Tuesday, 26 August 2014

I just bought $152,669 in REITs on margin.


So I have been kicking the idea around for a little bit and today I made the move to sneak in on ex-dividend dates on all these holdings since these Canadian Real Estate Investment Trusts (REITS) all share the same monthly payout schedule.

What are REITs or Real Estate Investment Trusts?
They are basically stocks that invest into real estate directly. They hold many different types of real estate like apartment buildings, shopping malls, office towers. Reits are highly liquidable and offer high yields but are prone to rising interest rates and real estate markets as well as occupancy problems. A good high quality Reit often will have long term leases with business such as banks or large chains like Walmart that provide very steady income.

First off this is a risky move and not recommended to any sane investor. Yes I am still crazy. Even worse I bought these all on Margin at 3% interest.

After much reading and analyzing certain REIT stocks I decided to jump in. REIT levels are still off their 2013 high and the trend is showing a good upswing. Interest rates are destined to be low for the next couple years as well. I plan on holding this for at least a year and see how it goes but hey you never know. Hopefully I will get some capital appreciation as well as some sky high yield with this play.





BTB-UN.TO BTB REIT UNITS 4.90 6.90 8.52% - .42
HR-UN.TO H&R Real Estate Investment Trust 23.23 19.69 5.79% 1.14 1.35
REI-UN.TO Riocan Real Estate Investment Trust 27.14 11.65 5.18% 2.31 1.41
AX-UN.TO Artis Real Estate Investment Trust 16.02 19.30 6.75% 1.02 1.08
CUF-UN.TO Cominar Real Estate Investment Trust 19.58 9.89 7.50% 1.94 1.47
DRG-UN.TO DREAM GLOBAL REIT 9.53 - 8.39% - .80
RMM-UN.TO Retrocom Real Estate Investment Trust 4.48 - 10.02% 0.37 .45
D-UN.TO Dundee Real Estate Investment Trust 29.06 - 7.70% 3.24 2.24


Average Yield                                          7.57%
Forward Yearly Dividends                 $11,562
Monthly Dividends                                  $963
Monthly Dividends after margin cost    $588





As you can see yield is quite high. Some are higher risk than others with some smaller Reits like RMM.UN $336.4 Million market cap ranging up to the largest in Canada with REI.UN with 8.3 Billion market cap. All these companies have a good history of payout as many have over 20 years in consistent monthly payouts.

So crunching some numbers these buys of $152,669 of Reits will bring in a 7.57% yield at $11,562 in forward dividends or $963.50 paid monthly but since margin interest is at 3% that I borrowed at I have $149,894 debt which will cost me $4496 a year or $374 a month. This should hypothetically leave me $7065 a year or $588.75 a month after margin interest costs.

I will continue to pay down my $152,669 at 3% margin rate account with the payout proceeds every month to increase the difference I take home.

I will update my holdings but I will keep this batch of Reit stocks away from my regular account as so it can be monitored separate.

So come join me and watch me lose all my money with these methods or watch me grind forward to a billion!


Disclaimer: Do not trade like me and lose all your money and cry to me after. I am no professional, I am just a regular guy that can hardly spell . Do your own research and dont follow anybody blindly on the internet because it a dangerous place and you might get hurt. Plus I dont take well to cry babies. Take your losses on the chin and man up and dont blame your own mistakes on others.


74 comments:

  1. Hmm nice move. I have been watching REI.UN for the last few days and want to add to my position. Of course, I am using my own funds and the transactions will be paltry compared to yours. But I like the current valuation. I havent explored the other ones - will have to check them out.

    Best wishes with your investments
    R2R

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    1. Yeah REI and HR is the best out of the bunch in my opinion but the yield is the lowest so there is a toss up there. There is quite a few decent Reits out there if you are looking for a boost in yield.

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  2. I don't use margin so it's always interesting to see people executing trades with margin.

    We own quite a few of these REITs, REI, HR, and Dundee. I looked at Artis and Cominar for a while but decided that we already have too much invested in REITs.

    I'm assuming you're holding these in regular account? If so are you taken the dividend tax rate into return calculation?

