Are safe investments possible?

by: David Humeniuk

That was the response I received from the first client I spoke with a few days after opening our doors for business. The husband and wife were questioning my sanity because I was suggesting that the time was right to be investing in a product that is secured by real estate. Yes, I have heard of investment companies being in trouble and note almost daily the number of published articles in newspapers, magazines and on the internet that are painting a picture of doom and gloom. As a matter of fact the Calgary Herald has just printed an article with the following headline in bold print: “Commercial Real Estate Suffers $1-Billion Drop.” Based on the headline anyone thinking of investing in commercial real estate would be putting their investment funds back under their mattress. The article was about how commercial real estate sales had decreased from 2008. What it failed to mention was that in 2008 and years preceding the number of sales were inflated because Calgary was the “ho!

ttest market for commercial real estate in North America.” That market is returning to normal which is a good thing. One should not always take media hype at face value. If you analyze and complete due diligence before you invest you will be making informed decisions based on fact and that will provide you with lucrative ways to increase your net worth even in these embattled times. So my answer to the, are you nuts, question is a definite NO!

“What Should We Look For?”

The investment promoter should be willing to give you their legal documents so that you can read and understand them yourselves, or with the assistance of legal and/or accounting advice. When an offer is made they should provide you with access to the due diligence that they complete. That should include current appraisals, engineer’s reports, environmental studies, a review of the leases and title searches to ensure that there are no undisclosed liens or problems. You will want to be assured that your funds are held in a trust account and that some form of audit is completed on the account. After you have invested you will want to know on at least a quarterly basis, if not more frequently, how the building you have invested in is performing.

Some investment companies still try to entice investors with projected returns that cannot be substantiated. The only return that is real is the cash flow. Therefore, you should note the following:

1) Who are the tenants and when do their leases expire?

2) Is there a good mix of tenants or does one tenant occupy the majority of the leasable space?

3) What is the basic rent they are paying and how does that compare to market rents?

4) What are the operating costs and is the amount collected from the tenants sufficient to cover all operating expenditures?

5) Who will actually own the property and how will your interests be protected?

6) Is there a mortgage on the property?

7) What is the amount being mortgaged? What is the rate? Are there prepayment penalties? What is the lenders receptivity to renewals and refinances?

If you have done your homework and you are satisfied that the company promoting the investment has done theirs real estate can be a safe short, medium or long term investment.

“Is There One Investment Product that I Should Consider?”

Syndications of commercial real estate have been around for a long time. The newest syndication product in the market is the private mutual fund trust secured by real estate. Some companies offer this product with debt while others provide a debt free property as security.

“Why Invest in Debt-Free Real Estate?”

1) Income is based on lease payments for a contracted period of time and amount from long term tenants with strong covenants.

2) Your capital is protected and will be there when it is needed.

3) Your return is steady and is not based on predictions or gimmicks.

4) Income and profit are maximized by not having to pay a mortgage.

a) Being mortgage free reduces risk of loss.

b) Real estate consistently stays ahead of inflation.

c) Real estate avoids stock market volatility.

5) It provides a dependable, secure income for retirement, a rainy day or a child’s education.

6) This type of investment is ideal for registered products like RRSPs, RESPs, Liras and RRIFs. It also is an excellent way to maximize the tax free returns in your tax free savings account.

7) Purchasing real estate with cash often allows for a better purchase price as a quick closing puts cash in the vendors pocket in much shorter period of time than if mortgage financing was required. From the vendor’s point of view this is a positive and often leads to a reduced purchase price. This, in turn, means that the potential for an increased capital gain at the time the investors sell the property is greater.

Summary

Investing in products secured by commercial real estate is still a safe and sound way to provide a positive source of growth in your investment portfolio. The key to investing in the right product is to ask the right questions and to make sure that you are comfortable with the company promoting the investment. Syndication is a popular way for everyone to invest in real estate as groups of investors provide the funds for a purchase that would normally only be available to wealthy individuals. The newest form of syndication is the private mutual fund trust. Debt free real estate provides the safest and best security for investors.

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Investment For Your Best Future

by: Don Burnham

What comes in to your mind when you mention the word investing? Do you think of putting your money in insurance, mutual funds, the stock market or even high-yield investments? Does it make you think you need to learn how to invest in stocks or real estate?

The word invest is defined by Webster as 1 : to commit (money) in order to earn a financial return 2 : to make use of (anything) for future benefits or advantages.

