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WHY REAL ESTATE? We all know McDonalds as the massive chain of fast food restaurants. What most people don’t know is that there real wealth is in real estate assets. The company’s net operating income of four billion dollars is small potatoes when you look deeper and realize that they are one of the largest real estate owners in the world with real estate holdings of $29.9 billion. The Walton family, more commonly known as Walmart, is a huge company whose assets are worth over $138 billion of which 57% is property holdings with over $16 billion dollars of this in land alone. We could go on and on about the wealthiest people in the world, but for us these are some of the reasons that we choose real estate as our investment vehicle of choice:
Cash Flow: Create monthly, quarterly, semi-annual or annual income. Leverage/OPM: Use the banks and other people’s money to create greater ROI (Return on Investment) Example: $25K in stocks goes up 10%, you make $2,500.00. You invest $25K in to a $100K property. The property goes up 10%, you make $10,000.00. That’s 40% ROI with the same cash put into the investment. Control: If you see that the property is falling apart, you can get it fixed. If you own stock in Microsoft and it takes a hard hit you can’t fix that! It’s out of your hands. You could never attend a board meeting to attempt to fix the problem. Stability: Nobody looses a property over night and property values don’t drop 50%-75% or even 100% over night. If you are in tune with the cycles you would see it coming. Refinancing: Properties can be refinanced and the money is tax free!!! Manageable: If you have bad tenants, get rid of them! If maintenance is required, get it fixed! Vacancies are climbing, reduce rent or take proper precautions to ensure that it doesn’t happen to you! By qualifying the investment based on its net operating income, your property can still grow in value. Even if the market falls, your property will still be exactly where you left it. It’s impossible to disappear in the paper trail. Historically and statistically, real estate appreciates over the long term. Land appreciates however the building itself depreciates creating tax benefits. We are by no means accountants, but with capital gains, depreciation, 1031 exchange, interest tax deductions as well as many other benefits, investing in real estate will create numerous opportunities to save on taxes. Have you ever tried insuring stocks, RRSP’s, GIC’s or Mutual Funds? You can’t! Properties can be insured for all sorts of damages and liabilities. With the right team, a lot of the work is done for you as well as paid for by the property itself. I.e. mortgage brokers, realtors, banks, property managers and investors etc. Works with or Hedges against Inflation: Five hundred dollars per month used to sound great in the 1940’s, but these days you can’t get by on that. A property that was worth $50,000.00 in the 1940’s, based on 3% inflation (not compounded) would be worth approximately $103,500.00 today. That property would likely be paid for by now and be bringing in close to $1000.00/month in rental income. Rent also hedges against inflation. This property could also be leveraged and possibly double your income. After seeing the potential and proven track record of real estate investments, Real Estate Linx Inc.’s team is confident that this is the best way for us to provide wealth and financial freedom to our team and every one working with us. The next step is your willingness to take action. Buy / Hold Cash Flow Properties (rentals): usually 3-5 year term: This technique is used by many investors for a few reasons. It usually requires less upfront investment than larger investments, for example, apartment buildings, new construction and renovations. Another reason is supply and demand. This is to say there are many units like this available and there are lots of renters on the market. With smaller rental properties, financing is available as a residential mortgage where as five unit or more will be considered to be a commercial mortgage. Rent and hold are more stable because if you own cash flow properties, even if the market slows or drops, you are still secured by the fact that you are still making monthly income on the rent and the mortgage as well as other expenses is still being covered by the rental income. This leaves you with the upper hand since you shouldn’t have to sell in a soft market. Cash flow properties are simpler to manage with minimal experience. Rent and hold allows for greater tax benefits. With a one year flip, the money you make is considered income, which is taxed at the highest bracket. If the property is held for three plus years the property will then fall into capital gains which means the first fifty percent is free and only the second half will fall under income. Cash flow properties will provide monthly income and larger tax saving at the time of sale. Multi-Family Properties/Apartments: Multi-family units are one of our favorites. This is simply because of the liquidity of the asset as well as many other benefits. Based on fundamentals, multi-family investments are sure fire. First of all the value of these properties are totally based on facts and income. There is no emotional inflation what so ever. You won’t pay more for an upgraded kitchen unless it brings in more income. Over fifty percent of people rent! Echo boomers and baby boomers are a huge part of these numbers. As for income, these properties are usually far more lucrative in the long term. More often than not, the annual cash flow can replace the average Canadian salary. There are also ways to get all of your investment out of the property and still make income. With this strategy in