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    1. Yes these are in a regular account. I am not taking the tax rate in account. Will tally up when tax time comes around.

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  3. I'm about to do the same thing as you in the next little while...just waiting for a good entry point...with $100k or so

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    1. Let me know how it goes. I was getting ancy with ex date coming tomm.

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  4. LOL always nice to see the Divs roll in! Just curious, which broker are you with?

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    1. I primarily use TD bank. I also use scotia Itrade and BMO investorline. I have been looking into interactive brokers due to their even lower margin rates.

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  5. your bronzed ones are bigger than bowling balls. Cheers

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    1. I am a pretty reserved guys compared to most but when it comes to money. Hey watch out!

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  6. AG,

    Damn you are aggressive! First the Apple options, now leveraged REITs. I love it! Keep kicking ass!

    MDP

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    1. Its all good fun. Until somebody loses an account lol. We will see how I land.

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  7. Nice purchases. I love REITS. I hold REI.UN and AP.UN and a couple others. Do you DRIP any of your REITs? I like how companies such as Riocan give discounts to existing shareholders. This allows investors to beat the market every month when dividends are distributed. I think Riocan has something like 3.1% discount. It's not much, but if we can buy new REI.UN units cheaper than what everyone else in the market is paying for then that's pretty good already :)

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    1. I dont drip at all but looking into it. Cominar does a 5% off drip which looks tasty. News just came in they are acquiring 1.5 billion in assets to make them the 3rd largest Canadian Reit. we will see ho this affects my shares tomorrow. Crosses fingers as trades are halted!

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  8. A-G,

    Aggressive way to go about it. Wish you the best of luck. I know you didn't get to where you're at by sitting around, so I'm sure you've done the math and you'll be fine either way. :)

    Best wishes!

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    1. You never know how things will go but being afraid to make a move is a path of continued disappointment. Hey its just money. I win I win but if I lose I lose. No biggie. Life moves on!

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  9. WoW! I'm going to live vicariously through you for awhile and watch and learn. Kudos!

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    1. Yes hope u got some good popcorn goin!

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  10. Hi AG,

    Really a dare move over there - trading on margin. I wish you all the best. I'll be watching closely so that I can pick up a tip or 2 with the way you invest. Kudos to you!

    Best Wishes.

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    Replies
    1. Could be tragic or could be a decent gain. I might even chicken out for all I know. Enjoy the ride!

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  11. How do you plan to track your margin interest regarding return of capital (ROC) portion of REITS?

    If you plan to repay your loan with the ROC, the remaining loan is still deductible.

    However, if you spend the ROC, part of the loan is not deductible anymore.

    See example here (not my site): www.advisor.ca/my-practice/investment-loans-and-interest-deductibility-be-mindful-of-roc-99887

    "Where borrowed money is used to invest in securities that pay ROC (whether through Series T distributions or other types of ROC-paying investments or as part of a systematic withdrawal plan that returns capital as part of its cash flow), it is important to understand how ROC impacts interest deductibility."

    ReplyDelete
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    1. I have my accountant keep track of everything in my trading accounts. I meet with him quarterly. Yes it cost big bucks to have a full service accountant but as an entrepreneur it is vital to have someone good on your side. I had him look at my account before the REIT move and he gave me the green light and said he will work it out. I have been with him for a while and never had any trouble with stocks before. Actually things got hairy once when I invested into a private placement penny mining stock that was a bit shady and I took over 10,000% gains and exited without proper records.

      As my understanding each REIT has a different ROC structure and as the REIT ages it becomes more tax inefficient depending on the REIT. Thanks for the available link as taxes is definitely not my strong point and there is some great info on that sight.

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  12. Wow , you have got some big balls haha. Very interesting and I will be tuning in to see how thing go. Best of luck!

    CD

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  13. Thanks for dropping by buddy. Lets see how it swings!

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  14. Hi A-G,

    Wow, that's an aggressive move but I like it. I wish you luck and I'll be watching to see what happens.

    Cheers!

