Wayne: </strong></span>The MIC was established by federal legislation in 1973 but it didn’t take hold until the mid ‘90s when it really started to take off, principally because it was the most accommodating investment structure to replace mortgage <em>syndication</em>. Mortgage syndication had been damaged by a number of debacles at the time, most notable of which was <em>‘Eron.’</em> Eron had lost millions worth of investor money.</p><p>Thanks to the MIC, instead of owning a <em>syndicated</em> (often unregistered) interest in a mortgage, investors could now be <em>shareholders</em> in a <a href="http://fisgard.com/default.aspx?PageID=1148">non-taxed flow-through</a> entity. MICs, with their strict audit and reporting regulations, are a more streamlined, transparent and effective way of investing in mortgages and real estate.</p><p>Early MIC managers didn’t give much thought to the MIC structure beyond its facility to raise investment money. Their focus was predominately raising capital not only through cash investment but also through various registered retirement and savings trusts such as the RRSP, RRIF, DPSP, LIF, LRIF, LIRA, IPP and RESP. Today we also have the TFSA and RDSP.</p><p>The MIC flourished after 1995. Today there are hundreds of MICs in Canada. Some have as little as $1 million capital, and are essentially “convenience MICs” of maybe twenty or so shareholders. You might find those MICs in real estate offices, for example, where their main function is to facilitate sales for the office’s marketing staff.</p><p>On the other end of the spectrum are the larger MICs which are basically mortgage banks with hundreds of millions of dollars and thousands of shareholders.</p><p>The MIC is now fairly well established, but underrated as an investment asset class. Not being particularly well suited to public trading, MICs have not been recognized by financial advisors and stock and mutual fund traders who prefer investments that are publicly traded and generate fees and commissions.</p><p>This lack of attention has nothing to do with the quality, security and dividend production of the MIC.</p><p><strong><span style="color:#0000ff;">CMT: </span></strong><strong><span style="color:#0000ff;">What are the biggest differences between MICs today and MICs 15 years ago?</span></strong></p><p><strong>Wayne: </strong>Today there are many more MICs struggling for a share of a market that is not growing in lock-step with the increasing amount of mortgage money available through MICs as well as institutional lenders.</p><p>Fifteen years ago it was easier for a MIC to place money in secure mortgages than it is today. Competition for good mortgages is fierce, and growing.</p><p>MICs are practicing the same type of lending they were fifteen years ago. Despite the intense competition for quality mortgages and the recent global recession, most MICs have done well for investors. Yet, they have not received the recognition they deserve, despite outperforming many investments in terms of capital preservation and dividends. The MIC is still a niche investment, not well known or understood.</p><p>Securities regulation NI 31-103 was introduced in 2008 and made law in September 2010. It is too early to say, but I believe the new regulation will change the MIC industry. It could be that small MICs may not be able to meet the onerous requirements of the new regulation, including increased capital, bonding, disclosure, compliance and so forth, and simply close shop, or merge in order to survive.</p><p>The reasons for NI (National Instrument) 31-103 are still being hotly debated and rationalized based on whose ox is being gored, the small MIC struggling to raise a bit of capital or a giant bank’s brokerage house that is not particularly fond of anyone else playing in what the bank sees as its very own sandbox (the world’s investment money). At any rate it appears that the capital-raising field has been levelled by NI 31-103 and MICs as well as their managers and investment referral agents must now meet strict regulatory standards in order to raise capital through public markets. The positive outcome is that qualifying MICs will now become “institutionalized” in the eyes of the public, and will benefit from the legitimacy that comes with achieving new levels of licensing and registration. Short term pain, long term gain.</p><p><strong><span style="color:#0000ff;">CMT: </span></strong><strong><span style="color:#0000ff;">From a general risk and return standpoint how would you say investing in a MIC compares to investing in (for example) a rental property, assuming the same dollar investment?</span></strong></p><p><strong>Wayne: </strong>A rental property may appreciate in value and may experience the tax advantages of depreciation and other expense allowances. A MIC is a “flow through” investment and, in fact, the MIC must distribute 100% of its net profit to its investors every year. It is not designed to accumulate profit and is not likely to increase in value as a rental property might.</p><p>While a rental property is likely to be an active investment involving hands-on management, the MIC is more a passive investment. It simply flows dividends through to its investors, in whose hands the dividends are treated as <em>interest</em> income for tax purposes. The MIC sometimes, but rarely, flows capital gains or losses through to its investors.</p><p>A MIC is likely to be purchased at a nominal $1 per share, for example, and end at a $1 redemption or wind-up value. It will provide dividend income throughout the investment period. In exceptional circumstances the MIC might experience a capital gain if, for example, the MIC buys a property or forecloses on a property, takes it into inventory, and sells it at a profit. The MIC may flow capital gains – and capital losses – to its investors, but these are relatively rare occurrences.</p><p>As stated, dividends paid to MIC investors are treated as <em>interest</em> income for tax purposes. Income from a rental property is taxed differently depending, for instance, on whether it is held personally or in a corporation. Investors should consult tax experts when choosing between a MIC and a real estate investment, such as rental property.</p><p><strong><span style="color:#0000ff;">CMT: </span></strong><strong><span style="color:#0000ff;">Are there any major 3rd party distribution channels for the MIC? For example, do any big banks or investment brokers sell them to clients? If not, why not?</span></strong></p><p><strong>Wayne: </strong>To date most MICs have raised capital themselves with negligible support from financial planners, advisors and brokers. Most MICs do not trade on the public market, and therefore do not attract the attention of brokers who make a living through fees based on trading volume.</p><p>Also, most MICs raise capital by way of <em>Offering Memorandum</em> as opposed to <em>Prospectus</em>. This precludes certain investment firms from investing in them as a matter of policy.</p><p><strong><span style="color:#0000ff;">CMT: </span></strong><strong><span style="color:#0000ff;">Will returns suffer going forward as more investors throw money at MICs, and as more MICs and private money join the fray?