The solution to our income needs isn't as scary as we think

Leader from Canadian Mortgages Inc on an investment vehicle that can solve your client's income woes, and how to explain it to them

The solution to our income needs isn't as scary as we think

2020 has had a negative impact on the bond market. That might be an overstatement in the long-term, but already low rates have been slashed to the bone meaning that government bonds from most developed economies, as well as low-risk investments like GICs, are largely paying yields well below the rate of inflation. Advisors and their clients have spent the year asking themselves Scarlett O’Hara’s question at the end of Gone with the Wind: “Where shall I go? What shall I do?”

Justin Creamer, thankfully, has some answers to those questions. The Investment Fund Sales - Team Lead at Canadian Mortgages Inc (CMI) says that the real estate market offers a chance to generate income and yield in this low-rate environment. It’s an area Canadian investors already know well and one, he says, has more accessible options than ever to provide the uncorrelated returns and solid yield investors need.

“Knowing that investment vehicles such as bonds and GICs can't possibly allow a return that isn't exposed to inflationary risk right now means that alternative investments like real estate should be utilized to achieve the goal of a steady stream of interest,” Creamer says. “The new opportunity comes from alternative investment vehicles that were previously reserved for institutional, high-net-worth, and accredited investors. They've been a key foundation of many portfolios in the past, so it's a great opportunity for every investor to utilize them now.”

Creamer’s alternative investment vehicle of choice is the private mortgage investment corporation (MIC). MICs function essentially as funds comprised of mortgages lent to mortgage payors by a lender. These funds are independently managed and fit into different risk sleeves, they have the added benefit of a hard asset, in this case a home, backing them and a low cost of entry, the minimum investment is $5,000.

Most importantly for the modern investor, Creamer says, MICs still carry serious yield. The component mortgages carry higher interest rates somewhere between six and 16 percent, which, combined with low management fees, offer a significant rate of return, often exceeding what some traditional public fixed income products can deliver.

Retirees and retiring clients need higher yield, as they will require the income to facilitate their lifestyles once they stop working. Creamer recognizes that traditional fixed income vehicles backed with the guarantee of a government are easier for this older and more risk-averse demographic to understand. MICs, on the other hand, can appear foreign, newfangled, and even risky to those who have never invested in one.

Creamer says that the conversation with these risk-averse clients should come down to what they need and what they understand. He says that while MICs carry somewhat more risk than a bond with a government of Canada stamp on it, they are backed by a hard asset and a group of mortgage payors. Almost every client will know the fundamentals of the real estate market and will have a strong enough grasp of their own experience with a mortgage to understand what they’re investing in and the incentives behind its performance. As for what they need, in a world where income is so hard to find, MICs serve as the long-awaited solution.

“My experience has been that most clients, and some advisors, are a little bit hesitant to invest in MICs and alternative investments as a whole loan,” Creamer says. “They really have come to the forefront in the last eight to 10 years as regulation has allowed for the average investor to invest in alternatives, especially real estate. Those changes also allow for a regulator to oversee and allow for some safety and transparency as well. Now in today's MIC world the transparency is there to add some safety.

“Clients should start to consider MICs because we’re going to be in a very low-interest rate environment for the foreseeable future, which means that traditional fixed income options will not be able to achieve what the portfolio was designed for. Luckily, we have a great option in our market space: regulated private MICs.”

To learn more about MICs offered by Canadian Mortgages Inc, you can visit