particular, the building now becomes a cash machine with little or no risk at all to you or investors. Due to building depreciation, cash flow can become tax free. There are many other tax benefits. Contrary to popular beliefs, a multi-family project takes a lot less hands on management because it is a lot easier to work the management and maintenance fees into a working budget. We don’t have to do the management and the maintenance; we simply hire the specialists to do it for us. Proper, sound property management can increase the value of the building dramatically. As stated earlier, the building is only worth what it brings in. For example, when we buy the property there is a twenty percent vacancy rate. Over a year or two, we raise the rent by $50.00/unit. This could raise the property value by over 250k depending on the number of units. If this sounds like something you would be interested in and you would like to know more, we would be happy to show you how this works. Lease Options (Rent-to-Own) 1-5 years: Rent-to-own is an uncharted sea for many, but a gold mine for those who really know and understand how to use them. Lease options provide great cash flow. Predetermined sale dates/exit strategies and best of all a predetermined sale price! This makes the numbers easy to work with since there is usually a contract in place before we even buy the property. You know what you’ll make every month and you know what you will make at the end of the deal. This is secured by the contract with the lessee for a few strong reasons. No credit, no down payment, no problem and due to the fact that the sale price is predetermined, the lessee can sell the property for a profit before owning it. For example, we buy a property for $200K and put into a lease option with a sale price of $250K at the end of three years. Then the lessee can then sell the property for $275K at the end of the second year. We’ve made a profit of $250K and they have made a profit of $25K. Keep in mind that we’ve made our money early which makes our ROI much higher, and they’ve made money on a property that they have never even owned. All parties are happy which makes this a WIN-WIN scenario. With rent-to-owns, the tenants have more ownership in the property, more responsibility and a lot more to lose if the deal goes south. This makes management and tenant relationships much easier to deal with. Hard Money Lending and Private Financing: 30 days – 1 year: We won’t go to deep into this subject but we’d be happy to help any serious investors looking to make passive income quickly and safely. Please contact us directly if this is of interest to you. Hard money lending is a great way to make passive income. This can be done in a variety of different ways usually with a minimum ROI of 13% per annum. This number can easily be doubled for a serious lender. Here’s a list of funds that can be used for hard money lending. The key to hard money lending is that your money always has to be secured against something tangible. Usually a property, providing that it does not exceed 90% LTV (loan to value). They are usually short term investments (3 months to 2 years) depending on the lenders criteria and the quality of the project. You are the bank and you are entitled to set your own lending terms. As a borrower, this can be a great option as it is a great way to get private financing when you are untouchable to the banks. As well, private financing doesn’t show up on your credit report, meaning it won’t affect your debt service ratio. For more information please click below to fill out our Expression of Interest form and we will contact you shortly: Land Development and Re-Development: 3-10 Years: Land has always been a great investment. Since ancient times, people have always wanted their own piece of land. From growing crops to building apartment buildings and shopping centers, all types of people have their own reasons for wanting land. This brings us to the basic fundamentals of business; supply and demand. Luckily, you can’t create more land and for this reason land will have ever growing value as our population grows. When looking at land, we look for a few different criteria’s: location, zoning, timing, demand and a few other little secrets. Land development can be very lucrative. The down side is that it is usually a larger capital investment upfront, and you have to cover the holding costs. If done at the right time and at the right place, this technique has been proven to provide great returns time and time again. The team involved is the keystone to these types of projects. You wouldn’t want a residential home builder to build you a 20 storey building. This could be catastrophic. The average builder usually allows for a 50% profit margin. This makes for a great ROI when done diligently and correctly. Re-development is very lucrative with lower risk. This is because you know what is next door and you can use zoning bylaws as your own real estate crystal ball. For example: You are looking to buy on a busy street, where you find out that 9 of the 12 lots are zoned for multi-family. The other 3 are zoned for commercial. You look around and see a bunch of little homes sitting on large lots. The homes seem a little over priced but when you find out that each home can be torn down and replaced with 20-30 unit buildings, then these properties just became a steal. This is more proof that due diligence is the key to success in real estate. Land development and re-development can be very exciting and with the right team working with you, extremely profitable. Pre-Construction: 1-5 years: Pre-construction projects can be really great if the proper homework is done. The benefit of this type of deal is usually the discounted price and the low upfront investment cost. You’d