Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on successful investing, including real estate investments. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away.

Tip of the week: “Buy a house that suits your needs, and let the potential real estate investment profits take care of themselves.”

For most of us, a house is the biggest investment and consumer purchase we will ever make. The house itself is the consumer purchase; the land underneath is the investment. Your house depreciates as surely as your car, but more slowly. Eventually, a house reaches the end of its economic life. But the land it sits on is as functional as ever.

As real estate investments, homes can have many advantages.

• Growth in nearby job and leisure opportunities raises land demand. That pushes up land values. But land supply can increase too, from rezoning of industrial or agricultural land to residential use, or from cuts in minimum lot sizes.
• Tax pluses. Home owners get a tax-free, rent-free benefit of having a place to live. Profits on home sales are also tax-free.

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• For maximum capital gain, it’s best to buy a small house on a big lot in an improving area. You may be able to get it for little more than land value. Years later, you may be able to demolish the house and divide the land into several building lots.
• Another thing to consider is the quality of nearby schools, even if you don’t have children. Properties near good schools tend to have higher values, and attract a wider range of buyers when it’s time to sell.
• For maximum investment safety, buy the most common house in your area—a two-story four-bedroom, say, or a three-bedroom bungalow. Usually, it will be easier to sell.
• For maximum enjoyment, buy a home that’s a little bigger and nicer than your family will need in the next, say, 10 years. Chances are you won’t regret it.

Our investment advice: You should be wary of buying (or holding on to) bargain-priced homes. They can turn out like stocks that seem too good to be true. Well-informed homeowners may be eager to sell due to subtle changes going on nearby. Before you buy a house, walk through the neighbourhood and take a critical look at your potential neighbours.

If you’d like me to personally apply my time-tested approach to your investments, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

Pat McKeough responds to many personal questions on specific stocks and other investing topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.

REITs continue to be popular among investors seeking income. Recently, an Inner Circle member asked about a REIT that specializes in big-box outdoor malls and features North America’s most famous big-box chain as its most important tenant.

Q: Pat: What is your opinion of Calloway Real Estate Investment Trust? Thanks.

A: Calloway Real Estate Investment Trust, (Symbol CWT.UN on Toronto; www.callowayreit.com), owns, develops and operates big-box outdoor malls across Canada.

In all, Calloway owns 129 shopping centres and two office buildings, with 25.3 million square feet of leasable area. This REIT’s malls are mainly located in the suburbs of larger cities and have lots of room for parking and additional building.

The trust gets 58% of its revenue from Ontario, 15% from Quebec, 9% from B.C., 4% from Manitoba, 4% from Saskatchewan, 3% from Newfoundland and Labrador, 3% from Alberta, 2% from Nova Scotia, 1% from New Brunswick and 1% from Prince Edward Island.

Calloway’s largest tenants are Wal-Mart, Canadian Tire/Mark’s Work Wearhouse/Forzani Group, Winners, Best Buy/Future Shop and Reitmans.

REITs: Wal-Mart a tenant in almost 80% of Calloway’s malls

Wal-Mart is currently a tenant in 76, or 79%, of this REIT’s malls. Calloway depends on Wal-Mart for 26.3% of its revenue.

In the three months ended September 30, 2011, Calloway’s revenue rose 6.5%, to $124.9 million from $117.3 million. Cash flow per unit rose 13.5%, to $0.42 from $0.37.

Calloway REIT’s occupancy rate is a high 99.0%. Only 2.9% of its leases are maturing in 2012; 6.6% in 2013; 6.0% in 2014; and 6.1% in 2015. The trust pays a monthly distribution of $0.129, for a 5.8% annual yield.

In the Inner Circle Q&A, Pat looks at whether Calloway REIT’s focus on Ontario represents a risk as the province’s economy recovers. He also analyzes the pros and cons of relying heavily on one major tenant, Wal-Mart. He concludes with his clear buy-hold-sell advice.

Inner Circle members see Pat’s analysis and recommendations on the stocks other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this special investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

Canada’s real estate investment trusts (REITs) were the only category of trusts exempted from the federal government’s income trust tax. This has helped them remain popular with investors seeking both income and capital gains. Today we examine the expansion plans of the largest of those trusts, a specialist in shopping malls.

RIOCAN REAL ESTATE INVESTMENT TRUST $25 (Toronto symbol REI.UN; www.riocan.com) is the largest of Canada’s REITs. It specializes in big-box-style outdoor malls, and owns 314 retail properties, 10 of which are under development. Most are in suburban areas, where land is generally cheaper than in towns and cities.

