Why the questions matter
A MIC's offering memorandum is the legal document, but it's 60-200 pages and won't answer the questions that actually predict the fund's behavior in stress. The questions below are designed to get specific numbers and concrete answers from the manager — not general reassurance.
Before scheduling a call with a MIC manager, prepare these questions in writing. Take notes. If you can't get clear answers on the top four, walk away.
The ten questions
1. What's your funded-loan-to-deposit ratio?
What you're asking: Of the investor capital we've given you, what percentage is actually deployed in mortgage loans (vs sitting in cash)?
What you want to hear: 85-95%. Above 95% means little reserve for redemptions. Below 85% means cash drag — investors are earning the bank deposit rate, not the mortgage rate, on the un-deployed portion.
Red flag: “Most of our capital is deployed” without a specific number. Or a number that's been suspiciously stable across years (suggests the cash isn't really being deployed but reported as if it were).
2. What's the average LTV across the book?
What you're asking: Across all your loans, what's the average loan-to-value ratio at origination?
What you want to hear: 65-75% for a first-mortgage-focused fund. 75-80% for a fund with significant second mortgages. Above 80% is high-risk.
Red flag: An average above 80%, OR a refusal to give a specific number, OR the LTV is given as “loan to appraised value” without verifying that appraisals are independent (some funds inflate appraisals to fit lower stated LTV).
3. What's your 90+ day arrears rate?
What you're asking: What percentage of your loan book is currently 90+ days past due?
What you want to hear: Under 3% in normal markets, 3-6% in stressed markets. Industry-wide private mortgage data suggests 2-4% is typical for well-managed funds.
Red flag: Vague answers (“our arrears are low”) or numbers that look too good (under 1% in any market is suspicious — either the book is small or the reporting isn't accurate).
4. What's your historical realized loss rate?
What you're asking: Over the life of the fund (or last 5-10 years), what percentage of loan principal has been written off after foreclosure recovery?
What you want to hear: Under 1% annualized for a conservative first-mortgage fund. 1-2% for moderate. Above 2% suggests aggressive underwriting.
Red flag: Manager only gives default rate (which doesn't account for recovery) rather than realized loss rate. Many MICs have 3-5% default rates but recover 80-95% via foreclosure, producing 0.3-1% realized loss rates.
5. How is the fund audited, and how often?
What you're asking: Who audits your financials? When was the last audit? Can I see the report?
What you want to hear: Independent annual audit by a recognized accounting firm. Audit completed within 4-6 months of year-end. Audit report available to investors on request.
Red flag: No audit, or auditor is a small unknown firm, or audit reports aren't available, or there are qualifications/material weaknesses noted in recent audit opinions.
6. What's the distribution structure?
What you're asking: How are distributions calculated and paid? Are there share classes with different rights? Monthly vs quarterly?
What you want to hear: Pro-rata distribution of net income, paid monthly or quarterly. Share classes (if any) clearly distinguished by liquidity terms or investor type. No exotic preference structures that subordinate certain investors.
Red flag: Promised “guaranteed” distribution rates regardless of fund performance (this isn't how MIC economics actually work — distributions track net income), or distributions paid out of subsequent investor capital (Ponzi structure).
7. What's the redemption policy?
What you're asking: How and when can I get my capital back? What's the notice period? Can you suspend redemptions?
What you want to hear: Quarterly redemption window with 60-90 days advance notice. 12-month initial lockup. Suspension rights only in specific market-stress conditions, with clear documentation of what triggers suspension and how it's lifted.
Red flag: No documented redemption policy, OR suspension rights so broad the manager can suspend at will, OR a history of suspensions during otherwise-normal market conditions.
8. How do you handle a soft market?
What you're asking: What's your playbook if defaults rise, property values decline, or new origination slows?
What you want to hear: Specific reserves built (1-3% of book), distribution policy that can adjust downward, conservative origination criteria tightened during stress, clear communication cadence with investors, willingness to share specific past examples of soft-market navigation.
Red flag: “That hasn't happened to us” (every fund operating 5+ years has seen at least one soft market) or vague reassurances about “disciplined underwriting”.
9. What's your underwriting team's experience?
What you're asking: Who actually underwrites your loans? How long have they been doing it? What's the team's background?
What you want to hear: At least one underwriter with 10+ years experience in Canadian private mortgage lending or commercial banking. Documented underwriting policies. Independent appraisal review. Insurance verification process.
Red flag: Underwriting team is the fund's sales team (conflict), or the broker-arranger network is also originating loans without independent review, or no specific staff named.
10. Can I see a sample loan tape?
What you're asking: Can I review an anonymized list of your current loans with key metrics — LTV, geography, property type, status?
What you want to hear: Yes, here's an anonymized Excel file showing each loan with: loan amount, LTV, property type (single family, multi-residential, commercial), province, term remaining, status (current, 30 days, 60 days, 90+ days, foreclosure).
Red flag: Refusal (“we don't share that”), or only aggregated statistics (no loan-by-loan view), or a loan tape that's been so heavily redacted it's not useful.
Bonus questions worth asking
What's your management fee structure?
Typical: 1-2% annual management fee + 10-20% performance fee above a hurdle rate. Excessive: 3%+ management fee, or performance fees that take a large share of yield.
Who owns the manager?
If the manager is owned by a broker or developer, conflicts can be substantial. Independent manager ownership is preferable.
What's the related-party loan policy?
Many MIC failures involved excessive loans to related parties (manager-owned developments, family-connected borrowers). Look for a clear policy capping related-party exposure (typically under 10% of book).
Can you connect me with 2-3 current investors?
A confident manager will introduce you. A reluctant manager either has unhappy investors or hasn't built investor relationships.
Red flags that should make you walk away
- Vague or evasive answers to specific number questions
- No audited financials or audit qualifications
- Distributions that look too consistent across market cycles (suggests they're paid from new investor capital, not loan income)
- No documented redemption policy or unlimited suspension rights
- No investor references offered
- Manager refuses to share loan tape even anonymized
- License or registration issues — verify with FSRA / equivalent provincial regulator
- Pressure to subscribe quickly — “deal closing this week” tactics are a red flag
- “Guaranteed” returns — no MIC distribution is guaranteed; they fluctuate with net income
What “clean” looks like
A high-quality Canadian MIC manager will respond to your due diligence with:
- A clear, dated fact sheet (1-2 pages)
- The most recent audited financial statements
- An anonymized loan tape
- A redemption policy you can review
- References from 2-3 current investors
- A clear conflict-of-interest disclosure
- The manager's securities and mortgage broker license numbers
- A 30-60 minute call with the principal, not just sales
If you get all of that on initial inquiry, you're dealing with a serious operator. If you get pushback on any of it, that's information too.
What to do next
- Identify 3-5 MICs that match your goal (yield, liquidity, risk)
- Email each manager with the ten questions above before any sales conversation
- Score the responses on specificity and substantiation
- Verify license + registration with FSRA / provincial regulator
- Request the audit report and loan tape
- Have a 30-60 minute call with the principal (not just sales)
- Ask for investor references and call at least two
- Start small (5% of intended allocation) for the first 12 months
- See private mortgage risks and MIC vs REIT for context
Canadian MIC investing offers real yield premium when you choose well. The ten questions above separate the serious operators from the salesy ones. Take them seriously.