</span></strong></p><p><span style="color:#666666;"><em>“If there is a crisis of money in Canada, it is not that we don’t have enough, but that there are too few simple, understandable and reliable places in which to invest it.”</em></span></p><p><strong>Wayne: </strong>MIC returns are normalizing. The high private interest rates that have fuelled double-digit MIC returns for nearly two decades are not sustainable in the borrowing world at the present time, particularly with the slowdown in construction and development which is traditionally an active lending market for several MICs.</p><p>Not only will MIC returns normalize due – at least temporarily – to a shrinking market for mortgage money, but also because more money is choosing the MIC investment resulting in what might turn out to be an over-supply in some cases.</p><p>The MIC’s advantage is that the average investor understands what real estate is and what a mortgage is. Investors appreciate that a MIC investment is uniquely Canadian and secured by real property located only in Canada. These are <em>simple</em> important facts that make the MIC such a comfortable, easy-to-understand “investment” compared to the thousands of impossibly complex financial products being pedaled daily on the public market. Simplicity is one of the MIC’s most popular attributes.</p><p>The law of supply and demand will prevail, and borrowing rates (hence MIC returns) will be influenced not only by bond yields but also by the sheer volume of money now seeking the relative safety of mortgages secured by Canadian real estate property. If there is a crisis of money in Canada, it is not that we don’t have enough, but that there are too few simple, understandable and reliable places in which to invest it.</p><p>Real estate – the <em>mortgage</em> security – is one of the last bastions of conservative long-term investing, and there is no indication of this changing any time soon. We may look for the MIC to become very popular as a mainstream investment and special purpose lender.</p><p><strong><span style="color:#0000ff;">CMT: </span></strong><strong><span style="color:#0000ff;">Do you foresee more distribution channels evolving for MICs in the future?</span></strong><strong></strong></p><p><strong>Wayne: </strong>Yes. The world of <em>Exempt Market Products</em> – which includes qualifying MICs – is poised for growth. NI 31-103 will have the effect of institutionalizing MICs and MIC managers that meet the new requirements. As a result a broader spectrum of the investment community will invest in MICs, regardless of whether they are publicly traded or not. The so-called ‘liquidity’ touted by stock and mutual fund brokers is not what it’s cracked up to be, and more and more investors now realize that it’s much too expensive. Good old-fashioned fixed term investments are trumping liquidity in many cases.</p><p>Exempt Market Products are about to experience wide acceptance and popularity amongst mainstream investment dealers. EMPs are no longer the poor cousins of publicly traded stocks and mutual funds. The popularity of the MIC as an Exempt Market Product is growing and attracting the attention of institutional investors. The credibility of the MIC is greater than it has ever been.</p><p><strong><span style="color:#0000ff;">CMT: </span></strong><strong><span style="color:#0000ff;">What would you consider a high default (impaired loan) rate on a typical Canadian MIC? (e.g. 2%?)</span></strong></p><p><strong>Wayne: </strong>MIC lending is <em>private</em> as opposed to <em>conventional</em> lending, so risk and reward must be viewed from that perspective.</p><p>The <em>number</em> of impaired mortgages as a percentage of the total number of mortgages in a MIC at any given time is one consideration.</p><p>The <em>dollar volume</em> of impaired mortgages as a percentage of the total dollar volume of the portfolio is another.</p><p>The <em>level</em> of impairment is also a consideration. For example, an NSF cheque is one level, non-payment of property taxes, insurance or strata fees is another, and non-payment of the mortgage on maturity yet another.</p><p>Ten percent of the <em>number</em> of mortgages in a portfolio (e.g. 40 out of 400 mortgages) is probably an acceptable ratio on the impairment scale, erring on the high side.</p><p>Five percent of the <em>dollar volume</em> (e.g. $25 million out of $500 million) is also on the high side. Impairment doesn’t mean a loss of interest or capital. At any time a MIC may have 10% of its loans in an impaired state, but that does not mean it will lose 10% of its capital. It may not lose any capital.</p><p>Impairment level takes into account the composition and relative risk of a MIC’s mortgages, and risks vary from one MIC to another. Some MICs underwrite conventional 1<sup>st</sup> mortgages (including insured mortgages), some MICs underwrite more risky 2<sup>nd</sup> mortgages, and some MICs underwrite the full spectrum of mortgages: 1sts, 2nds, land development, construction, mezzanine financing, and so forth. It is difficult to assign impairment ratios without carefully considering the portfolio mix. It’s the degree of impairment that one must consider.</p><p align="center">************</p><p align="left">Part II of this interview will follow later this month. It will focus on a MIC’s internal workings, managing a MIC, and more.</p>Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.comtag:blogger.com,1999:blog-4212554829365135425.post-53570497794747541112010-12-23T15:30:00.000-08:002010-12-23T16:12:32.897-08:00Fisgard Nominated for Vancouver Island Business Excellence AwardThis is a special time of year and we hope you get the opportunity to relax and celebrate with your loved ones. Everyone at Fisgard would like to say THANK YOU for the support and patronage you have shown us over the past years. It is truly appreciated.<br /><br />Fisgard has been nominated by our peers in the business community for a <a href="http://www.businessvi.ca/beawards/">Vancouver Island Business Excellence Award</a> in the "Financial Services" category. The award is offered by the publishers of Business Vancouver Island magazine. <br /><br />With over 300 nominations in 20 categories, Fisgard is proud to be a finalist. Nominees are required to fill out an extensive questionnaire of wide-ranging questions for consideration in fields such as customer service, staffing, community involvement, environmental initiatives, and support for arts funding.<br /><br />The 11th annual Vancouver Island Business Awards take place on January 27 at the Vancouver Island Conference Centre in Nanaimo.Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com0tag:blogger.com,1999:blog-4212554829365135425.post-80310409544339370472010-09-03T15:14:00.000-07:002010-09-20T08:24:39.676-07:00All About the RESPInvest in Youth! Invest in Canada! Back to School! Registered Education Savings Plan time!<br /><br />Every parent - or uncle or aunt or grandma or grandpa or brother or sister or friend and supporter of Canada's youth and education - should open an <a href="http://fisgard.com/default.aspx?PageID=1018">RESP</a> for the student(s) of their choice. This way the student receives valuable federal (also provincial in some cases) matching grants, and gets to tax-shelter investment income. And - most importantly - will not be held back for years and years after college or university by costly student loans. As Canadians we must do all we can to educate our youth, and move heaven and earth to make sure our future citizens and leaders are not burdened with unmanageable student loans at the very time they should be spreading their wings with their newfound education and talent. Good RESP plans for our Canadian youth are vital, and are an honour to contribute to.