    ReplyDelete
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    1. winner winner or chicken dinner or mac and cheese for a couple years lol

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  15. Good luck with the margin play! Not something I would personally consider at this point. Question though, do you not feel like you are over-allocated in real estate given you home is a large part of your net worth plus having a rental property?

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    1. Yes I agree. I am overly allocated in Real estate. But there are a few exceptions. My commercial warehouse is on a long term lease of 3 years with option to renew and prices are pretty low on them right now so there will be not too much movement on price there with a steady income stream. My house I plan on downsizing or building a new home and looking to pull out at least 300k from. The REIT play could be a short term thing ,if I see some decent gains within the year I might just jump out.

      Overall Yes I am heavy in it but with different type classes at least I am somewhat diversified in that sector.

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  16. I currently own two of those REITs which are Cominar and Dundee. I previously owned Whiterock which was acquired by Dundee and Canmarq which was acquired by Cominar. The yield is good and it is great to see it hit the account every month.

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    1. Yah Cominar just recently bumped up their dividend. Pretty damn bullish for a 7.6 % yielder Reit. Commercial real estate in Canada has lagged residential and their still might be some value left there.

      Delete
  17. Wow, 3% is a fantastic interest rate! Is that rate fixed for a current time frame? And if so, how long and do you know what the future rate will be?

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    1. Big part of my decision was the low interest rate. It scheaper than a home equity line of credit. The bank offers it to household accounts over 500k. They have offered the rate since 2012 and near term 1-2 years it seems like it will hold there.

      After researching other banks margin rates I found a even lower rate through interactive brokers at about 2.75% but it is not significant for me to switch from TD bank for it as I am not sure how long I will need the margin for.

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  18. Asset grinder, i have been doing the same thing for a few years now. It has worked well and you can make money doing it.

    Since I trade in USD, I borrow at 1%. Borrowing at 1%, there are a multitude of investments that work. There is an advantage to your broker versus the bank. The broker will let you borrow up to 4X your collateral, using the risk based model

    I invest in REITs , REIT preferreds and a few common stocks. I only buy the highest quality companies.

    sixfiginvestor.com

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    1. Thanks for the insight. Will look into your methods and site.

      Delete
  19. I had previously done something similar with some high growth dividend stocks that were paying a nice yield. I bought heavily on margin. Then the GFC happened, dividends were cut and prices fell. These days I still maintain some margin, but it's a fairly small proportion of my overall investment ~15%. Best with the strategy... it can work... provided there are no black swan events round the corner!

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    1. Yah I wouldnt put a big part of my net worth into margin plays. Just a small fraction. Gotta be ready when things happen and not to get crushed.

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  20. Wow.....gutsy move, hopefully it works out for you. With the low interest rate it likely makes sense. I own Rio and love the management and their long term strategy. Here in Calgary I personally see their properties daily and they are doing well.

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    1. Yah Love Rio Can as its my favortie Reit. See their buildings everywhere. Long track record too.

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  21. AS,

    Damn you got some stones haha! I've honestly have thought about this numerous times. Looking forward to seeing the results!


    cheers


    Ace

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  22. Definitely a bold move there AG! I'v thought of that myself but just cant handle the risk portion of it. Oh so tempting to do it with loan interest payments being so low and REIT yields so consistently high! Hope it all works out well for you! BoC did just announce they are keeping interest rates steady for now so you should be safe from any shocks there. Just keep an eye on what the US does with their interest rates since most of those REITs have significant US holdings and BoC somewhat follows what the Fed does.

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  23. Also, quick Q on the side. Are you holding REI.UN in your TFSA? I havnt been able to find out if REI.UN is eligible or not. From what I can tell its not stated in investor info etc. But I know that I havnt had any trouble with D.UN in my TFSA but also havnt been able to find any definitive 'eligible' on it as well... Wondering if you knew or not. HR.UN had withholding taxes taken off of it, although somewhat mysteriously given back in the next month.... very odd.

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  24. Yes I have REI.UN in my TFSA . I did notice my hr.un payment was a bit unusual. I will check it out.

