I understand that the terms of the IPU imply your willingness to fix the price, but if ROC is more than what CCA alone can produce, there is a question of your ability to fix the price.

At 6%, CCA itself declines at a rate of 6% per year in dollars. If there is 9.25% cash income to distribute, how can you have enough non-cash expenses (depreciation) to offset all the income to make it 100% ROC? You may have 25%, even 50%, ROC, but if it is 100% ROC, the price can’t be fixed.

Sorry FrugalTrader

Will you explain the accounting alchemy that transforms 100% rental income into 100% ROC for IGW REIT?

Just to clarify, this isn’t a MIC – its a term investment, the underlying asset is a REIT – here’s a link to the information on it http://www.league.ca/pdf/IPUnit-highights-booklet.pdf – note that the rates will be changing on or about June 9th or 10th so the brochure will be updated so anyone interested can contact me for the new rates (one of the new rates will be a 5yr term @ 9.25%)

By the way – would your name happen to be Jordan Frenkol?

Distribution wise, the distributions from a MIC are deemed to be 100% interest income. with both Public REITs and Private REITs, you will find that the composition of their distributions are Return of Capital (ROC), Interest Income and Capital gains – composition varies by company – I work for a company where the composition is 100% ROC – many people are under the understanding that ROC means that they are getting a portion of their capital back. Not true when it comes to REITs. Its is an accounting strategy that allows the company to convert interest income into ROC. When comparing distributions, you need to look at what your after tax return is (i.e. MIC vs. REIT)

If I can offer you a REIT with a 9.25% yield and where the distribution is 100% ROC, would you be interested?

REITs don’t always yield more than MICs. Before the crash from 2007 to 2008, few REITs had a yield of 8%. Also, you have to pay commission to buy REIT shares, but not to buy MIC shares unless within a registered account. MICs don’t pay advisors.

I invested in REITs through real estate mutual funds. I got out at the top near the end of February 2007, and never looked back. For the past year, I have invested in a MIC that pays 8% with no volatility, and I’m happy with it.

Here’s my quick story. I started buying RSPs out of college and tried SDRPs through a TD Waterhouse account. My performance was poor to say the least. I then transfered my RSPs to a financial planner that my family knew well (the guy is older, has done it his whole life and quite well off). I found mutual funds to be very benign and the performance was below my expectations (and excuses plentiful and complicated). During the same period, I invested my non_RSP savings in real estate (I bought a rental property in Chilliwack, BC) and made a nice chunk of change in the four years that I held it. This SOLD me on real estate as an investment vehicle. I wanted out of mutual funds, stocks or anything that I didn’t really understand (try reading a mutual fund report).

So I called a long time friend that had moved to Edmonton (who I knew was very smart and savvy in real estate). I told him my story and he said, “we’re starting a MIC” … that was in 2007.

Fast forward to 2009 and our MIC is up and running. It’s a young fund and yet the partners are experienced (not I mind you… but I’m no slouch and I’m getting up to speed fast! Plus, I love telling my story to potential investors). I appreciate Rory Campbell’s comments on this string and agree with his comments about transparency and full disclosure – something that we’re passionate about in our MIC.

I just want to share my “gut thoughts” on investing (and especially in regards to investing in a MIC) … First off, we all know there are plenty of investment products in the market and all have their pros and cons. I like MICs because I understand how they work (and I like the returns they provide to investors). Some of the cons that FrugalTrader speaks of are only cons if the MIC is managed poorly… I’d say that “managed poorly” pertains not just to a MIC but to public and private companies in any market. I say, do your research on whatever product/vehicle/stock/company/fund/you_name_it you’re considering and get the real goods. If you’re considering a MIC, talk to the men and women that are running it and like Rory says, walk if you don’t like what you’re hearing. I know when it comes to “big” investment products there isn’t really anyone to talk to (that REALLY knows the details).

I think I’m already getting long winded so I’ll keep checking back and perhaps chime in with more of my thoughts and comments later.

You’ll notice that in the first few paragraphs these aren’t mortgagees that can qualify for traditional mortgages at or near posted rates, let alone lower than posted rates.

These could be 2nd mortgages, bridge loans, and first mortgages to people whose credit score is so low as to qualify for only higher rates from lending institutions still willing to take a chance.

Can Roy, Danial, Aniz or anyone else explain this to me?