Some people think about financial investing only when they are about to retire and they have nothing for retirement, or when they are about to die and they haven’t left anything for their children.

Others shudder when they hear the word “invest,” claiming that they have no money to invest or they feel that is too complicated a subject to even think about, and they are sure they will suffer financial loss.

Many people invest heavily in health supplements, personal trainers and beauticians to make themselves live longer, healthier lives or even to look younger. Just look at the advertising budget for beauty aids and even plastic surgeons!

All these are legitimate concerns when it comes to investing, but I am talking about the most important investment a person can make in his lifetime…

Invest in Yourself. The most important and No.1 rule is “Invest in Yourself” – if you don’t, who else will?

Your parents will invest in your education only until you leave college. and that does not teach you important lessons about financial education.

Think about this: would you depend on colleges or universities to teach you how to make money? Most colleges only teach you skills so you can earn money working for other people. How about business school? Honestly, if business lecturers are such experts at business, why are they still lecturing there instead of making a fortune in business ventures?

Would your boss teach you how to succeed in business so that one day, you will be in his position? You, and only you, have to be proactive enough to take that responsibility. No, he knows that the easiest way for him to make money is to keep you where you are.

You see, when you invest in yourself, it means taking on the importance of educating yourself. Education not in the academic or technical sense, though those are necessary skills to be developed in life. But your education doesn’t stop at college.

For most working adults, their education enters retardation stage as soon as they leave college. They stop learning and therefore they stop growing. They only grow sideways from eating too much pizzas or take-out during their busy lunch breaks.

We know that IQ is important, right? But why aren’t the most intelligent people in the world the richest people in the world? There are many accountants and financial planners rushing to their cars every evening trying to beat the after work traffic congestions! They are not rich! They may be well off, but they are not rich!

How about EQ or Emotional quotient? Do working hard, having a great attitude and a positive mindset solve our financial situation? These are important when running a business, but let me illustrate:

If you are driving from Miami to New York using the wrong road map, you won’t get to your destination no matter how fast you drive your car (working hard)! You can work harder, but you would only get to the wrong destination faster! You may have the best attitude in the world or the most positive mindset, but you still won’t get to New York (although the journey wouldn’t bother you since you are feeling positive about it)

You must FIRST invest in your Financial IQ. Having good a financial IQ is not about saving tons of money or dumping it into mutual funds based on some free financial advice. That is less than beginner investing. It is developing a healthy relationship with money and building a wealth of assets that will generate money for you in the future.

What does it take to develop your financial IQ? Delayed gratification is one of the most important aspects to developing your financial IQ.

Take this as a hypothetical example. Would you rather pay for, a pint of milk or a cow? If you buy milk, it is consumed and it is over. You will have to buy milk over and over again when it is finished. Even if the milk costs less than a cow, in the long run, you will still be buying milk again and again.

Now, if a cow were to cost 50 times more than milk, you might pay through the nose when you purchase the cow. But after consuming 50 pints worth of milk from the cow, you would break even on your investment and save more money in the future. In fact, the cow might give birth to 2 or more calves and you could sell one of them for profit!

Get the idea? EVERYONE is capable of creating wealth. When you take a beat up old car and give it an overhaul, paint it with a new coat of paint, and change a few more parts to make it start running again, you could sell that car for more money than when it was just a beat up old car. You would have created wealth in the process!

How about a farm? If you turn a farm into a country home getaway resort, wouldn’t the value of the farm land increase many times?

It is the same principle for chefs, computer programmers and craftsmen. The sum of the whole is greater than the parts. We are all capable of creating wealth even out of thin air and that is the first step to getting our creative juices flowing.

The value of anything is defined by supply and demand. You don’t need to be an economics major to understand this. Money is just an idea. The true measurement of money is not the cents or dollars it represents. It is the value that money can be exchanged for.

If you have developed a product that people want, would they pay more to you than to some one else? Would you apply your skills in creating good assets if you knew that people would see the value in you, that the asset is you plus the asset?

The bottom line is this: Invest in assets that bring long term value. Anything that brings you more income is an asset. Don’t invest too much in liabilities like cars or boats. That’s not investing, that’s spending.

Even houses are not considered assets until they are fully paid off (If you lost your job tomorrow and you can’t pay for your house, is your house an asset or liability?)

Are you willing to step out of your comfort zone and pay the price for financial education or ignore the signs of the times and expect your boss (who may fire you) the government and the bank to take care of you financially for the rest of your life, living below your potential, and never taking risks to better your family’s future? You are the only one who can answer that.

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