RioCan also owns 38 malls in the U.S. through a joint venture with Cedar Shopping Centers, Inc. (New York symbol CDR). The trust owns 80% of this joint venture, as well as 14.3% of Cedar. RioCan often leaves room at its malls for expanding existing stores, and building new ones. This makes it easy to add more tenants.

The trust is also expanding into other types of developments. For example, it recently teamed up with KingSett Capital to buy the Sheppard Centre in northern Toronto. This property includes offices, retail stores and residential units.

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REITs: RioCan continues to maintain high occupancy rate

The trust pays monthly distributions of $0.115 a unit, for a 5.5% annual yield. These payouts accounted for 106% of RioCan’s 2010 cash flow. However, 17.2% of RioCan’s investors take part in its distribution reinvestment plan, so it pays them in units, rather than cash. On this basis, cash payouts were a somewhat more reasonable 88% of its cash flow.

This REIT’s units trade at 16.3 times the $1.53 a unit that RioCan will likely earn in 2011, and 14.7 times its forecast cash flow of $1.70 a unit. These multiples are high, but so far they have been justified by RioCan’s high-quality properties and 97.5% occupancy rate. As well, national and multinational chains, like Wal-Mart, account for 86.0% of its rental revenue.

In the latest edition of The Successful Investor, we take a closer look at the costs and potential risks of RioCan’s venture into mixed-used properties. We conclude with our clear buy-sell-hold advice on the largest of Canada’s REITs.

You can get our latest risk-cutting strategies and clear, plain-English analysis of income –producing investments such as REITs and dividend-paying Canadian stocks in The Successful Investor. What’s more, you can get one month free when you subscribe today. Click here to learn how.

Owning your primary residence has all the earmarks of a great financial deal. Mortgage payments amount to forced savings, a home is an inflation hedge, and capital gains are tax-free.

However, you can easily fritter away these solid real estate investments by upgrading excessively, or moving frequently. Here are 4 reasons why:

1. Neighbourhoods limit home prices: Suppose nearby homes are selling for $350,000 to $400,000. You spend $70,000 on your $370,000 home. Your new deck, landscaping, etc. only raise your home’s value by $30,000, to the area’s top price of $400,000. As well, your renovations may not appeal to all buyers. For example, they may be more interested in room and lot size, the layout of the home or other factors.
2. Additions have limited appeal: A new second floor or extra room may suit your needs, but will likely raise your home’s value by only half the cost of the extra room or floor. Additions are more costly and less functional than original construction, and buyers may have different needs than you.

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3. Swimming pools can actually hurt your property value. That’s because buyers who don’t want the expense or work of a swimming pool may cut their offer to reflect the cost of filling it in.
4. Frequent moving has many hidden costs: For example, you’ll have to pay real-estate commissions, plus lawyer’s fees and related costs, as well as moving and possibly redecorating expenses. You may also face costly repairs to your new home if the seller did as little maintenance as possible.

Our real estate investment advice: When you buy a home, try to choose one that will suit you and your family for as long as possible. That way, you limit your need to renovate or move. If you own a home, treat home-improvement or moving expenses as consumer items, not investments. They may provide enjoyment, but not profits.

Real estate investments: Treat recreational properties in the same way as renovations and additions

From an investment standpoint, we continue to believe the family home provides all the real-estate exposure that most investors need. If you’re planning on buying property for recreational purposes, such as a cottage or a ski chalet, you should do so mainly for enjoyment.

That’s because these properties generally appreciate at a much slower rate than, say, a home in a major urban centre. Moreover, unlike your primary residence, you must still pay tax on gains on the sale of a recreational property.

If you’d like me to personally apply my time-tested investment approach to your portfolio, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

For example, RioCan and partner KingSett Capital are now buying the Sheppard Centre in north Toronto. This property includes offices (100% leased), retail stores (96.1% leased) and residential units. RioCan plans to expand the property’s retail and residential portions.

RioCan’s share of the $218-million purchase price is $109 million. To help pay for this acquisition, RioCan will issue up to $126.5 million of new units for $24.85 each. The unit issue will increase the trust’s total number of units outstanding by around 2%.

RioCan is a buy.

Weyerhaeuser recently converted to a real estate investment trust (REIT). In connection with this change, it paid a special dividend in September 2010 that consisted of $560 million in cash and 324 million common shares.