<br /><br /><b>PARENTS AND OTHER EDUCATION SUPPORTERS NEED TO MAKE THREE KEY DECISIONS WHEN OPENING AN RESP:</b><br /><br /><strong>1) DETERMINE THE TYPE OF RESP ACCOUNT YOU WANT TO OPEN</strong><br /><br />There are different kinds of RESP accounts. The two main types are self-directed plans and pooled programs. Avoid pooled programs - such as scholarship plans! They are costly and unnecessarily complex. With most scholarship plans upwards of three years of your first RESP installments will go towards fees, and little if any money goes to education savings. The wise RESP subscriber/donor must keep things simple, low cost and flexible. This can be achieved with self-directed RESPs. Again, avoid pooled Scholarship programs as they almost invariably require a minimum deposit, compulsory regular contributions and have costly up-front and ongoing service fees. And they can be extremely costly to get out of once the subscriber finds out how much they actually cost compared to how miniscule the benefits are. In short, avoid Scholarship Plans (pooled programs). They cost too much, and deliver little, if anything. They are fee-driven.<br /><br />Make sure your RESP program is self-directed; that is, directed by YOU as to which investments to make. Avoid institutional RESPs where someone else decides what to invest your RESP money in. YOU know best.<br /><br />Pooled RESPs - that is, scholarship plans - have features that are unnecessarily complicated. Before you open an RESP you should absolutely ensure that you have the right to transfer your RESP if you are not satisfied with its performance. With pooled scholarship plans it is very expensive to transfer out of the program. They like to lock you in. Penalties to transfer to better investments are economically prohibitive. Do not invest in an RESP that does not allow you to change plan providers anytime that you are not satisfied with your RESP's performance. The key to a successful RESP is accumulating earnings through compound interest, not paying fees to scholarship plan providers.<br /><br /><strong>2) WHEN TO CONTRIBUTE TO AN RESP?</strong><br /><br />Most pooled scholarship plans have a set dollar contribution to be made at specified times. The self-directed RESP lets you decide when YOU want to contribute, and how much YOU want to contribute. You can skip a year, or contribute more, depending on your financial situation. This is important given the financial stress that many young families go through while raising a family.<br /><br />Age 15 is a key year for RESP planning, particularly in terms of maximizing the Canada Education Savings (CES) Grant benefit to RESP subscribers. We recommend parents and other subscribers contribute at least $2,000 to the RESP, or have made $100 yearly payments for 4 years, before age 15. If this is not done, then children are not eligible for the CES Grant if contributions are made between the ages of 15 to 17.<br /><br />There is often confusion around how much CES Grant may be carried forward if contributions to an RESP are not made in a given year. CESG amounts are allowed to accumulate (beginning in 1998) until the end of the year in which a child turns 17 (subject to the special rule above). This is good news for parents and other RESP subscribers who were not able to start an RESP right away.<br /><br />Unused CESG amounts can be carried forward for use in future years:<br /><br />1998 to 2006: Up to $400 is added to the CES Grant room for each eligible child per year since 1998 (or since birth if the child was born after 1998).<br /><br />2007 or later: Up to $500 is added to the CES Grant room for each eligible child per year since 2007 (or since birth if the child was born after 2007).<br /><br />The maximum yearly RESP contribution is $5,000 that would receive the matching basic CESG of $1,000. In other words if a subscriber were to contribute the full allowable life-time $50,000 RESP for a beneficiary of age 14 it would not be possible to receive the full $7,200 CES Grant.<br /><br />For parents eager to begin contributing to an RESP to obtain the maximum CESG we recommend contributing $2,500 per year for the first 14 years and $1,000 in year 15. This strategy enables the contributor to obtain the maximum grant amount of $7,200 ($36,000 x 20 per cent).<br /><br />Another strategy combines the above (contributions over 15 years) with an additional contribution of $14,000. Although the $14,000 would not attract the CES Grant, the extra dollars invested would maximize the lifetime contribution limit of $50,000.<br /><br />Parents who have children 10 years old should begin an RESP immediately if they are looking to obtain the full $7,200 CES Grant.<br /><br />To help parents determine the latest point at which they can begin contributing to an RESP, and still receive the full $7,200 in CESG, we have inserted the table below. It assumes that the subscriber will contribute the maximum amount possible in order to attract the maximum <a href="http://www.hrsdc.gc.ca/eng/learning/education_savings/public/cesg.shtml">CES Grant</a>.<br /><br /><table border="1" align="center"><tbody><tr><td>AGE OF SUBSCRIBER</td><td></td><td>CONTRIBUTION</td><td></td><td>CESG</td></tr><tr><td>10</td><td>$</td><td>1,000</td><td>$</td><td align="right">200</td></tr><tr><td>11</td><td>$</td><td>5,000</td><td>$</td><td>1,000</td></tr><tr><td>12</td><td>$</td><td>5,000</td><td>$</td><td>1,000</td></tr><tr><td>13</td><td>$</td><td>5,000</td><td>$</td><td>1,000</td></tr><tr><td>14</td><td>$</td><td>5,000</td><td>$</td><td>1,000</td></tr><tr><td>15</td><td>$</td><td>5,000</td><td>$</td><td>1,000</td></tr><tr><td>16</td><td>$</td><td>5,000</td><td>$</td><td>1,000</td></tr><tr><td>17</td><td>$</td><td>5,000</td><td>$</td><td>1,000</td></tr><tr><td>18</td><td>$</td><td>-</td><td>$</td><td>-</td></tr><tr><td></td><td>$</td><td>36,000</td><td>$</td><td>7,200</td></tr></tbody></table><br /><br />* CES Grant above assumes only the basic grant. Additional grants may be available from certain provinces and/or for low-income families. In some cases parents can wait until age 11 if they are receiving grants beyond the basic CESG.<br />The table provides a catch-up strategy which involves contributing $1,000 when your child is 10 and $5,000 (maximum yearly contribution amount eligible for matching CESG) each year between ages 11 and 17. This enables you to obtain the maximum amount of federal government money ($7,200).<br /><br />3) PARENTS AND BENEFACTORS MUST CHOOSE THE 'RIGHT' RESP INVESTMENT<br /><br />In a pooled scholarship plan you have no choice or flexibility with respect to the types of investments you prefer in your RESP. That's why RESP subscribers should avoid pooled scholarship plans. RESP investors must be able to decide what they want their RESP money invested in. With a 'self-directed' RESP they can do this. It's clearly the best option. Again, do not invest in an RESP you cannot easily - and without cost - transfer out of in favour of a better plan. Do not get 'locked in' to an RESP.