5 Essential Features That Make Real Estate Investing Profitable

Every now and then persons trying to make up their minds where to put their money ask me if real estate ventures are more or less profitable, compared to other businesses opportunities around.My response is always that apart from its potential for yielding significant profits, investing in real estate often confers long terms benefits.I discuss five such advantages below:1. You Can Refurbish (to Enhance the Value of) Real Estate
After you buy a stock, you hold it for a period of time and hopefully sell it for a profit. The success of the stock depends on company management and their corporate success, which is out of your control.Unlike other conventional investment instruments, like stocks, for instance, whose rate of returns, depend on third parties (e.g. company management), real estate investments are directly under your control.Even though you will not be able to control changes that may occur in demographic and economic aspects, or impact of nature induced changes, there are many other aspects that you can control, to boost the returns on your investment in it.Examples include aspects relating to adding repairs, or improvements/enhancements to the physical property and tenants you allow to live in it.If you do it right, the value of your investment will grow, resulting in increased wealth for you.2. Real Estate Investing, When Done Right, is Proven to be Profitable Even During a Recession (like the one we’re in right now)
It has on several occasions, been used to effect a bail out, from financial setbacks, such as those that many have experienced during the economic downturn happening in Nigeria today.A considerable number of clients have confided in me that due to the present economic situation, they are not sure of profitable channels to invest their money. Some of them are done with bonds and treasury bills, but are in dire need of a new investment.We had extensive discussions, and based on my expertise as a real estate consultant, I recommended landed property investment, as the most suitable and secure alternative channel of investment.This is because, even if all businesses crumble, land will always appreciate greatly. Then to drive my point home, I ended by sharing the following apt quote, by a former American president:”Real estate can’t be lost, nor carried away, managed with reasonable care, it’s about the safest investment in the world” – Franklin Roosevelt.Not surprisingly, the client chose to take my advice – and signed up: it was the obvious, common sense thing to do!3. Real Estate Investments Are Immune to Inflation
In other words, investing your money in ownership of viable real estate can protect you from the harsh effects that inflation usually has on other conventional investments.This is because the value of real estate generally tends to rise in positive correlation with inflationary pressures. This is why property values and rental rates go up with rising inflation.The nature of real estate, therefore affords owners the unique advantage of being able to adjust the rates they offer, to match inflation.Monthly rents for example can be raised to compensate for inflation – thus providing a cushion effect against inflation induced losses that other monetary investments suffer.4. Real Estate is Uniquely for Being Universally Acceptable as Collateral, Towards Securing Funding from Banks
Today, real estate in form of either building or lands, with proper titles (i.e. Certificate of Occupancy – aka “C of O”) is the most recognized and accepted form of collateral in Nigeria – and some other parts of the world.It has the unique feature of being able to protect the interests of both the borrower and the bank (that’s doing the lending), so that funds can be released i.e. after due verification, and terms and conditions are agreed.This is one of the key advantages a private C of O has over the global C of O, because the former (i.e. private C of O) is what will be needed by the intending borrower, in the event of any future financial dealings with bank in Nigeria.5. Real Estate Investing Allows Use of Other People’s Money
In other words, you can do it even if you do not have enough money. You just need to know how.This is possible because real estate is physical property or what is called a hard asset. That is an attribute that makes it attractive to financiers i.e. people with money to invest.This is why many times real estate products are bought with debt – unlike conventional investment products like stocks which are NOT tangible, and therefore perceived as being more risky to invest in.So real estate investment can be done using cash or mortgage financing. In the latter case, payments can be so arranged to allow payment of low initial sums, provided by you or a willing third party.Those payments will be happening on landed property which will continue increasing in value throughout the duration of such payments – and indeed beyond. That further inspires confidence in the minds of those financing the acquisition, that their investment is safe.Little wonder that real estate investing has continued to prosper for so long![A WORD OF CAUTION] The listed benefits notwithstanding, I still tell prospective investors that due diligence is a crucial requirement for succeeding.Whether you do everything yourself or use industry professionals like me, it is imperative that you exercise caution and arm yourself with relevant information and education.This is something I advice my clients to do all the time, so they can make good decisions in investing.The importance of the above cannot be overstated, especially in Lagos where quite a number of individuals, have had their fingers badly burnt, because they failed to take the needed precautions.My purpose is to help clients avoid having such horrible experiences, by bringing my years of experience in this field to bear in serving them.References/Related Article:[You can read about more advantages of real estate investing, in this excellent article I found at: http://realestate4investing.com/articles/real-estate-investments/10-advantages-disadvantages-real-estate-investments ]

