Real estate can do more than keep the rain off your client. It can form a solid foundation in an income portfolio, shelter your client from inflation, and smooth volatility.
There are a range of options from market listed REITs, to direct investment and pooled funds assembled by the advisor; they each have unique characteristics. In this package, we explore the basics of adding the asset in a portfolio, exchange traded real estate investments, implications of holding U.S. property, and the perils of joint ownership.
But first, the story of an investment team that leads the pack in commercial mortgage investments.
At first it might seem that 2007 was a most unfortunate year to launch a mortgage fund. Asset backed commercial paper offerings began to implode mid-year and anything with the word mortgage attached to it became tainted in the eyes of investors.
Thanks to the 2008 market crash sparked by the U.S. housing bubble, real estate investments have lost some of their luster. Yet to paint both the residential and commercial real estate sectors with the same brush would cause advisors to overlook the unique benefits offered by commercial real estate investments.
For investors, finding an investment that keeps up with inflation is serious business: the cost of living just keeps rising. An investment that captures the rate of inflation in its return is a necessity.
With the real estate market booming across the country, it may be hard to ignore the capital appreciation aspect of real estate investments. But for many institutional portfolio managers, real estate is a core holding rooted firmly in the fixed income side of the asset mix.
The addition of real estate investments can enhance the diversification of a portfolio. But introducing a new asset class to the mix takes some finesse to avoid overwhelming investors with too many products. It also requires some “know how” to find the right investment.
It’s hard not to be impressed by the performance of the residential real estate market over the past several years, particularly in Western Canada, where prices seem to be going nowhere but up.
Similar to a true gold bug’s aversion to mining stocks and preference for physical bullion, institutional real estate investors know that REITs are far too closely correlated to the equity markets on which they are listed. For these managers, nothing beats the real thing: a portfolio of physical real estate holdings.
The aftermath of the Great Recession has seen the rise of income-generating securities as the investment of choice. Whether it’s bonds, convertible debentures, preferred or high-yield equities, investors are gravitating towards income for safety, stability and returns.
We started referring to bad stock market years as Annus Horribilis at the end of 2001. But bad times are a necessary precursor to good ones, and with a bit of luck and planning, we’ll soon see our Annus Mirabilis (year of wonders).
It’s 2011 and the new distributions tax relating to flow-through entities, including income trusts that existed on October 31, 2006, now applies.
Everyone knows the old adage about the three most important things in real estate, but when it comes to real estate securities, “location, location, location” is not so much repetition but a call to diversification.
Earlier this week, Calgary made headlines as recording the second coldest temperature on the face of the earth, second only to a weather station at the South Pole. Is it any wonder that many Canadians are casting a wistful eye toward the sunny southern states?
In May 2001, the U.S. Congress passed the Economic Growth and Tax Reconciliation Act, which will do away with that country’s estate tax over the next 10 years. Before you and your clients break out the party hats, however, it’s important to take note of two key points. First, realize that the tax will be only removed gradually. Second, understand that, if the legislation is not renewed, the U.S. estate tax will return—in full force at a top marginal rate of 55%—on New Year’s Day 2011.
Lower United States property values and a stronger Canadian dollar have led many Canadians to consider purchasing their dream vacation properties in the southern U.S. However, while owning U.S. vacation property provides a great escape from the often harsh winters of the great white north, it also exposes Canadians to the U.S. estate regime that eliminates a number of estate tax planning options once the purchase is complete.
Joint ownership of property is a popular estate planning tool. If a property is held jointly with right of survivorship (as opposed to, for example, as tenants in common) when the first joint owner dies, the surviving joint owner in the normal course automatically becomes the owner of all of the property.
Joint ownership is nothing new. In fact, it’s as common a practice as naming beneficiaries in registered plans and life insurance. Still, in this day and age, the joint tenancy snafu can be one of the biggest traps in personal financial planning.
Moving property from sole ownership into joint ownership with a right of survivorship is a particularly seductive means of reducing exposure to probate taxes. It can often be done quickly and relatively inexpensively. However, such a transfer can represent a dangerous income-tax trap.
Holding property jointly has long been called the “poor man’s will”—a way for a person to transfer wealth on death without spending the money to draw up proper documents. It’s also an appealing way for married couples or parents to minimize probate taxes in provinces where rates are high.
Many parents are choosing to hold property jointly with one or more children with a right of survivorship. The goal is to reduce probate taxes and facilitate estate administration. If the parent dies first, the child or children will own the property, without exposing that jointly held property to probate taxes or to the probate process.