Hi Lou,

 My husband always took your advice seriously and since he has passed away I am trying to re invest his portfolio. What do you think of InterRent? I am looking for return on my investments i e dividends. Thanks ever so much. Have a good one.

Anonymous.

Dear Reader,

I am so sorry for your loss. My thoughts go with you and your family on the passing of your loved one.

InterRent Real Estate Investment Trust (IIP.UN TSX) is a small cap player, $110 million, in the multi-unit residential property segment. The smaller the cap of an investment the higher the level of risk associated with it. In the world of risk management size does matter.

The focus of the enterprise is to find run down assets, fix them up, lower the vacancy rate, and increase rents. Cleary the efforts of management have contributed greatly to the increase in the value of the units over the last year.

A review of the charts will provide better guidance on how to evaluate the risks and opportunities associated with IIP.UN.

The three year chart illustrates the advance that started in late March of 2011. There is support along the trend line and the 50 day moving average which has not been breached.

The MACD and RSI on the six month chart are both indicating that there is more gas left in the tank to fuel further gains. Before you hit the buy button let’s review some of the factors you should consider.

The small cap nature of the company has been identified as a risk factor. In addition the trading volume is somewhat choppy which adds another level of risk. Typically an investment with healthy liquidity provides for ease of entry and exit.

The market for fixer uppers provides many opportunities for the trust.  The search for undervalued properties to which  IIP.UN can apply capital and professional management offers many targets. As management drives growth the likelihood of increased distributions to unit holders will contribute to higher prices for the units.

If IIP.UN fits your investor profile and it is being considered as a component of a well structured portfolio of income producing assets then I would say it could be added into the higher risk tranche of your holdings. It is a case of buy high – sell higher.

Make it a profitable day and happy capitalism!

Hi Lou
As an income oriented investor I have accumulated a portfolio of the usual blue chip companies along with some high yield income trusts and REITs, reinvesting dividends wherever possible.

 A few months ago I came across ACC but haven’t found a lot to go on. It seems to pop up, hold, then pop up again. It has pulled back recently and I’m wondering if you would have any knowledge about this company.

Would it be something to buy before the yield goes lower? Trading was halted recently and resumed the next day but I don’t know why.
Thanks
Sam

Hi Sam,

I love it when a reader knows their individual investor profile. When you can confidently state that you are an income investor, a speculator, or even a gambler you have a methodology that helps drive your decisions.

In my experience its those investors that get moved off their profile that get side swiped. I can’t tell you the number of times that investors with a risk averse profile have contacted me with tales of being convinced to leave their comfort zone and getting a bad hair cut. If you can stick to what you know and are comfortable with you will always be better off.

Lets consult the charts to see what if there is a case to be made for investing in ACC from an income investors point of view.

The three year chart illustrates the advance that the stock have enjoyed since the late December of 2008 lows below $3.00.  Clearly the advance has faced some challenges. The stock was mostly range bound in 2010 with support at $5.00 and resistance at $6.00 but then in August of 2010 it made a break taking it to the recent highs near $9.00.  Nice ride when you catch it!

The six month chart calls into question the liquidity of ACC. The average daily volume is only 17,000 share over the last three months. In the last thirty days it has traded above the average only 33% of the time.

When I am assessing risk I always consider liquidity. It provides an indication of investor interest or lack of it.In addition the MACD and RSI are at this point  not providing a convincing case  to suggest a return to an uptrend.

With a dividend yield of 4.4%, thin liquidity, a market cap of $150 million and an interesting but not compelling chart I would say that ACC might not compare as well to other opportunities for an income investor. The Bank of Montreal for example has a dividend yield of 4.5%, is very liquid, and has a market capitalisation of $34.9 billion.  When I look at these factors I have to ask myself am I being well paid for the greater risk?

Your question regarding the halt of trading around the middle of February was triggered by the announcement of a $23.6 million equity financing. The action taken by market regulators was more or less a drive by. The halt was announced after the market closed and removed before the market opened the next morning. Nothing serious.

If you want to search the data sphere for answers to  questions as to why a stock was halted, a good place to go is the exchange it is listed on. I went to the TSX Group website and found the answer quite quickly.

MAKE IT A MASSIVE WEEKEND AND HAPPY CAPITALISM!

Hi Lou,

When selling land that has been gifted by a family member (not inherited), how is the basis for tax established?

A Man Without Land Is Nothing

I understand the determination of property vs business vs capital gain income, however my question is, will the all the proceeds be taxed since nothing was paid for the land?  Thanks and happy capitalism.

Steve

Hi Steve,

I was an avid movie fan in my youth and I loved the scene in ” Gone With The Wind” where Mr. O’Hara lectured Scarlett on the value of land.  Woody Allen included a scene  in ” Love and Death”  that expounded on how much land has meant to a poor peasant and the entire plot of the ” Apprenticeship of Duddy Kravitz” is about acquiring and developing land.

What all the cinematic references in the world never talk about is the cost of receiving and carrying land which includes the taxes due on the disposition of land. There are two life lessons that are worth committing to memory for all time.

The first is there are very few transactions that do not attract tax and when dealing with tax issues make sure to consult a tax expert to avoid problems down the road.