Many of Weyerhaeuser’s rivals operate as REITs, so this conversion will help it compete. REITs pay little or no income tax, and must pay 90% of their earnings to their shareholders as dividends. Right now, Weyerhaeuser pays a regular quarterly dividend of $0.15 a share, for a 3.5% annualized yield.

As well, Weyerhaeuser is selling some of its less-important businesses and investing the proceeds in its main lumber and timberlands operations. In August 2011, it sold its hardwood-processing mills for $108 million. It also agreed to sell its Westwood Shipping Lines container shipping business for $53 million.

Excluding these businesses, Weyerhaeuser’s earnings rose sharply in the three months ended June 30, 2011, to $23 million from $8 million a year earlier. Due to the extra shares outstanding after the special dividend, earnings per share were unchanged at $0.04. Revenue fell 1.9%, to $1.61 billion from $1.64 billion.

The company’s balance sheet is sound. Its long-term debt of $4.2 billion, down from $4.7 billion at the start of 2011, is a manageable 46% of its market cap. It holds cash of $877 million, or $1.63 a share.

Weyerhaeuser will have a hard time increasing its revenue until the U.S. housing market improves. However, the trust should continue to benefit from rising Chinese lumber demand.

Even so, the stock trades at a high 30.9 times the $0.55 a share that Weyerhaeuser should earn in 2011.

Weyerhaeuser is a hold.

In the three months ended June 30, 2011, the real estate investment trust’s revenue rose slightly, to $80.3 million from $79.9 million a year earlier. Cash flow per unit rose 1.8%, to $0.58 from $0.57. In June 2011, Canadian REIT bought two fully leased malls in Mississauga, Ontario, for $174.4 million. Tenants include Future Shop, Famous Players, Chapters, Rona and National Sports.

Earlier this year, the REIT raised its annual distribution by 2.1%, to $1.44 a unit from $1.41. It now yields 4.1%.

Canadian REIT’s broad diversification also cuts its risk. Its geographic breakdown is as follows: Alberta, 36%; Ontario, 27%; Atlantic Canada, 14%; B.C., 10%; Quebec, 9%; the Prairies, 2%, and the U.S., 2%. Retail properties make up 55% of its assets, followed by office, 23% and industrial, 22%.

Canadian REIT is still a buy.

H&R REAL ESTATE INVESTMENT TRUST $20.20 (Toronto symbol HR.UN; Units outstanding: 150.5 million; Market cap: $3.2 billion; TSINetwork Rating: Extra Risk; Dividend yield: 5.2%; www.hr-reit.com) owns stakes in 37 office buildings, 120 industrial properties and 131 retail properties across Canada. H&R has a 99.3% occupancy rate.

In the three months ended June 30, 2011, H&R’s revenue rose 3.0%, to $155.9 million from $151.4 million a year earlier. Cash flow per unit rose 8.8%, to $0.37 from $0.34.

Right now, H&R is building The Bow, a $1.33-billion, two-million-square-foot office building in Calgary. The building is now almost complete. Encana Corp. has already leased the entire building for 25 years.

In addition, H&R REIT has agreed to buy Two Gotham Center in New York City for $425.5 million. This is the REIT’s largest acquisiton to date. The newly built, 22-storey tower is leased to the City of New York for 20 years. Under the terms of the lease, the rent will increase by 1.6% every year.

The REIT raised its yearly distribution by 5.3%, to $1.05, in October 2011. It will continue to raise its distributions every quarter until the annual rate reaches $1.25 in the fourth quarter of 2012.

H&R REIT is still a buy.

RioCan also owns an 80% interest in 35 malls in the U.S. through joint ventures. As well, it owns 14% of Cedar Shopping Centers, a U.S. REIT that owns malls anchored by supermarkets and drug stores, mainly in the northeastern U.S.

In the three months ended June 30, 2011, revenue rose 12.3%, to $228 million from $203 million a year earlier. Cash flow per unit rose 5.9%, to $0.36 from $0.34. RioCan’s units yield 5.4%.

RioCan continues to see lots of growth opportunities in Canada and the U.S. So far this year, the trust has bought interests in 18 properties (12 in Canada and 6 in the U.S.) for $307 million.

That includes Huntington Square, a 116,200-square-foot shopping mall in East Northport, New York. RioCan paid $40.2 million U.S. for this mall, which is anchored by Stop & Shop and Best Buy.

