Has the appeal of real estate investing lost its lustre in the face of continued negative press, predicting an impending burst bubble? For many long-term investors, the answer is no. The question has evolved beyond, “how can one make money in real estate” to “how do I choose the right vehicle on which to build my real estate empire?”
Buy And Hold
Those interested must first decide whether they wish to be active investors or passive. Will they buy and sell to make quick profits or choose to buy and hold for the long haul? There is, however, a real estate investment strategy that focuses on an intermediate term with a specific exit strategy which brings a completely unique perspective to the asset class.
Real estate investors look at properties in terms of positive cash flow, mortgage pay-down, and market appreciation. Real estate developers look at housing as products to be designed, manufactured, and sold at a handsome profit. Real estate investors have never-before been invited to sit at the table as partners of the developer, until now.
Greybrook Realty Partners (a division of Greybrook Capital) has grown to become one of the leading financial partners to some of Canada’s most recognized property developers including, Castlepoint, Cityzen, Fernbrook Homes, Empire Communities, Stafford Homes, Andrin Homes, and Tribute Communities to name a few. Through Greybrook Securities, a Greybrook Capital sister company which is an OSC registered Exempt Market Dealer, accredited investors (those who meet certain income or net worth criteria) can invest alongside these leading property developers and share in the project’s profitability as partners.
Greybrook Securities has completed some 50 projects representing some of the best-known communities and buildings in the Greater Toronto Area including Liberty Village, Garrison Point, and the Yorkville area, among others. The deals range in duration from between two to 10 years depending on the size and complexity of the project. Typically, the target is returns of over 20 per cent, net to investors on an annualized basis and to protect downside risk. A fundamental tenant of their strategy is to acquire their developable land on a private sale basis, at conservative market valuations, and with use of very little or no leverage at all.
Investors Receive Return
Investors are indirect, beneficial owners of the property being developed through investment in either a limited partnership or mutual fund trust. It’s important to distinguish that these are equity investments and not loans or syndicated mortgages, which make up a different asset class. Investors do not receive regular interest payments, but rather as owners of the project’s equity they realize their return upon successful completion of the development. Depending on whether there are single or multiple phases, investors can expect to receive a return of their initial capital and their profit distributions as homeowners take possession of their new homes and units over the course of the development.
These investments can be held as non-registered or in fully registered accounts such as RRSPs, RRIFs and inside TFSAs. A minimum investment of $25,000 is required for qualified investors. Projects are often over-subscribed and investors must be prepared to have their allotments scaled back, similar to initial public stock offerings for the most popular new issues.
While past performance is certainly no guarantee of future results, past performance has been outstanding, thanks to a disciplined approach to underwriting and risk management. Thinking of real estate as a product to be manufactured and sold is a new way of considering what have been to date, strong manufactured returns.
Bob Carter (BA, GBA, CIM) is with Bob Carter Investments (BobCarterInvestments@gmail.com).