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  25. Any idea what DVP instructions mean? I bought very small on margin in my IB account last month.This week when I went to my Account Management it ask me for DVP (Delivery Vs Payment) instructions. I have no idea what it is for? I am an individual investor who only invest in dividend stocks. When I called IB customer service, she have no idea and said will call back.

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    1. Weird, never heard of it. I do know often in my dividends they get classified in different types of payment. What stock was it might i ask? Also how to u like interactive brokers? Their margin rates are the best I know of and I am considering trying them out.

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    2. Its not stock specific. Its ask for info like Agent ID, Agent Name etc. I am an individual investor.

      I like IB because it only charge a penny or two for each trade so my cost basis don't go up. This is good because I like to invest 1K to 3K at a time. I only invest lump sum if there is very good opportunity.

      They are good for margin traders.

      I only use margin when I don't have ready capital and market give or create temporary opportunities.

      I like to keep it simple dividend growth portfolio so when I pass to my kids they don't need to know too much.

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  26. Little back ground. I started investing from end of August 2008. I had good capital back then but those money were I like to call virgin. Your very first savings.

    I had the guts to invest all but didn't have staying power since I was very fresh.

    I bought SBUX at like $11, WFC at like $10, AXP at like $10, GE at like $10, DOW at like $9, USB at like $12 and MO at like $11. But I still went down like 25% very quick even at this great prices and when I went to 10 or 15% up in May 2009 I sold everything and never got a chance to get back then till end of 2009.

    I started over from 2010, learned from my exp. and accumulated KO, PEP, PG, PM, GIS, MCD, IBM, TGT, JNJ, BP (thanks to their temporary problems), JPM, BAC (thanks to their second chance in 2011), TOT, UL, AZN, SNY, SIEGY (thanks to European issues), O, VTR, HCP, HCN (thanks to FED tight. chat last year) and few Muni funds with that.

    I have created good YOC (but I wish I had those 2008/2009 investment still). I did invest opportunistically in 2010, 2011, 2012, 2013 and 2014 but now I like to see correction like we saw in 2011.

    CM said last week that he has not invested in his personal account since last two years makes me nervous to invest more. Now I would like to wait for a correction or slow down.

    I was very surprise by your big margin purchase at this point.

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    1. You should start blogging your purchases! super easy to do. Thanks for sharing your background. Long term I am bullish on real estate and thats part of the reason I jumped into reits. No doubt there will be some short term volatile movements. Might not be the best play market timing wise on my behalf but I am not scared of a bit of red.

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    2. I also own Apartment condos for passive income. I don't mind blogging my purchases and give honest opinion on it, but time is hard to find.

      I am also little different then traditional dividend growth investor because I also buy into high yields, Europe, Asia, Australia, Canada, MLP, Utility, and REITs.

      Mostly 75% dividend growth and 25% current high yield with low dividend growth.

      I like consumer staples the best sector for defense and banking sector as offense.

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  27. I made the jump and joined you on Thursday with $100k in REITs on margin. Plan to pay it down as quick as I can though.

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    1. Would love to hear the details man!.
      what holdings?
      margin rates?
      and long term strategy!
      Blog it up!

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    2. This comment has been removed by the author.

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    3. I should start a blog of it all...I only bought three REITS, D.UN, DRG.UN, and DIR.UN. Margin rate is at 3%.

      So far it's down 1.24%, so not off to a good start! lol

      Long term strategy is mainly a portfolio of Dividend Growth Stocks, with some REITs in the portfolio to provide some higher income sources. Hope to pay down the REITs in a year and a half or so. Looking to eventually have enough passive income to retire early.

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    4. Let me know if u start and I will add u to the blogroll. Yes so far the reits r down. Not too worry just yet! I am looking to pay down mine as well. But gonna take a while! Who do u use for online brokerage? I am thinkin I might switch from td to Interactive brokers for my margin accounts due to lower margin rates.

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  28. I'm with RBC at the moment. The margin rates do look pretty good at IB, but I like the fact that I can access and move around my money easier at RBC...if I get a margin call I can just transfer some money to provide more buffer, and my dividends transfer out to my accounts immediately.

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