Revitalizing the Real Estate Investment Model
When Investar USA was created we knew that; Success in real estate investment takes an inordinate amount of personal time, multiple disciplines, patience and dedication.
If an investor was busy with family, life, and career, when would he have time to pursue building a serious real estate portfolio ?. We asked why no one in the real estate or investment industries provided a real estate management account.
Our dream envisioned a real estate-based portfolio and a management cycle that looked like this:
1. Investment Goal assessment
2. Legal Structure
3. Foreign Tax Assessment
4. Secure Property
5. Property analysis (suitability)
6. Finance & Acquire
7. Property Management
8. Portfolio monitoring – hold, sell or trade
9. Investor Reporting
(Carrie insert pie chart to reflect above)
Just About Real Estate
We found a number of companies, ranging from more sophisticated investors who supply clients with wholesale or improved properties, to Realtors who wrongly claim to understand real estate investment. Sadly, most of these models are just about getting a home listing or a piece of real estate sold and not about helping a client develop and fulfill an investment strategy.
Worst still, some companies only say they provide a full-cycle real estate investment. In reality, they don’t have the time or expertise to help a new or seasoned investor develop a long term investment strategy. For them, it is first about the sales, the commission and getting another house sold, then about the client. There are perfectly logical reasons for this, but none begins with the customer/investor. A real estate investment vendor makes the most money by selling an investment-grade property. Ongoing asset and affective property management has a disproportionately high labor-to-income ratio unless extra non-periodic charges like lease-up, or unplanned maintenance fee’s are levied against the property. Property management is necessary to keep customers happy and coming back for repeat purchases but may be only marginally profitable. Many new investors have been soured by property management charges that were either not disclosed or de-emphasized during the so-called turnkey investment property sales process. Lease-up fee’s, re-keying fee’s, maintenance administration and other junk fee’s may be designed to extract revenue, but instead, they impede loyalty and repeat business.
Complex and opaque spreadsheets and management agreements may mask these surprise charges, only to be discovered after the investor is into the property and beyond the point of renegotiation.
A Plan as Plain as Day
Investar USA makes investment principals straightforward; easy to understand, easy to execute, and easy to love.
The founders believe there competition is not from other real estate providers but from vendors of traditional investment offerings such as stocks, bonds and mutual funds. This is because the returns of Investar USA properties are significantly better than most investment offerings and turnkey investment providers available in Canada and the United States.
For many, investing effectively to save their retirement is an imperative. Investar USA understands this and has built an asset combination that balances available funds, the need for income and the need for growth, tailored to the specific investor.
Any investor with a stock market or mutual fund background, expecting a Wall Street or TSX style language and service, can easily understand and embrace Investar USA’s program as high-return, low maintenance, professionally managed investment relationship.
Buying rental property from a realtor or self-styled turnkey rental investment expert may not be investing effectively. It’s simply buying a property that may offer cash flow and a modest net yield. But is this strategic goal-based investing ?
Begin At The Beginning
Building an investment portfolio that may contain real estate begins long before any property is bought. It begins with setting investment goals and milestones, then selecting assets and property with returns that serve those goals. What is the financial state of the investor ?. What is the investors demographic profile, and what is his investment horizon ?. What is his risk tolerance and desired outcome, and how many assets are needed to meet the required cash flow goals ?. What investments are suitable and appropriate for this investor ?. Is real estate a suitable and appropriate asset that meets the investment performance and time frame for this particular investor ?.
Identifying assets, an appropriate investment method and property that meets the required performance profile is not hard, but it is complex. There are many moving parts that are beyond the understanding of most real estate centric investment providers or Realtors.
Any buyer will tell you there are a number of unexpected surprises and costs that pop up during a typical single-family dwelling property purchase, whether it is a home to live in or an investment property. Further, the customary real estate sales process is not simple. Curb appeal often contradicts spreadsheet and cash flow appeal.
Rental Investment & Income Standards
With real estate there is a specialized investment vocabulary and income analysis that differ from typical investments.
The reason is simple. Real estate agents are not trained or licensed to advise on the financial implications of real estate as an investment, yet many find themselves working with investors. Out of their “comfort zone” and out of their league, many Realtors unintentionally mislead prospective investors. This has not stopped real estate sales companies specializing in investment sales, but it also means that many properties being sold to investors are not suitable for each investors circumstance. To put it simply; most Realtors who specialize with single family
homes are not educated or trained to deal with real estate investors.
