Real estate has treated this investor well—but it’s time to diversify (2024)

ME AND MY TFSA

Name: Peter Leung

Age: 36

Location: Vancouver/Hong Kong

Occupation: International real estate manager

Strategy: Income-producing real estate investments, mainly REITs

TFSA HOLDINGS

WealthBar balanced fund: $6,075

Centurion Apartment Real Estate Investment Trust: $22,500

Triumph Real Estate Investment Fund (commercial real estate): $28,950

Clear Sky Capital (private equity real estate investment): $12,000

OKR Financial (moneylender to startups): $3,000

ICM Asset Management Inc. (real estate investments): $7,492

BMO Investorline Cash/small stock holdings: $2,200

TOTAL HOLDINGS: $82,217

Peter Leung is a Canadian real estate manager who splits his time between Vancouver and Hong Kong. “I started investing in TFSAs in 2009 but didn’t actually develop an investment strategy until I was three years into it,” says Peter, 36. “I decided to focus on income-producing investments such as Real Estate Investment Trusts (REITs) and other real estate investments because income from these holdings are more highly taxable outside the TFSA.”

Before finally settling on this strategy, Peter looked at other options. “I considered throwing a Hail Mary pass at growth stocks. but when I discovered I couldn’t write off any losses, I decided to abandon that idea. That’s when I started focusing on income-producing strategies.”

Today, Peter doesn’t regret his decision one bit. Right now, almost all of the $82,217 in his TFSA is invested in REITs and other real estate private equity holdings. They include Centurion, which invests mainly in Ontario, renting out apartments to students; as well as Clear Sky Capital, which, among another real estate holdings, invests in car washes and storage facilities across the U.S. and British Columbia. “Almost all of my holdings combine asset appreciation with income and good cash flow,” says Peter. “I avoid capital losses and am willing to hold on to these for the long haul, so the real estate will appreciate.”

A recent addition to his TFSA is Old Kent Road (OKR) Financial, a bridge financing company. It lends money to start-ups such as film production, gaming and electronics companies. The bonus is that the Canadian Federal government provides scientific research and development tax credits to the company, which are then passed on to the unit holders. “This is a new area for me,” says Peter. “I did my due diligence and went to Edmonton to meet the fund owner, and liked the future cash flow that it was projecting.” Returns have been stellar, ranging from 10% to 15% annually over the last three years.

This year, Peter will invest some TFSA money in a U.K. real estate investment fund. “I like the U.K. and think it’s where the real estate bargains are right now. It has positive net migration of about 200,000 but the country isn’t building much anymore. I think real estate there has nowhere to go but up.”

But while happy with his real-estate heavy income strategy—and especially happy with the quarterly distribution so he can reinvest his dividends—Peter would like to get a second opinion. “My goal is to grow my TFSA through regular positive income growth but I’d be interested in hearing if there is a better way to compound my money over the next 30 years,” he says. “I’m young and fairly risk tolerant. And I can hold forever. I’m keeping my TFSA for the long haul—either for retirement or as a legacy for family.”

WHAT THE PRO SAYS

Many financial industry professionals, such as Fidelity’s Peter Lynch, have encouraged people to invest in “what they know.” Peter has done a great job in building up his TFSA. He obviously started early and is well on his way to being successful. In addition, he has a strong appetite for risk, so some of what will follow can be taken a bit more lightly than might otherwise be the case, says John De Goey, a Chartered Investment Manager and Certified Financial Planner with Wellington-Altus Private Wealth Inc.

However, De Goey is concerned about the lack of diversification, combined with home country bias—the tendency most of us have to favour investments based on our own turf—within Peter’s holdings. Despite all the positive considerations noted above, Peter is simply too concentrated in one sector—real estate. “His career and his portfolio are both nearly entirely dependent on it,” says De Goey, who also notes that if ever something were to go wrong in real estate, Peter would be in trouble on all sides. “As a personal supporter of the Centurion product, I would say it is the one that should [continue to] be held. Since 25% or 30% is about as far as I’d go in any one sector, perhaps all of Peter’s other real estate positions could be sold off. At most, perhaps Clear Sky could also be retained on the premise that private equity is, in fact, a separate asset class.”

If Peter wants income-producing products, De Goey notes there are lots of dividend-paying equities and equity-products available. “As with his current positions, DRIPs [dividend reinvestment plans] can and likely should be used. What really ought to matter to investors, and especially investors with a strong risk tolerance and long time horizon, is total return. The cash, WealthBar fund and other holdings could all be re-positioned accordingly.”

Compare the Best Robo-advisors in Canada* >

MORE FROMME AND MY TFSA:

• A TFSA strategy that lines Narayan’s pockets—not his advisor’s
• An all-Canadian $75,000 TFSA looking for global dividends
• A teacher’s $21,000 TFSA looking to spice things up
• A $61,000 TFSA where a spreadsheet and a bit of math boost returns