I asked my expert Art Good, Chartered Accountant, who I call  Art Great because he has solved so many tax problems for me, to comment on your question for this very reason.

Here’s what Art had to say.

Hi Lou:

In answer to your question about the taxation of land that was received by way of a gift from a family member (a non-arms length transaction) the transfer is always deemed to be at fair value.  Therefore, on the initial gift there will be tax if the fair value exceeds the adjusted cost base of the transferor.  The adjusted cost base for the recipient (transferee) is the fair value to which would be added any new costs for land improvements.

Any subsequent sale by the recipient will be taxable if the selling price exceeds his adjusted cost base.

I would note that the person asking the question was not clear as to whether this was a transaction between spouses.  If the transfer (gift) is from one spouse to another it goes at the adjusted cost base of the transferor unless both parties elect to have the value at some higher value.  The election can pick any value above the adjusted cost base up to the fair value but not in
excess of that amount.

The basis of determining the value for tax purposes in these types of transactions is generally resolved by looking at similar property
transactions between arms length parties, appraisals, etc.

Trust this answers the question.

Art

The best advice I can give you Steve is  to seek advice from experts. Recruit an accountant, a lawyer, and a financial advisor to form a team of professionals to assist you.  I have always found that when I have to deal with an issue for the first time its a bit of a mystery but for Joe or Josephine the Pro its old hat.

Enjoy the gift whatever you decide to do with it and Happy Capitalism!

Hey Lou,

Listen to you on AM640 as much as I can. For the past 5 years I have taking a trip at least one a year across the boarder to do some snowboarding with the family.  We normally rent a condo on the hill.  I was considering getting together with 2 other people and purchasing one of these condo’s for personal use as well as to rent out when we are not using it.

Carving Deals on U.S. Hills

The problem I have is I am not very knowledgeable in the field of buying property across the boarder.  I just bought my first home this past year in Hamilton so I have been though the process here.  Is there a difference in the process?  Should I wait to see if Real Estate prices fall further in the States?   Would it even be worth my while looking in to this at the moment, seeing I have just bought a house?

Thanks for your time.
Mark

Hi Mark,

You are not the only Canadians with their eyes on U.S. real estate!  The process of  buying a property south of the border is essentially the same but what you need is a good lawyer and accountant in Canada who has expertise with U.S. tax laws and real estate transactions.

I’m not sure of the price that you can snag the condo for but be prepared to bring lots of equity to the play. Out of country buyers are viewed as higher risk borrowers and I have seen down payments as high as 40% of the purchase price.

With your intent of using the property personally and having it available for rental you need to talk with your accountant as to the tax treatment of the net income or loss generated by the property. In addition with the intent of splitting the property with two other owners you have to have a process in place so the owners can sell their interest if and when they need to. Your lawyer will be able to create a partnership agreement that works to the satisfaction of the participants.

As for the best time to buy U.S. real estate I think it is safe to say that the market will not be this depressed forever. I would find the building where I want to buy and I would track the sale of condos and their historical selling prices. That way you will have an idea of relative value. Then I would throw some low ball bids at condos that are for sale and see if there is any interest at the price you offered.

Hi Lou,

Avid listener on AM640 and great website. I came across some large acreage property for cheap (less than $100,000) north of Toronto. I’m wondering if I should take advantage of this once in a lifetime economic recession and purchase it now. I also have the option of planting trees on this property through a government sponsored program.

The Forest For The Trees

Thirty years from now, wood might be a luxury and it sounds like a good ROI. However, I’m no tree farmer nor do I have the luxury of visiting the property as often as I would like. Its far and a paved road is about 1 km away from the lot but its surrounded by crown land so its not that bad. The tree planting could wait though, but what about acquiring the land. Should I wait? Will the economy tumble more so maybe I can get a better deal (bank loan and lot price)?

Thanks for your time,
Anthony

Hi Anthony.

The way to leverage land as an asset is to determine its development potential. Can you build homes or commercial properties on the land? What is the zoning on the land and can you get a variance to exploit the full potential of the asset.

If you are strictly looking at the land as a tree farm operation then you want to consult with an expert in Silva culture to make sure you are planting trees that can survive and thrive in the climate where the land is located. One thing to think about are Christmas trees.

Christmas trees are a high value product and after your first planting matures should produce an annual cash flow. You could plant some Christmas trees and some ornamental species to sell into the gardening sector. You should also research the outfit in Niagara that has developed species that mature quickly. Here’s the link.

http://www.gardenbanter.co.uk/showthread.php?t=85032

Another thing you need to do is consult with a Chartered Accountant who can advise you on how to manage the asset for tax purposes. From my knowledge you can not deduct the interest paid to hold raw land but if it is the base of a business operation it is treated differently.

Finally the purchase of an asset with a 30 year investment horizon will cover a multitude of sins; even paying too much. In today’s environment I would expect that you can negotiate price given that most vendors are motivated in this no bid market. You have to conduct your due diligence to make sure that the $100,000 price is a value given the historical price of land in the area and comparable sales.

The thing about real estate is that you had better really like what you buy because you might end up owning it a lot longer than you ever dreamed!

Happy Capitalism!