Next Gen Real Estate Management Portfolio
This is a watershed moment in the real estate investment industry.
Investar USA is directly helping clients and indirectly changing the invest-in-real-estate industry. We put clients needs and investment analysis well ahead of the ultimate sale of real estate or real estate instruments. First we review the clients retirement or investment needs; then we lay out a workable plan. And finally, we identify suitable and appropriate assets and properties that meet the investors return goals.
Arizona Investar believes in the adage, “If you don’t know where you want to go, any plan will get you there. If you want to live a comfortable retirement only an appropriate plan and suitable investments will do. Only now can you select the real estate that can help you get there.”
The Bottom Can’t Fall Out Of A Basement
The difference between real estate and traded assets is that no one really needs stocks, bonds or mutual funds to live. Food, water, clothing and shelter are always in demand. Even if your property values have dropped, you still own something. The house is still there. Either you or your tenant has a secure place to live.
Anyone who has ever rented or bought a home understands the basics of owning property. You know if a neighborhood is nice, and if you would want to live in there. If there are people with jobs who want to rent houses, it is impossible for property values to drop to zero.
Man vs. Machine
Stock, bond and mutual fund investing involves trusting someone to do something you don’t completely understand.
The individual retail investor is trading against a vast institutional investing and program trading machine. This is like showing up to a gun fight with a bladeless box cutter. Real estate investment is a lot more manageable, especially with an investment asset provider like Investar USA by your side.
A curious investor looking at real estate as an alternative will get conflicting advice from stockbrokers, investment dealers and financial planners. Since most of these investment advisers don’t get paid a commission from the clients investment in real estate they simply don’t recommend real estate. In addition, advisors are not trained or educated on real estate thus do not understand the asset class.
An Inevitable Trend
Real estate historically has appreciated at an average of about 4 percent per year compounded, even allowing for the past slump – and that’s just on the capital invested. Any net yield generated from rental income is a bonus.
The majority of stock, bond and mutual fund investors are paying someone to under-perform the market. In May 2004 a Princeton University study conducted by John C. Bogle, founder of Vanguard 500 Index Fund, reported that in the decade from 1993 to 2003 the S&P 500 appreciated 11.06 percent. In that same time frame, funds rated by Morningstar at four and five stars yielded just 6.9 percent after fee’s or 63 percent of the market rate, while retail investors averaged a net return of 3.57 percent after fee’s, or one third of the market yield over the past 25 years. Is all that “high priced” advice really worth what you are paying ?.
Real Estate to the Retirement Rescue
Don’t ignore recent price drops, but look at long term buy, hold and rent assets. These properties always trend up in value while paying for themselves in an average of 10 to 15 years.
Additionally, a simple capital value comparison of equity in stocks, bonds and mutual funds to real estate misses the other benefits of real estate, such as mortgage leverage, rental income, tax advantages and the fact that rental income and appreciation are indexed to inflation. No traded asset can make that claim. When an investor acquires a property with a conservative mortgage, net yields and cash-on-cash returns can be many times larger. It’s a sound long-term strategy. Look at New England: people there are still living in 300 year-old homes. How many company stocks are still around from the 1940’s, let alone the 1740’s.
Consider this, as of January 1st, 2008, 206 of the companies that made up the Dow Jones Industrial Average in 2000 no longer exist or no longer qualify to be included.
Liquid vs. Security
Although the inner workings of stocks, bonds and mutual funds are murky, they are easy to purchase. Call your broker or go online. The mechanics of buying, holding and selling real estate are not that straight forward. Real estate doesn’t do well as a short-term “traded asset” because of the higher sales costs and the detailed process of buying and selling residential real estate.
For an investor (versus trader), real estate is the ideal buy and hold. It is defined as a non-traded asset for a reason. Real estate financial dynamics do not bear much resemblance to those associated with Exchange-traded paper assets. Consider the returns on $100,000 capital invested on Wall Street or the TSX versus in real estate as shown in the “Common Stock vs. Rental Real Estate Values” chart below.