[...] Real Estate Secret Info » Blog Archive » Comment on Canadian Real Estate I… wrote an interesting post today onComment on Canadian Real Estate Investment Trusts (REITs) by Real …Here’s a quick excerptFinest Real Estate Info » Blog Archive » Comment on Canadian Real Estate I… wrote an interesting post today onComment on Canadian Real Estate Investment Trusts (REITs) by …Here’sa quick excerptFinest Real Estate Info » Blog Archive … [...]

[...] unknown wrote an interesting post today onCanadian Real Estate Investment Trusts (REITs) | Million Dollar …Here’s a quick excerptReal Estate Investment Trusts or REITs are companies that invest in real estate assets and distribute their income (primarily from rent) to their shareholders. The distributions are usually in portions of dividends, return of capital, … [...]

[...] invested in growth stocks or equities. My portfolio includes real estate (both personal and through REITs), income trusts, mutual funds (though fewer than before), equities and cash. I would be remiss if [...]

Do you know anyone that has posted a step-by-step process to analyse the Canadian REITs for long term purchases? I’m finding it more difficult to know what metrics I should use for analysis.

[...] http://www.milliondollarjourney.com/canadian-real-estate…; [...]

[...] Canadian Real Estate Investment Trusts (REITs) (24 comments) [...]

[...] Financial Jungle and Million Dollar Journey have each written on different types of income trusts (REITS, Business Trusts, Oil and Gas and Pipelines) while I have blogged on general financial ratios one [...]

A lot of investors consider income trusts a big no-no or even a taboo subject. There are many reasons for this, among them include the fact that a lot of income trusts pay more in distributions than they receive in earnings. The biggest reason for their recent demise is that they will be faced with corporate taxes in a few years, thus a likely decrease in distributions. There is one sector within the income trust world that managed to dodge the new federal tax rule, and those are Real Estate Investment Trusts (REITs).

Above I stated that there was a new tax coming to INCOME TRUSTS, then at the bottom, I said that REITs will avoid them. As of right now that is. Basically, income trusts (except reits) will face corporate tax in 2011. Please read the article on TD water house that I posted above.

1. There is a long history of REIT’s and they exist in the US as well. They are generally
accepted both in Canada and internationally.

2. They help promote liquidity in real estate investment, which is useful since it is so illiquid. For example, in the 80’s, quite a few mutual funds invested in real estate, but all of them were forced to suspend redemptions in the early 90’s. This is because they were being redeemed in mass – much faster than the underlying real estate could be sold. By the mid-90’s, I don’t think a single real estate mutual funds was left.

Some REIT’s survived this period. Investors held them despite years of declines because they were still getting some cash flow.

All other equity investments don’t have this liquidity problem, so they don’t need the same help.

Ed

Where can I find more information about thos new taxes that they may be facing?

http://www.tdwaterhouse.ca/insights/jan07/article1.jsp

Speaking of which is their a link or something where I can learn more about that new tax and how it could impact the value of the REIT?

[...] This blog builds upon an initial post by Financial Jungle about income trusts. Financial Jungle and Million Dollar Journey and I have agreed to cross-blog on this topic this week. Here is Financial Jungle’s post on business trusts and MDJ’s post on REITs. As an investing structure designed to pay out steady cash to investors, an income trust is ideal for people who require cash flow greater than capital appreciation. But, herein, also lies the problem. An income trust is one of the few investment vehicles where the investor may be conditioned to look at the distribution more than the profitability of the company. [...]

[...] I posted earlier this week about Canadian Real Estate Investment Trusts (REITs). Thicken My Wallet, Financial Jungle, and Canadian Capitalist has continued this theme with informative articles about various types of Income Trusts and how to pick them. Here are the articles: [...]

If you hold RioCan outside of RRSP and live off the distribution, only half the distribution is taxed. If you hold RioCan inside RRSP and live off the distribution by withdrawing from RRSP, 100% of the distributions is taxed.

The new tax rule won’t affect non-registered investors, because dividend tax credits will offset the lower distributions. This is especially true for Return of Capital because they are not taxed regardless if RioCan is exempted.

In summary, trusts with high Return of Capital ratios should be held outside RRSP. Save your precious RRSP room for tax-inefficient securities like bonds, US dividend-paying stocks and trusts with high proportions of interest incomes such as Bell Aliant. If I hold RioCan outside RRSP, I’m indifferent whether RioCan is exempted or not from the new tax rule.

Mike

The earnings in REITs are abitrary lowered, because they depreciate appreciating assets when filing for taxes. That’s my understanding.

For example, they may depreciate a building, even though:

- The replacement cost is higher due to rising labour and material costs.
- The land value is appreciating.

With regards to corporate taxes, REITs (that are primarily Canadian based), are exempt. However, all other income trusts will face corporate tax in a approximately 4 years.