<br /><br />Risk should be avoided throughout the life of the RESP investment. Speculative plays such as stocks and mutual funds do not belong in something as important as a child's education program. There is no need to gamble with something so important. The simple stress-free trouble-free compound interest investment is best for the RESP. Steady, reliable growth.<br /><br />Why gamble when you don't have to?<br /><br />DON'T SPECULATE --- JUST INVEST!<br /><br /><strong>DOs & DON’Ts of RESP INVESTING</strong><br /><br /><strong>DO NOT</strong> put your money into pooled ‘scholarship’ plans. Not only are they unreasonably complex, but they are fee-driven and return little, if anything, on your money.<br /><br /><strong>DO NOT</strong> speculate and take chances with volatile stocks and mutual funds. In short, do not gamble with a child’s education fund. You don’t have to gamble, you don’t have to speculate. Just INVEST!<br /><br /><strong>DO NOT</strong> put your RESP money into a fund that you cannot transfer out of easily and at no cost.<br /><br />INSTEAD:<br /><br />INVEST your RESP funds only in secure stress-free trouble-free compound interest investments. Steady consistent reliable <i>growth</i> is what you want.<br /><br />INVEST your RESP funds only in ‘self-directed’ plans that YOU control.Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com0tag:blogger.com,1999:blog-4212554829365135425.post-72200895555155570222010-08-25T15:48:00.000-07:002010-08-27T15:37:15.929-07:00More than 50% of <a href="http://www.fisgard.com">Fisgard</a>’s $232 million capital now comes from Canada’s Registered Savings and Registered Pension Plans. The rest of our capital comes from investors in the form of cash. The majority of Fisgard’s 4,000 investors invest both cash and registered funds from one or another of the following plans:<br /><br /><table style="WIDTH: 350px" border="0" cellspacing="0" summary="TFSA RRSP RESP FISGARD CAPITAL" cellpadding="0" align="center"><caption><strong></strong></caption><tbody><tr><td width="61"><div style="TEXT-ALIGN: justify"><strong>RRSP</strong></div></td><td width="289"><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1022">Registered Retirement Savings Plan</a><a href="http://fisgard.com/default.aspx?PageID=1013"></a></div></td></tr><tr><td width="61"><div style="TEXT-ALIGN: justify"><strong>SPRRS</strong></div></td><td width="289"><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1130">Spousal Registered Retirement Savings Plan</a></div></td></tr><tr><td width="61"><div style="TEXT-ALIGN: justify"><strong>RRIF</strong></div></td><td width="289"><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1131">Registered Retirement Income Fund</a></div></td></tr><tr><td><div style="TEXT-ALIGN: justify"><strong>SPRRIF</strong></div></td><td><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1132">Spousal Registered Retirement Income Fund</a></div></td></tr><tr><td><div style="TEXT-ALIGN: justify"><strong>TFSA</strong></div></td><td><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1013">Tax Free Savings Account</a></div></td></tr><tr><td><div style="TEXT-ALIGN: justify"><strong>RESP</strong></div></td><td><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1018">Registered Education Savings Plan</a></div></td></tr><tr><td><div style="TEXT-ALIGN: justify"><strong>LIF</strong></div></td><td><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1024">Life Income Fund</a></div></td></tr><tr><td><div style="TEXT-ALIGN: justify"><strong>LRIF</strong></div></td><td><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1024">Locked-In Retirement Income Fund</a></div></td></tr><tr><td><div style="TEXT-ALIGN: justify"><strong>LIRA</strong></div></td><td><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1024">Locked-In Retirement Account</a></div></td></tr><tr><td><div style="TEXT-ALIGN: justify"><strong>IPP</strong></div></td><td><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1024">Individual Pension Plan</a></div></td></tr><tr><td><div style="TEXT-ALIGN: justify"><strong>RDSP</strong></div></td><td><div style="TEXT-ALIGN: justify"><a href="http://fisgard.com/default.aspx?PageID=1023">Registered Disability Savings Plan</a></div></td></tr></tbody></table><br />The reasons are not new. Fisgard has been performing consistently and reliably since 1994. Our investors don’t like surprises; they like performance, nothing less; and that’s what they get. They want reasonable returns, security, consistent income and compound interest growth. Security – Income – Growth; and that’s what we deliver. Our investors want easy-care trouble-free investments. They want to own their investments; they don’t want their investments to own them.<br /><br />1) Fisgard’s <a href="http://fisgard.com/default.aspx?PageID=1005">returns</a> have exceeded GIC’s, term deposits, savings accounts and bonds by over 3% consistently since 1994.<br /><br />2) Fisgard is a simple worry-free investment. No sleepless nights with a Fisgard investment. It’s a healthy investment.<br /><br />3) The Fisgard investment is not subject to dramatic stock market fluctuations. We don’t speculate – we invest.<br /><br />4) Fisgard is a straight-forward income and growth investment.<br /><br />5) Fisgard has never lost capital.<br /><br />6) Fisgard has never defaulted on a dividend.<br /><br />7) Fisgard has redeemed all of its investments on time when due.<br /><br />8) Fisgard has never been late on a <a href="http://fisgard.com/default.aspx?PageID=1006">dividend payment</a>.<br /><br />9) Fisgard is a value investor. We invest only in Canada. Real bricks and mortar. No speculation.<br /><br />10) Fisgard invests only in quality mortgages secured by valuable Canadian real estate property. Hard assets.<br /><br />11) Fisgard has clearly defined investor cash-out (redemption) dates.<br /><br />12) Fisgard allows you to fix your investment time frame (set your own liquidity).<br /><br />13) Fisgard has very little debt (less than 1% of capital), so it is safe and secure.<br /><br />14) Fisgard is operated by experienced licensed professionals.<br /><br />15) Fisgard is not fee-driven. No broker fees.<br /><br />16) Fisgard’s costs are clearly defined. No surprises.<br /><br />17) Fisgard does not speculate - we only invest. There’s a world of difference between speculating and investing.<br /><br />18) Fisgard’s service is professional, friendly and courteous. We have an A+ record with the Better Business Bureau.<br /><br />19) Fisgard is relationship-oriented, not transaction-oriented. We care about our customers. They come first.<br /><br />20) Fisgard is a people company. We are <a href="http://fisgard.com/default.aspx?PageID=1123">community supporters</a>.