Private REITs

If you followed the previous posts and are thinking about investment return marginal tax rates (that maximize what you keep relative to the government), are concerned with low yields (that may not cover inflation), are struggling with MERs (that can eat up a large part of your yield), and are looking for low volatility relative the publicly traded stocks or ETFs (that may keep you up at night), whew!.... then private Real Estate Investment Trusts (REITs) may be just for you.

On taxation, private REIT distributions are typically taxed as return of capital, meaning that your tax rate today is zero.  Of course any return of capital lowers the cost base of the investment and translates into capital gains when you sell the REIT units.  Still, the marginal tax rate on capital gains is pretty favourable to the "Other Income" taxed as interest, say, from a MIC.  So tax advantages of private REITs are nice in non-registered, taxed accounts.

On yields, several private REITs are certainly high enough to cover inflation.  Centurion REIT boasts a distribution of over 7%.  The Skyline Apartment REIT and Skyline Commercial REIT have distributions of 9%.

On MERs, Centurion and Skyline do not have management fees deducted from the yields noted above - of course there is management of properties, and there is plenty of marketing that goes on from online ads, and recently radio ads for these.  But these do not come off the top of the 7-9% earnings.  If you buy directly from the companies, there is no management fee.  If you want to hold these in a registered account, you have to consider that opening a self-directed trust account could cost you $150 per year, that is like cutting 3% off the earnings on a $5000 investment, so consider the amount invested when holding these in registered accounts.

On volatility, REIT unit values are appraised internally based on the value of all the holdings.  There are no market spikes or drops.  And since the value of investment real estate is not emotionally driven, or run up by new money coming into a community, prices are stable.  Over time unit values tend to go up due to inflation as rents increase and the real estate value increase.  So you get 7-9% return plus capital appreciation over time.

Of course there can be aspects of private REITs that you view as a 'downside'.  Some have a lock in period with penalties for early withdrawal, some don't.  You have to be an accredited investor (typically high net worth) to qualify to invest in these and there are minimum investment amounts to consider.