As well, U.S. retailer Target plans to convert 21 of 34 Zeller’s stores at RioCan’s malls to the Target banner. The Target stores should draw more shoppers to RioCan’s malls. That would make it easier for RioCan to charge higher rents to other tenants.

RioCan is still a buy.

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST $20.78 (Toronto symbol PMZ.UN; Units outstanding: 80.9 million; Market cap: $1.6 billion; TSINetwork Rating: Extra Risk; Dividend yield: 5.9%) owns large malls in medium-sized Canadian cities and suburban areas. In all, the trust owns 33 properties that contain 13.5 million square feet of leasable area.

Primaris has a 95.7% occupancy rate. Its major tenants include Hudson’s Bay Company, Sears, Shoppers Drug Mart, Loblaw, Reitmans, Canadian Tire and Best Buy.

In the three months ended June 30, 2011, Primaris’ revenue rose 11.3%, to $82.8 million from $74.4 million a year earlier. Cash flow per unit fell slightly, to $0.341 from $0.346. The trust’s annual distribution of $1.22 gives the units a 5.9% yield.

The REIT aims to keep growing by acquisition, but it takes a cautious approach. For example, it recently raised $260.6 million in a unit issue to help pay for five malls it bought from Ivanhoe Cambridge. The $572-million deal is Primaris’ largest purchase to date, but the malls are spread out across the country: three are in Ontario, one is in Alberta and one is in Quebec. That cuts Primaris’ risk.

Primaris Retail REIT is a buy.

The 24 properties it will keep are worth $689.8 million, and cover 2.7 million square feet. Eleven of these buildings are in Toronto’s financial district, two are outside the city’s downtown, two are in Ottawa, five are in Calgary and four are in Edmonton. The deal should close on August 15, 2011.

Dundee has now spent $1.6 billion on acquisitions in 2011. That follows $900 million of acquisitions in 2010.

Dundee’s growth-by-acquisition strategy adds risk. However, its purchases are helping it cut its reliance on western Canada. At the start of 2010, about 70% of Dundee’s properties were in western Canada. That’s now down to less than 54%.

Dundee REIT is still a buy.

Our REIT recommendations have all moved up, but we still think they offer attractive long-term returns at relatively low risk.

ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $22.90 (Toronto symbol AP.UN; Units outstanding: 40.1 million; Market cap: $1.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 5.8%) owns office buildings in Toronto, Montreal, Quebec City and Winnipeg. These mainly Class I properties contain over 6.7 million square feet of leasable area.

Class I refers to 19th and early 20th-century light industrial buildings that have been restored and converted to office and retail space. These properties usually feature high ceilings, natural light, exposed beams, interior brick and hardwood floors.

The trust bought seven new properties in 2010, and three more so far in 2011. It now has 60 properties in Toronto (which contain 45.8% of the trust’s leasable area); 10 in Montreal (39.7%); seven in Winnipeg (5.6%); five in Quebec City (2.7%); three in Vancouver/Victoria (2.5%); three in Calgary (2.4%); and one in Kitchener-Waterloo (1.3%).

Allied had an occupancy rate of 92.5% on March 31, 2011, down from 95.0% a year earlier. That’s because CGI Group’s lease at Cite Multimedia in Montreal expired. However, Allied is optimistic it will soon lease the space to new tenants.

The lower occupancy pushed down the trust’s revenue by 7.3% in the latest quarter, to $43.5 million from $46.9 million a year earlier. Cash flow per unit fell 15.4%, to $0.33 from $0.39. Allied’s units yield 5.8%.

Allied Properties REIT is a buy.

H&R REAL ESTATE INVESTMENT TRUST $21.44 (Toronto symbol HR.UN; Units outstanding: 150.4 million; Market cap: $3.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.7%; www.hr-reit.com) owns stakes in 37 office buildings, 120 industrial properties and 131 retail properties across Canada. H&R has a 99.3% occupancy rate.

In the three months ended March 31, 2011, H&R’s revenue was $153.3 million. That’s up slightly from $152.6 million a year earlier. Cash flow per unit rose 8.8%, to $0.37 from $0.34.

Right now, H&R is building The Bow, a $1.33-billion, two-million-square-foot office building in Calgary. The building is now 81% complete. When The Bow is finished, it will add about $94 million to H&R’s annual revenue. Encana Corp. has already leased the entire building for 25 years.

The REIT raised its yearly distribution by 5.3%, to $1.00, in July 2011. It will continue to raise its distributions every quarter until the annual rate reaches $1.25 in the fourth quarter of 2012.

H&R REIT is still a buy.