<br /><br />To discuss a Fisgard investment call 250-382-9255 in Victoria BC or toll free 1-866-382-9255. Ask for:<br /><br />Rael Boisvert<br />Aggie Giemza<br />Dawn Paniz<br />Willa van der RosFisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com0tag:blogger.com,1999:blog-4212554829365135425.post-26376283124649627782010-08-10T15:51:00.000-07:002010-08-26T14:07:04.840-07:00PIC-A-MICWith investors flocking to safer investments such as quality CANADIAN real estate property and mortgages secured by CANADIAN real estate, interest in the Mortgage Investment Corporation ( MIC ) has grown significantly. Professional well-managed MICs are generally debt-free and deliver reasonable consistent dividends in the 5% to 7% range. They are not equity (stock and mutual fund) plays that tend to fluctuate dramatically in value, but are income and growth investments (you can either take your dividends in cash for income or you can reinvest your dividends for growth). Most MICs qualify for various Canadian Registered Savings and Registered Pension plan investment. Fisgard MIC for example, qualifies for the <br /><table align="center" border="0" cellpadding="0" cellspacing="0" style="width: 350px;" summary="TFSA RRSP RESP FISGARD CAPITAL"><caption><strong> </strong></caption></></></></><tbody><tr><td width="61"><div style="text-align: justify;"><strong>TFSA</strong></div></td><td width="289"><div style="text-align: justify;"><a href="http://fisgard.com/default.aspx?PageID=1013">Tax Free Savings Account</a></div></td></tr><tr><td><div style="text-align: justify;"><strong>RRSP</strong></div></td><td><div style="text-align: justify;"><a href="http://fisgard.com/default.aspx?PageID=1022">Registered Retirement Savings Plan</a></div></td></tr><tr><td><div style="text-align: justify;"><strong>RRIF</strong></div></td><td><div style="text-align: justify;"><a href="http://fisgard.com/default.aspx?PageID=1024">Registered Retirement Income Fund</a></div></td></tr><tr><td><div style="text-align: justify;"><strong>RESP</strong></div></td><td><div style="text-align: justify;"><a href="http://fisgard.com/default.aspx?PageID=1018">Registered Education Savings Plan</a></div></td></tr><tr><td><div style="text-align: justify;"><strong>LIF</strong></div></td><td><div style="text-align: justify;"><a href="http://fisgard.com/default.aspx?PageID=1024">Life Income Fund</a></div></td></tr><tr><td><div style="text-align: justify;"><strong>LRIF</strong></div></td><td><div style="text-align: justify;"><a href="http://fisgard.com/default.aspx?PageID=1024">Locked-In Retirement Income Fund</a></div></td></tr><tr><td><div style="text-align: justify;"><strong>LIRA</strong></div></td><td><div style="text-align: justify;"><a href="http://fisgard.com/default.aspx?PageID=1024">Locked-In Retirement Account</a></div></td></tr><tr><td><div style="text-align: justify;"><strong>IPP</strong></div></td><td><div style="text-align: justify;"><a href="http://fisgard.com/default.aspx?PageID=1024">Individual Pension Plan</a></div></td></tr><tr><td><div style="text-align: justify;"><strong>RDSP</strong></div></td><td><div style="text-align: justify;"><a href="http://fisgard.com/default.aspx?PageID=1023">Registered Disability Savings Plan</a></div></td></tr></tbody></table><br />When considering a MIC investment the following are important:<br /><div></div><br />1) Track Record and Longevity<br /><br /><div></div>Consider MICs that have good track records and have been in business for a long time, at least 12 years. At a minimum they should have experienced at least two business cycles and have experienced the highs and lows of the real estate and mortgage market. <br /><br /><div></div>2) Consistency of Dividends<br /><br /><div></div>Consider MICs that have produced dividends without interruption for several years. Be wary of MICs that have had to suspend dividends and redemptions, rendering the investor unable to get income or cash out of his or her investment. This indicates portfolio or management problems.<br /><br /><div></div>3) Predictability of Dividends<br /><br /><div></div>Consider MICs that are consistent in the amount of dividends paid to you, not high one quarter and low the next. Look for a predictable pattern of dividend returns. <br /><br /><div></div>4) Mortgage Portfolio Performance<br /><br /><div></div>Insist on proof of mortgage portfolio performance. Ask about the number and dollar volume of impaired mortgages in relation to the total mortgage portfolio, over time, and make sure you are satisfied with that level of performance. Get clear answers as to the amount of investment ‘capital’ the MIC has lost over time. <br /><br /><div></div>5) Concentration of Mortgage Investments<br /><br /><div></div>Concentration is very important. Ask management about its largest mortgages and what percentage they make up of the entire portfolio. High concentration translates into high risk. Be wary of MICs that have a high concentration of mortgage money with a particular borrower (or a particular group of related borrowers). Also be wary of MICs that have a high concentration of mortgages in a particular <i>type</i> of mortgage, i.e. land development, construction, etc. as opposed to safer finished real estate products such as single family homes. Also be wary of MICs that have a high concentration of mortgages in a particular geographical area, i.e. a high percentage of mortgages in small rural communities that do not demonstrate growth and economic stability.<br /><br /><div></div>6) Management Experience and Qualifications<br /><br /><div></div>You must be comfortable that there is plenty of professional experience and qualification within the MIC management and staff. Ask for credentials. Are management and staff properly licensed? Are they registered with the appropriate regulatory authorities? Do they have sufficient depth of real estate valuation and mortgage financing experience? How many years have they been practicing? <br /><br /><div></div>7) Better Business Bureau and references<br /><br /><div></div>Is the MIC a member of the Better Business Bureau? If not, why not? Call the BBB for information on the record of the company, complaints, etc. Ask MIC management for business references, including investors and borrowers, and follow up on them.<br /><br /><div></div>8) Redemption (cash out) Provisions<br /><br /><div></div>MICs vary in terms of cash out provisions. Be clear as to the date on which you can redeem (cash out) your investment. Avoid investing in a MIC that is vague or open-ended in terms of when you can get your money out. If it is not clear as to when you can get your money out, then don't put it in.