MIC vs REIT — what's the difference for Canadian investors?

What each structure actually holds

MIC (Mortgage Investment Corporation) — a regulated Canadian entity that pools investor capital to make mortgage loans. The MIC IS the lender. Borrowers pay interest to the MIC, which distributes the interest (minus management fee + reserves) to investors. The MIC's assets are mortgage receivables — promises to pay backed by real property.

REIT (Real Estate Investment Trust) — a trust that owns income-producing real estate. The REIT collects rent from tenants, pays operating costs and mortgages, and distributes the rest to unit-holders. The REIT's assets are physical properties — office buildings, apartments, retail, industrial.

Both vehicles let you participate in real estate without buying buildings yourself. But what you actually own underneath is very different.

Income flow and tax treatment

This is the most important practical difference for Canadian investors.

MIC distributions

By statute (Income Tax Act section 130.1), MICs must distribute 100% of their net income to investors each year. Investors receive a T5 slip showing the distribution as interest income, taxed at your marginal rate.

For investors in the 30-50% marginal bracket, MIC distributions are tax-inefficient in non-registered accounts. The fix: hold MIC investments in registered accounts (TFSA, RRSP, RRIF, FHSA) where the distribution grows tax-free or tax-deferred.

REIT distributions

REIT distributions are typically a mix of:

• Return of capital (ROC) — reduces your ACB; no immediate tax; capital gains tax at sale
• Dividends — eligible dividend tax credit if from a Canadian corp
• Capital gains — 50% inclusion (or 66.67% above $250k under post-2024 rules)
• Income — taxed at marginal

Many Canadian REITs distribute 40-70% as ROC, deferring tax until you sell. This makes REITs tax-efficient even in non-registered accounts.

Risk profile

MIC risks

• Credit risk — borrower stops paying. Recovery depends on the property and foreclosure timeline (varies 6-18 months across Canadian provinces).
• Property risk — secured property declines in value below the loan amount
• Concentration risk — a small fund lending in one geography is exposed to that local market
• Manager risk — underwriting discipline matters more than any single deal
• Liquidity risk — your capital is locked up until the borrower pays off OR the fund's redemption window opens

Loss given default is limited by the foreclosure value of the property. A 65% LTV first mortgage has substantial cushion before the loss erodes investor capital.

REIT risks

• Asset value risk — building values can drop with the broader market
• Tenant credit risk — concentration in one major tenant can be a problem
• Cap rate compression / expansion — as interest rates rise, REIT valuations typically fall (and vice versa)
• Sector risk — office REITs hit hard 2020-2024; retail REITs hit by e-commerce; industrial benefited
• Liquidity risk for private REITs (public REITs trade daily on TSX)

REITs are more volatile day-to-day than MICs because public REIT units mark to market continuously.

Liquidity

MIC liquidity

• Typical redemption: quarterly, with 60-90 days notice
• Lockup: usually 12 months minimum from initial investment
• Suspension rights: most MICs reserve the right to suspend redemptions during market stress
• Tax-loss harvesting: limited — you can't time MIC unit sales like public securities

REIT liquidity

• Public REIT (TSX-listed): daily liquidity at market price
• Private REIT: quarterly or annual redemption window, similar to MIC
• Bid/ask spread: public REITs may have 0.5-2% spread; private REITs trade at appraised NAV

For an investor who might need access to capital within 12 months, public REITs are dramatically more liquid than MICs or private REITs.

Typical Canadian yields

These are illustrative ranges as of 2026 — verify current numbers with each manager.

| Vehicle | Target yield | Variability | |---|---|---| | Conservative MIC (first mortgages, 65% LTV) | 7-9% | Low | | Aggressive MIC (second mortgages, alt-A pools, construction) | 9-12% | Medium-high | | Public residential REIT | 4-6% | Medium | | Public commercial / industrial REIT | 5-7% | Medium | | Private REIT (private equity real estate) | 6-9% target IRR | Medium-high |

MICs typically yield higher because the underlying loans carry higher coupons (private lending often 8-13%) and there's no equity appreciation component — you're paid in current cashflow.

Where each fits in a portfolio

MICs make sense when:

• You want predictable current income (interest distributions)
• You hold in a registered account (TFSA, RRSP) to avoid the income tax inefficiency
• You can tolerate quarterly liquidity and 12+ month lockups
• You want exposure to Canadian real estate without buying property
• You're looking for higher yields than bank deposits or bond funds

REITs make sense when:

• You want appreciation + income (total return)
• You hold in a non-registered account and want tax-efficient distributions
• You need daily liquidity (public REITs)
• You're building long-horizon real estate exposure
• You want sector diversification (office, residential, industrial, retail)

Many balanced investors hold both — REITs for the appreciation upside and tax efficiency, MICs for the current yield in registered accounts. Typical allocations: 5-15% of portfolio across the two combined, depending on risk tolerance and income needs.

How to evaluate before investing

For MICs, see 10 questions to ask a MIC fund manager and private mortgage risks. The key metrics: funded-loan-to-deposit ratio, average LTV, 90+ day arrears rate, historical realized loss rate.

For public REITs, check FFO (Funds From Operations), AFFO (Adjusted FFO), debt-to-asset ratio, occupancy by property, and weighted average lease term.

For private REITs, demand audited financials, independent NAV process, redemption history during stress periods, and reference checks with existing investors.

What to do next

1. Determine your goal — current yield, appreciation, or both
2. Choose the right account type (registered for MIC, either for REIT)
3. Review the MIC or REIT's documentation thoroughly (offering memorandum, audited financials)
4. Check that the manager's track record covers at least one downturn
5. Start small (5-10% of intended allocation), scale after a year of experience
6. See accredited investor rules — private MICs and REITs typically require accreditation

Both MICs and REITs are real-estate-adjacent investments. They're not the same as owning rental property — but for most Canadian investors, they're a far easier path to real estate exposure with professional management and built-in diversification.