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Questions:What is a Mortgage Investment Corp (MIC)? Why should I commit money to Moskowitz Capital Mortgage Fund? What is the role of the Manager? Can I participate in a mortgage investment on a one-off basis? What is my risk in a mortgage investment? Why would a borrower approach Moskowitz Capital for financing rather than a conventional bank? Why would a borrower pay higher interest rates to the Fund? Why lend against real estate as opposed to owning real estate? How often are payments made?
What is a Mortgage Investment Corp (MIC)?
A MIC operates as an intermediary to permit its shareholder to invest, on a collective basis, primarily in residential mortgages in Canada and to receive the same tax treatment as if the shareholders held the mortgage directly. As a result, a MIC operates much like a trust to permit a flow-through of its income. As RRSPs are prohibited from borrowing funds, the MIC, due to its ability to borrow, provides an investment vehicle that is not otherwise available to an RRSP.
This is an excellent opportunity for an investor seeking to participate in a diversified and secured primarily first mortgage portfolio, an opportunity that is not widely available.
Why should I commit money to Moskowitz Capital Mortgage Fund?
Commitment ensures participation in a balanced and high yielding investment vehicle. Moskowitz Capital Mortgage Fund (“the Fund”) provides diversification through a pool of mortgage investments. The investments are well secured with real estate assets claimed as collateral. Use of leverage, if any, is modest. Despite this attractive risk profile, the Fund’s intended rate of return is similar to that earned on higher risk investments.
What is the role of the Manager?
The Fund’s Manager, Moskowitz Capital Management Inc., acts as a lender not a broker and is fully registered to do so by the Financial Services Commission of Ontario under the “Mortgage Broker Act”, a legal requirement in Ontario if one is to "deal in mortgages" in any capacity. The Manager evaluates the merits of each deal, structures the loan, oversees the investment and ensures its successful retirement. Furthermore, the Manager assumes the responsibility of recovery in the event that a mortgage investment becomes non-performing.
Can I participate in a mortgage investment on a one-off basis?
No. The rationale for the Fund is to provide a vehicle for continued participation and consistent access to quality mortgage investments.
What is my risk in a mortgage investment?
Your funds are invested in loans secured by real estate to a third party borrower. We believe that our lending is marginally more risky than conventional bank mortgages but offers a significantly higher return. Through our strict mortgage underwriting and stringent due diligence processes, risks are minimized to acceptable levels. This makes the risk return ratio extremely attractive.
Why would a borrower approach Moskowitz Capital for financing rather than a conventional bank?
Large financial institutions typically prefer long-term loans, and limit lending in certain real estate categories, creating an opportunity for lenders like Moskowitz Capital. Conventional banks are geared toward generating profits through volume, making many loans with the least amount of costs associated with deploying and administering the capital. Therefore, lending situations that are more complicated and time consuming do not fit within the banks strategy of lower margin - high volume.
Often borrowers become frustrated with the bank’s process considering it to be time consuming and cumbersome with the added frustration that they are not dealing with a decision maker. Moskowitz Capital offers a lending solution to its potential borrowers. We provide a response to mortgage applications within 24 hours and guarantee that borrowers are dealing directly with the decision maker.
Why would a borrower pay higher interest rates to the Fund?
Moskowitz Capital lends money to borrowers on a short-term basis only. Borrowers are prepared to pay a higher rate for a short period of time if the money creates an opportunity where the return on the borrowed money is higher than the cost. Typically, borrowers wish to postpone the arrangement of long term financing so that they are able to improve their real estate assets, which would in turn reduce their overall long term cost of borrowing. When the property value is increased the borrower will seek conventional bank financing, providing an exit for the Fund’s mortgage.
Why lend against real estate as opposed to owning real estate?
Conventional real estate investment involves direct ownership of property, and personal financing from a bank where one assumes the liability. Investing in a first mortgage positions you as the lender, not the borrower, and provides you with the security of being in a first position against the value of the property.
This offers downside protection in a market with falling real estate values. Should real estate values drop, the mortgage investment would not be impaired. For example, a first mortgage worth $600,000 is secured against a property valued at $1,000,000. If the market drops by 20%, the margin of safety is reduced but the mortgage’s yield remains unchanged. In other words, the borrower’s mortgage payment remains the same. On the other hand, direct ownership of real estate in a market that drops 20%, would expose the owner to loses of 50% of his equity upon the sale of the property. Therefore, if one wants to participate in the real estate market but desires protection from the potential for future price declines, invest as a lender not an owner.
How often are payments made?
Payments are made quarterly.