<br /><br /><div></div>9) Regulatory Compliance<br /><br /><div></div>You should invest only in MICs that fully comply with all regulations, including being properly registered and licensed with appropriate provincial securities commissions and mortgage authorities. This compliance information is public knowledge, and there is no reason why a MIC cannot provide full information on its compliance regime. Compliance, licensing and registrations are generally available on the internet. <br /><br /><div></div>10) Types of Mortgage Investments<br /><br /><div></div>Ask about the <em>types</em> of mortgages in the MIC's portfolio. Section 130.1 of the Income Tax Act specifies that at least 50% of the MIC’s investments must be in a combination of CDIC insured deposits and/or mortgages secured by residential real estate property as opposed to commercial property, otherwise the MIC is offside of the Income Tax Act, resulting in what could be serious adverse income tax consequences. Preference should be given to MICs that have a high proportion of residential compared to commercial mortgages. Of course, you must insist on receiving current year audited financial statements. <br /><br /><div></div>11) Geographical Location of Mortgage Investments<br /><br /><div></div>Be careful of investing in MICs that lend against property located in areas that do not have economies that demonstrate growth and stability. Often this information can be gleaned from Stats Canada, which has a very comprehensive website. <br /><br /><div></div>12) Mortgage Approval Process<br /><br /><div></div>Ask management how it selects mortgages. Does the MIC have a credit committee? What is management’s mortgage lending criteria? Does management assess property value itself or does it commission outside bonded/insured professional appraisers? Choose MICs that not only have the depth of experience in management and staff to evaluate property themselves but, as a matter of caution, contract property valuation to third-party professionals, basically A.A.C.I. bonded/insured appraisers. <br /><br /><div></div>13) Early Redemption Privileges<br /><br /><div></div>Like most financial investments, early redemption (cashing out before maturity) comes at a cost. Few MICs are simply redeemable on demand. It’s hard for a MIC to function that way as its mortgages are rarely, if ever, payable "on demand". Just make sure you are satisfied with the MIC’s early redemption policy and the cost associated with early redemption. An example of an early redemption feature is Fisgard’s Compassionate Early Redemption provision. This particular feature allows an investor, upon the death of a spouse or partner, to cash in the investment prior to the maturity date without penalty. Look for these types of early redemption features in the MIC you are considering. <br /><br /><div></div>14) Dividend Statements<br /><br /><div></div>Ask for a sample of the MIC’s Dividend Statement, and be satisfied that it is clear and easy to read. There is no reason for a MIC to have a confusing or complicated dividend statement. A MIC is a relatively straight-forward investment (mortgages secured by Canadian real estate property), so its dividend statement should be quite simple.<br /><br /><div></div>15) Liquidation Value<br /><br /><div></div>If the MIC under your consideration were to be liquidated today, what would its share value be? Good thing to ask. If it is less than what you paid for the share, then ask how you are going to get all of your capital back.<br /><br /><div></div>16) Related Funds<br /><br /><div></div>A number of MIC managers handle more than one MIC. Some manage several MIC funds under one roof. Is this an advantage or disadvantage to the investor? Is it an unnecessary complication? When mortgage opportunities come to the manager, which fund is the mortgage placed in – and why? What conflicts may arise from this type of situation? Good question to ask.<br /><br /><div></div>17) Investment by Principals<br /><br /><div></div>Are the founders, directors, officers, employees, etc, invested in the fund? If so, how much? If not, why not? Do their shares have special rights or priviledges that other investors’ shares do not have? <br /><br /><div></div>18) Loans to Insiders and Related Parties<br /><br /><div></div>Does the MIC lend to its managers, directors, officers, employees or related parties? This may not be illegal, but is not a good practice, even though it may be disclosed in the Offering Memorandum or Prospectus. Definitely something to ask about, and watch carefully. <br /><br /><div></div>19) Relationships of MIC fund to MIC Management<br /><br /><div></div>Some MICs have internal management, but most have external management. Directors and officers are often the owners of the MIC’s management company as well as the controlling shareholders of the MIC fund itself. This is not necessarily a bad situation, and can even be a good situation. It is just something to be aware of.<br /><br /><div></div>20) Conflict Possibilities<br /><br /><div></div>Sometimes the MIC’s manager collects fees – finders fees or broker fees – from its mortgage <strong><em>borrowers</em></strong> while at the same time getting paid by the <strong><em>investors</em></strong> for managing their MIC investment. In short, the manager is being paid by the borrower for finding the mortgage <em>and</em> being paid by the investors for managing their MIC investment all at the same time. This should raise some important questions in terms of conflicts of interest.<br /><br /><div></div>The higher the risk represented by a particular mortgage, the higher the finders/brokers fee will be. Ask why a manager should be paid a fee by a borrower (a fee based on the level of risk) at the same time as the manager is being paid by the investors to manage their money, keeping it as secure as possible. Is this a conflict of interest? Why don’t finders fees and brokerage fees go directly to the MIC fund for the benefit of the investors?<br /><br /><div></div>There are a number of fees that managers collect on a mortgage. Here are some: <br /><br /><div></div><ul><li>mortgage application fees</li><li>processing and administrative fees </li><li>mortgage renewal fees </li><li>late payment fees </li><li>NSF fees </li><li>mortgage discharge fees </li><li>lender fees </li><li>finders (brokerage) fees </li><li>demand notice fees </li><li>foreclosure processing fees </li></ul><br /><div></div>Why should MIC investors be put at greater risk because the MIC manager collects a larger fee from a mortgage that poses higher risk? It’s a question you should ask – and insist be clearly answered. <br /><br /><div></div>[<em>At Fisgard, for example, all of the above fees go to the investors – not to the manager. This is part of Fisgard’s conflict avoidance policy.</em>]<br /><br /><div></div><br /><div></div>21) General and Specific Reserves <br /><br /><div></div>A well-managed MIC should maintain reserves for doubtful accounts and bad debts. The MIC should have SPECIFIC RESERVES set against each of its impaired mortgages and GENERAL RESERVES to cover potential losses against the whole mortgage portfolio. A reserve program is a prudent businesslike way of accounting for possible losses. You should not invest in a MIC that does not have a reserve program. With MICs that do have a reserve program, you must check and be satisfied with the adequacy of the amount in both the specific and general reserves.<br /><br /><div></div>22) Liquidity and Cash Flow<br /><br /><div></div>Some MICs are involved in mortgages on construction and development projects. These mortgages involve progressive performance advances which are amounts advanced against the construction or development from time to time as the project progresses. These periodic performance advances are called draws, and a well-managed MIC always has adequate capital available to fund these draws as they come due. If the MIC doesn’t have this capital you should be careful about investing. When researching MICs for possible investment make sure the manager proves to you that the MIC has sufficient capital resources – either cash on hand or readily available through an operating line – to fund all draw obligations. If it is not clear that the MIC can meet its draw obligations, do not invest. A MIC that cannot meet its draw obligations is in the precarious position of being sued by its borrowers.