MICs have been making a huge return, after years of underestimation, and now they’re a great option for investors looking to expand their portfolio in one of the soundest investments there is – real estate. But this is just one option and it’s one of many, including donning the hat of landlord and purchasing rental property. So which one is better?
The answer, as most times in any investment scenario, is that it depends. It depends on what your needs are, and what kind of a return you’re looking for.
Purchasing rental income using equity already established in your portfolio can be a great way to see returns fairly quickly, and to really have full control of your portfolio. You’ll be able to interview applicants and set a rental fee that will provide you with good returns. In addition to that, those returns will most likely only go up as the property appreciates and with the ability to bump up the rent every year (or most years.) Rental properties may also be able to provide with tax benefits.
That appreciation and tax in particular, is something you won’t have when investing with an MIC. MICs are required to distribute profits accrued every year, and so MICs cannot be used as a way to accumulate income; meaning it won’t provide any tax benefits. Also, MICs don’t typically appreciate in value, as it’s the mortgages, and not the actual property, that’s the investment.
However, that’s not to say that MICs don’t have some advantages over being a landlord. You’ll never need to run over to your MIC to fix a leaky roof, or nag the MIC for being behind on rent. You also won’t need to be on call 24/7, and you won’t have to constantly worry about what’s happening at one of your properties. Simply put, investing in an MIC is a passive, hassle-free investment experience. You simply invest, collect the gains, and you really don’t need to do too much more, unless you want to expand your portfolio in the future.
As to which one will bring you the biggest return? Well unfortunately, that too depends and without knowing specifics such as rental rates and interest rates, it’s impossible to tell. But when it comes to these two particular types of investments, the biggest return shouldn’t actually be your first concern. These are two entirely different types of investing, and they involve two completely different types of investment styles. You need to determine what your own style is, and then the choice will be clear.