Real Estate in Your RRSP or TFSA

An RRSP or TFSA should be viewed as a basket of investments. In the basket you can place various eligible investments or financial instruments. Some of these RRSP or TFSA eligible investments can include: stocks, bonds, GICs, mortgages, call-options, cash or mutual funds….but NOT real estate directly.So, how then can you participate in real estate with your RRSP or TFSA?For most Canadians, investing in or participating is real estate can be done inside their RRSP or TFSA, however there are some restriction. Either way, inside or outside an RRSP or TFSA, investing in the right real estate can pay excellent long-term dividends – if done well!Three broad options exist to participate in real estate within your RRSP or TFSA!Option 1: Mortgages. Most real estate is encumbered by a mortgage. A mortgage is a loan, secured by real estate. It is not real estate! However, a mortgage is a safe way to invest in real estate, but you do not participate in the overall performance of the real estate! Your TFSA or RRSP becomes the lender. You are the bank! You can holda) a single mortgage or
b) a share of many mortgages, called a syndicated mortgage, or
c) shares in a MIC, a Mortgage Investment Corporation. A MIC pools many mortgages and allows the individual investor to co-own a share of multiple mortgages in their RRSP or TFSA.The risk of this investment, namely payment default by the borrower, has to be compared to the fixed return of this investment, from a low of perhaps 4% to usually in the high single digit range to perhaps the lower double digit range for more risky assets. A second consideration is if the mortgage is on a to-be-constructed property or an existing property. As a broad rule of thumb, a to-be-constructed property carries a much higher risk of non-payment, as the property does not yet exist. As such the interest rate on this mortgage should be much higher to compensate for this additional risk.Consider return OF your capital before you consider return ON your capital when evaluating this first type of RRSP eligible investment option!A tertiary consideration is the position of your mortgage on the property title. If you are in 1st position, and the mortgage is unpaid, you are first in line to get paid from a foreclosure action. Even then loss of capital is possible, especially in a construction mortgage. If you are in 2nd or in 3rd position, other lenders get paid first. Thus, the risk of non-payment increases with the increase in position on title. Some trustees or MICs don’t allow 2nd or higher position mortgages, but some do. Therefore, before you invest, do your homework on the risk of the loan.. and then gauge is the offered interest rate compensates for this risk!Option 2: Publicly traded stocks that invest in real estate. On both the US and Canadian stock exchange there are a number of firms that invest in real estate. Some invest in apartment buildings. Some in commercial properties like industrial parks, office buildings or retail malls. Others invest in hotels, campgrounds, trailer parks or recreational properties. Some invest internationally, all over the world, and some only in certain cities. Some hold existing properties, other invest in land projects or construction.A common sub-class of these publicly traded firms is a REIT, a Real Estate Income Trust. A REIT pays out the majority of its income monthly, and as such can be an excellent vehicle for retirees or those folks seeking monthly income. In a sub-sequent article I will explore some of those REITs or stocks with specific commentary. There is the expensive brother of the real estate stock or REIT, a mutual fund.. or its less expensive diversified sister, the index fund or ETF.All these publicly traded vehicles provide the benefit of instant liquidity, quarterly reporting and regulatory oversight, but also the severe drawback of stock investing in general, namely market sentiment, wild, unexpected swings because some politician said s.th. or a report came out that was less positive than expected, buy/sell manipulation by insiders or panic selling due to rumours or opinions by market analysts or newspaper articles (that may or may not be accurate).Option 3: Private firms that invest in real estate. Many people seek an investment vehicle outside the often irrational stock market. People have to live somewhere if the market is rising or falling. People go shopping, albeit less frequently, if the market is down. Trucks need repair facilities owned by someone. Office workers need space. Etc…. REAL estate has been around 1000′s of years.. and will be around a further 1000′s of years. Have you been to Rome? Some buildings were built over 2000 years ago and still exist.. but I digress.To buy or build real estate much expertise.. and much money is required. Therefore, the idea of coupling expertise with money partners is a perfect marriage. A corporation or partnership is formed. It is not a new concept, though! England, Holland and a number of nations explored the world several hundred years ago by ship. To finance those fairly expensive shipping expeditions partnerships were created. The captain and his crew got a share, as high as 50% of the profits (spices, gold, slaves, land,…) and the ships’ financiers get the rest. Write a cheque for 4,000 pounds, and I name a mountain after you, write a cheque for 10,000 and your name is on a new city and you get 2% of the wares. Or s.th. along these lines.. and the idea of limited partnerships were born.The idea of a limited partnership is that one party has the expertise, say to prospect, analyse, buy and manage apartment buildings. Others have money to invest, seeking a fair return, but lack the expertise, the time or the desire to prospect, analyse, buy and manage assets. One party invests, the other parties does the work and profits are split according to a pre-determined, and annually inspected, formula. Since this corporation or limited partnership owns real assets, in the real world, with real money changing hands for real assets, the values can be established relatively readily, without the often irrational stock market value swings. It can provide a better alternative to investing in the publicly traded market.Thus, Prestigious Properties, in conjunction with industry experts, accounting firms and several legal firms has created an RRSP and soon, TFSA eligible investment vehicle that allows your RRSP or soon, TFSA, to participate in the performance of our apartment buildings. This is explained in detail on our website. The website also has a report on ’8 mistakes to avoid when investing in real estate syndications” that you will finds useful to distinguish between swindlers and serious operators.