<br /><br /><div></div>23) Borrowings (Leverage) and Cash Management<br /><br /><div></div>Invest only in MICs that clearly demonstrate a long history of prudent cash management. Cash flow is everything in a MIC. It is not unusual for a MIC to have a bank Line-of-Credit (operating line), but there is a material difference between a MIC that uses its LOC for leverage and a MIC that uses its LOC for short-term purposes, such as being able to forward-commit to mortgage investment opportunities. Ideally a well-run MIC should have 100% of its capital working (earning interest on mortgage investments) and have very little in the bank, just enough for day to day operations. The MIC should have an operating line that allows it to commit to mortgage opportunities even though it may not have the money in the bank at the time. This type of borrowing is prudent, but should be used only on a short-term basis. <br /><br /><div></div>On the other hand a MIC that uses<em> leverage</em> (the spread between the rate a MIC can borrow at and the rate it can achieve on its mortgage investments) to generate its revenue should be watched very carefully, and avoided if leverage is excessive. A bank can withdraw its Line-of-Credit facility at moment’s notice, causing instant and serious cash-flow problems in a MIC that depends on the LOC for revenue purposes. Borrowing at one rate to invest at another – <em>playing the spread</em> – is a dangerous game, a bad gamble. One need only look at the on-going global economic crisis to witness the carnage resulting from excessive borrowing (leverage). Avoid investing in MICs that use excessive leverage for revenue purposes. It’s deadly.<br /><br /><div></div>24) 1st and 2nd Mortgages<br /><br />Junior (2nd) mortgages are lucrative investments, but carry greater risk and require specialized experience to be selected and managed properly. Exercise caution when considering investing in a MIC that has a high percentage of the dollar volume of its mortgage portfolio in 2nd mortgages. I stress <em>dollar volume</em> as a MIC may have a relatively small percentage of the <i>number</i> of its mortgages in 2nd mortgages, but that small number may represent a disproportionately high percentage of the MICs overall portfolio dollar volume. Be careful of that type of portfolio. A well-run secure MIC will always have a high percentage of its mortgage investments in quality 1st (senior) mortgage securities. It’s just safer.<br /><br /><div></div>25) Redemption Rights<br /><br /><div></div>Be wary of investing in a MIC that is not permitted to redeem your investment in full at any time at its discretion. This right will be spelled out in the MIC charter and Offering Memorandum or Prospectus. If a MIC finds itself in a position of having too much money and too few mortgage investments, it is better for the MIC to redeem shares (pay back your money) than for the MIC to be forced to retain excessive ‘un-invested capital’, which could be a substantial cost to the MIC, hence reducing your security and lowering your dividend return.<br /><br /><div></div>26) Insured Mortgages and Title Insurance<br /><br /><div></div>When selecting a MIC as a potential investment you should enquire as to whether some or all of the MIC's mortgage investments are insured by Canada Mortgage and Housing Corporation (CMHC), Canada Guarantee or Genworth. These are the three insurance companies that provide mortgage insurance, CMHC being a Federal crown corporation. It is unusual for MICs to carry mortgage insurance, but certain MICs may carry insurance on some of the mortgages in their portfolios.<br /><br /><div></div>You should also enquire as to whether the MIC in question carries Title Insurance, such as that provided by First Canadian Title or other title insurers. Very few MICs have such an arrangement, but certain MICs may have a contract with a title insurance company. It’s a good arrangement to have. <br /><br /><div></div>27) Registered Plan Trustee Fees<br /><br /><div></div>If you are considering investing in a MIC through one or another of Canada’s Registered Plans such as the RRSP, RRIF, TFSA, RESP, LIF, LRIF, LIRA, IPP or RDSP, be sure to confirm the trustee costs of maintaining the Plans. Some MICs offer more economical plans than others. For example, the RRSP or RRIF in a particular plan may cost $125 to open the Plan, a certain fee per contribution, and $125 to close the Plan, whereas in other MICs the trustee costs could be higher or lower. In the case of an investment such as the Tax Free Savings Account ( TFSA ) which is limited to a $5,000 contribution per year, or a regular (most often monthly) limited contribution investment such as a Registered Education Savings Plan ( RESP ) or the Registered Disability Savings Plan ( RDSP ) the trustee costs can be prohibitive. Be sure to examine these costs carefully before investing. <br /><br /><div></div>[<em>Fisgard’s RRSP/RRIF costs $100+tax per year for the primary plan-holder and $75+tax per year for the secondary plan-holder (such as the Spousal RRSP or Spousal RRIF). Fisgard's RESP costs $24 per year, and its TFSA costs $36 per year, with no set-up and closing-out fees. Fisgard’s RESP and TFSA costs are very low compared to the vast majority of MICs in Canada.</em>]<br /><br /><div></div>Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com1tag:blogger.com,1999:blog-4212554829365135425.post-85582310502361555242010-01-28T09:10:00.000-08:002010-08-26T14:07:04.846-07:00If you haven’t started a TAX FREE SAVINGS ACCOUNT ( TFSA ) --- why not?The TFSA is as good as it gets in terms of TAX FREE savings. $5,000 a year may not seem like much but, driving what might seem to be a small investment with the power of compound interest, you’ve got an investment winner impossible to beat.<br /><br />I offer the following TFSA investment scenarios. The scenarios range from the person who can contribute the maximum allowable $5,000 per year to the person who contributes $50 every 2-week paycheque 26 times per year.<br /><br /><strong>Examples of TFSA investments based on a return of 5 % per year.</strong><br /><br />1) You invest $5,000 ONCE ONLY, and make no further TFSA contributions at all. If you are 18 when you make your first TFSA investment and you let your investment compound for 40 years (until you are 58) your $5,000 will have grown to $36,490. Based on contributions totaling $5,000 this $36,490 represents a TAX FREE profit of $31,490. Averaged over 40 years your TAX FREE return is a superb 15.75% per year. Where can you get that in the stock and mutual fund market? <strong>NET - NO TAX!</strong><br /><br />2) You invest the full allowable TFSA contribution of $5,000 ONCE A YEAR every year (hopefully the 1st of January so you get your investment compounding as soon as possible each year). If you are 18 when you make your first TFSA installment and you let your investment compound for 40 years (until you are 58) your $5,000 per year will have grown to $654,206. Based on contributions totaling $200,000 this represents a profit of $454,606 or an average of $11,365 TAX FREE profit per year. Averaged over 40 years your TAX FREE return ($11,365/$5,000) is a whopping 227% per year. <strong>NET - NO TAX!