better make sure that you get a good deal and that the comparables and potential rental income make sense. It’s the difference between a speculative and a sophisticated buy. When you pre-buy, you are taking a much greater risk as you can never do all the proper due diligence that you would normally do on an existing unit. For example: Who will your neighbors be? What will the ratio be of owner occupied verses renter occupied? Don’t ever count on flipping the unit because chances are you are not the only one with this strategy in mind. Always concentrate on cash flow because if the units go up $50K, all the “investors” that bought into the project, will likely try to sell at the same time which unfortunately drives the values down (based on the laws of supply and demand). On the other hand if you get the property with built in equity and you can get cash flow, not only will you have avoided the rush of sales, you are making money every month and you will save at least 50% of your profit by strong management and tax benefits on sale day. Assignment of Contracts: 1-90 days: When a great deal has been secured, assignment of contracts can be a great way to make some quick cash without having to get financing or even be on the title of the property. If the contracts are written up properly, this can be a risk free way to make some money in real estate. Beware! If this is not done properly, you might lose your deposit, so do your due diligence and learn the proper techniques before trying this on your own. Real Estate Linx Inc. will sometimes assign contracts to our investors for a fee and we often have investors assign contracts to us for a fee if they could not close on the deal themselves. Through this strategy, they have made some money on a property that they did not have to finance. Often it is the difference between closing a deal and losing it. Real Estate Linx Inc. will sometimes negotiate a great deal on a bunch of units and assign independent contracts to our investors. Network Power: A great network will consist of lawyers, accountants, mortgage brokers, private lenders, realtors, appraisers, inspectors, local specialists, analysts, mentors, business advisors, property managers, Real Estate Networking Groups, like-minded partners and the list goes on as your real estate empire grows. Sounds a little overwhelming? Good news! Real Estate Linx Inc. has all of these specialists ready and willing to take action as soon as you need them. It is great to be a part of a group or network that can help you with all aspects of your investments. Due diligence is as important when developing your team as it is when you are finding the right deals. We have spent over five years developing our network so that the people who choose us can be that we and our professionals will save them as much time and grief as possible while generating great returns. We are a part of many different networks, providing us with resources across Canada and the US. We are growing every day and we continue to develop our network as we are committed to being the best and working with the best in our ever-changing markets. There are many companies out there who will try to sell you there latest idea and who will want you to try it just to see if it works. This poses a problem as you are taking all the risk and you are the one who will lose time and money. Let us teach you the tried, tested and proven techniques of some of the most successful investors in the world. Buying Wholesale: Like auto dealerships, grocery stores, bus companies, land developers, apartments, and any retail operation, Real Estate Linx Inc. uses the proven strategy of buying wholesale to maximize profits. To buy wholesale or buy in bulk means to buy in large quantities in order to get the best discount prices. This creates a larger profit margin between purchase price and retail sale price. For example: If you purchase a condo in a building with a hundred suites, you could pay close to $200K for a single unit. Now multiply that by 100 units and the whole building will cost you $20 million. If you were to buy the whole building at a whole sale discount of 35%, you would purchase the property for $13 million. Now if you divide that by 100 units, you will see that you are now paying $130K for each unit. This now leaves you with a $70K profit margin if you decide to turn around and sell each unit for the retail price. This is the concept that fuels the retail business. Real Estate Linx Inc. uses our network to create buying power, to buy wholesale and sell retail. We also use the same techniques to purchase cash flow properties. Buying a single family home and getting positive cash flow is much more difficult than buying a triplex or apartment building. Again, the main reason for this is buying wholesale vs. buying retail. Due to mortgage costs, insurance, management and other expenses, single family units are less likely to have numbers that work. Another advantage to buying wholesale is the management costs. If you hire a management company to manage you single family unit, you are looking at a 10% management fee out of your monthly income for the property. If you get the same company to manage your 40 unit building, you will pay approximately 4% for the same service. That’s a 50% discount! Buying wholesale is a great tool for sophisticated investing. This is one of the main reasons that we prefer investing in multi-family properties. Maximize the profit!!! Being part of our buyers club is a great way to raise capital to buy wholesale and it gives even the beginning investor a chance to go big and to maximize their return. If this is something that interests you please see our multi-family page for more details. |
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