</strong><br /><br />3) You contribute $50 per 2-week paycheque to your TFSA from age 18 to age 58 (40 years). Over that time you will have contributed $52,000 and your $50-per-paycheque investment will have grown to $164,612 for a profit of $112,612. This is an average yearly TAX FREE profit of $2,815 which amounts to an average yearly TAX FREE return of 216% per year. <strong>NET – NO TAX!</strong> Such is the power of compound interest!<br /><br />4) You contribute $100 per month to your TFSA from age 18 to age 58 (40 years). Over that time your TFSA investment grows to $151,781. Having invested a total of $48,000 this represents a TAX FREE profit of $103,781 which is an average yearly TAX FREE profit of $2,595. An average profit of $2,595 a year applied against a contribution of $1,200 a year amounts to a spectacular average yearly TAX FREE return of 216% per year. Not a bad return for an investment of $100 a month. <strong>NET - NO TAX!</strong><br /><br />5) You want to max out your TFSA investment opportunity of $5,000 per calendar year, but want to do this through regular periodic installments, so you contribute $192 every 2-week paycheque to your TFSA. You do this for 40 years, from age 18 to age 58. At the end of that time you will have contributed a total of $199,680 to your TFSA and accumulated a TAX FREE amount of $632,112. Having invested a total of $199,680 to accumulate $632,112 your profit is $432,432. Over 40 years this amounts to an average yearly TAX FREE profit of $10,810. If you apply your average yearly profit of $10,810 against your yearly contributions of $4,992 you’ve earned a whopping average TAX FREE return of 216% per year. <strong>NET - NO TAX!</strong><br /><br />Would someone please tell me where you can earn that kind of profit on a simple safe stress-free modest affordable investment, without undue risk and maintenance? <br /><br />Go to Fisgard’s TFSA calculator at <a href="http://www.fisgard.com/">http://www.fisgard.com/</a> and plug in <em>your</em> numbers – <em>your</em> TFSA investment scenario – and see how you can accumulate a TAX FREE investment based on what <em>you</em> can afford or what <em>you</em> want to invest. Using the magical power of compound interest you will be pleasantly surprised at how large a small investment – or a series of small investments – will grow to. <br /><br /><strong>COMPOUND INTEREST – THE 8TH WONDER OF THE WORLD!</strong>Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com0tag:blogger.com,1999:blog-4212554829365135425.post-67161157251742397572010-01-26T09:14:00.000-08:002010-08-26T14:07:04.849-07:00COMPOUND INTEREST - The 8th Wonder of the World......Albert EinsteinThe investor's best friend is compound interest. I never cease to be amazed by the power of compounding on an investment; watching pocket change become millions. There is nothing as powerful as a compound interest investment. It simply GROWS, and as interest continues to be added to interest, inexorably compounding on itself, investment growth is staggering. The compound interest investment is simple, low maintenance, less stressful, and often more economical (no broker fees, etc).<br /><br />Compounding means that you can earn interest not only on your principal, but also the interest you have accumulated. Interest on interest!<br /><br />Starting your investment program as early as possible makes a huge difference on how much wealth you accumulate; the benefit of starting to save early in life is greatly magnified by the phenomena of compound interest. With compound interest the growth of your investment is calculated not only on the amount of original and periodic investments, but also on the interest or dividends that have accumulated on the same investment. Interest on Interest! <br /><br />Simply put, compound interest forces your investment to grow much faster . . . exponentially faster! <br /><br />It’s simple. Put as much money as you can into a compound interest investment as early as possible, and contribute as often as possible, never removing your principal or interest until you have reached your investment objective. The compound interest investment – the ‘patient’ investment, the ‘quiet’ investment – will always come through for you; but you must give it time – you must give it a chance to grow. The compound interest investment is a simple low maintenance investment that has the additional important advantage of being stress-free, therefore being a healthier investment. And – very importantly – its growth is predictable, so you can confidently and securely plan your future.<br /><br />Just put a little money aside – regularly – and let it compound!<br /><br /><strong>‘THE RULE OF 72’ – A SIMPLE WAY TO CALCULATE COMPOUND INTEREST</strong><br /><br />To calculate compound interest use the ‘Rule of 72’. The Rule of 72 is simple: to find the number of years required to double your money at a given interest rate just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at 6% just divide 72 by 6. At 6% interest it will take you 12 years to double your money. <br /><br />Now run it backwards. If you want to double your money in 12 years just divide 72 by 12 to find that you will have to earn 6% on your money to double it in 12 years. At 6% you will double your money in 12 years.<br /><br />Keep your investments as simple and trouble-free as possible. Invest your cash or Registered Plan funds (RRSP, TFSA, RRIF, RESP, etc) in compound interest accounts. Why suffer sleepless nights by gambling your hard-earned cash and Registered Savings and Registered Pension Plan funds in stressful high-maintenance costly stocks and mutual funds in which you stand a better chance of losing than winning? Invest, don’t speculate. Simply place your money in a steady growth compound interest investment; then enjoy yourself and let your money grow while you go about living.<br /><br /><strong>OWN YOUR INVESTMENTS INSTEAD OF THEM OWNING YOU!</strong><br /><br /><strong>COMPOUND INTEREST – THE BEST FOR SUCCESSFUL INVESTING!</strong>Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com0tag:blogger.com,1999:blog-4212554829365135425.post-23996407399145239952009-12-06T12:57:00.000-08:002010-08-26T14:07:04.852-07:00INVESTING IN A “MIC”Of the huge and confusing market for CASH and REGISTERED funds (examples: RRSP, RRIF, TFSA, RESP, LIRA, LIF, LRIF and IPP), the mortgage investment, particularly investment in a well-managed and diversified Mortgage Investment Corporation (MIC), is as good as it gets, especially if the investor is looking for regular income with an option for growth. The advantage of the MIC investment is that it is narrowly focused and has minimal management costs and fees. Another important feature of the MIC is that it is a stable investment; i.e. rarely is there value fluctuation as the MIC must distribute 100% of its net income to investors. <br /><br />Of course, the main advantage of the MIC investment is the all-important safety of investor capital, with all MIC assets being secured by mortgages on CANADIAN property.<br /><br />It’s a simple trouble-free investment worth serious consideration by investors looking for above-average income, growth and security in a strictly Canadian setting.Fisgard Capitalhttp://www.blogger.com/profile/11646507355961091701noreply@blogger.com0