Real Estate Investing

This isn’t your hearth and home unless you have a rental suite attached.  I’m speaking of property that generates “income” as well as growth.  This reduces your risk, helps pay the bills, and makes you king or queen of your “castle”.

Owning income properties, whether residential or commercial, can eventually make you queen or king of a realm larger than your castle.  Receiving rental income helps pay mortgages, taxes, upkeep and maintenance, utilities and so forth, until you eventually become the full owner of property that was funded by renters.

How easy could it be?  .. Well it depends on your perspective and your comfort.  Renters aren’t always easy to get along with, and sometimes they may be unkind to your property.  Some stop paying rent so you get a sheriff and court system to remove them.  Despite such hassles, owning rental property can boost your net worth and income.

But what if you hate midnight phone calls for plumbing or electrical issues, occasional court appearances, and cleaning messes between tenants?  What other choices let you invest simply, effortlessly, and profitably in real estate?

Four or Five types of Real Estate to reduce risk.

In a moment I'll offer some perspectives on how one can invest simply,  effortlessly, and profitably in real estate.  First though, what types of property can fit together and reduce risks to your peace of mind?  Compared to renting out a spare house or commercial unit, consider the value and stability of owning five major types of real estate speckled across a map of Canada and the world.

Pic - Commercial Real Estate

Residential & Commercial INCOME

1. Residential real estate:  any well-managed development of residential property should continue paying rental income through the coming decades.  You can easily participate in receiving this income.  Fluctuations may occur with the economy and job markets but over time the value will grow.

2. Commercial Office:  driving past the towering buildings that house our country’s banks and other office complexes, you know someone has to own these properties!  Couldn’t it be YOU?

3. Commercial Industrial:  if you never thought of this, imagine how an industrial / manufacturing business may not want to tie up its cash flow in owning the property on which it’s located.  Who owns it?  Who gets the rent?  How about you?

4. Commercial Retail:  you likely know that Birks, Boathouse, Lululemon, MacDonalds, Starbucks and WalMart all pay rent.  Do you know who receives the rents?   There’s no reason at all why this shouldn’t be YOU.

Pic Medieval Bridge

Toll Bridge? ... ask me the story

5. Infrastructure:  this too helps diversify our real estate investing.  CN and CP Rail aren't just railroad companies spanning Canada and the U.S. – they also proudly own a vast array of valuable real estate.  Toll bridges and highways are (obviously) also real estate, with eye-popping, growing income returns each year to the next.  Airport terminals, hospital parking lots, even U.S. prisons, combine as income-generating infrastructure / real estate.  (Link for more on this.)

What about Risks?  What about Returns?

Here are three pictures -- three real estate funds actually -- that allow you to participate and profit from four or five of the above types of real estate.  No tenants will disturb you.  No plumbers will bill you.  No tax bills to hassle you.  No mortgage payments come due.  No moving dates or court appearances.  No need to shift holidays for somebody's emergency.   We'll skip names so you can get a fair and unbiased look at some time-tested real estate funds our clients may own.  (Data is at Dec 31/14 and returns shown are entirely NET of expenses – or shall we say “money in your pocket”.)

Fund A.   5-year compound annual return is over 10%.   Risk is near "8" which is less than half of the raw stock market.   The fund doesn’t own properties directly but invests in stock companies (available on stock exchanges world-wide) which themselves own &/or manage property assets and draw income from them.   In 2007-2009 when stock markets fell 55% to 75% this fund dropped 35%.  While stock markets took 6 years (72 months) to recover their earlier value, this fund recouped in half the time -- 30 months.   Sound too risky?  Here's a smoother ride if you like ...

Fund B.    5-year compound return is over 11%.  Risk measure is near "7" – less than half of the raw stock market.  This fund’s focus includes all five types of real estate described above.  Like fund “A” it invests in stock companies which own/manage assets for income and capital growth.  In 2007-2009 this approach dropped 17% and recovered in 21 months.

Fund C.  5-year compound return is 8% and risk is "2" (virtually no correlation to stock markets).  The fund owns most of its properties directly rather than as stocks, and includes at least the first four types of property described above.  These include high profile office buildings and residential/commercial developments in and beyond Canada.  In 2007-2009 this fund offered a comparatively smooth ride, dropping 10% and recovering in 18 months ...i.e. four times faster than the stock markets. 

Draw your own Conclusions.

1. Do you feel real estate is a useful way to grow your wealth, reduce long term risks, preserve lasting income for your retirement ...and even help secure your family estate?

2. Would you rather be able to “touch” the physical property where you invest your efforts, or touch a statement that covers the diversified properties you own effortlessly?   If you wish to answer “both” that's fine too, and with special thanks to my mortgage broker this happens to be my own answer.

3. In our own corner of the world where Canada is 3% of the world economy, is it helpful to have a fund with global exposure? …and how much overall?   If our dollar is falling against other currencies, a global real estate fund looks very shiny!  If our $ is rising, the global fund will seem weaker.  Over time though, global exposure reduces risks considerably and allocates your investment (and income) in a world-wide economy.

4. Let’s say you could buy just one thing and you had to choose one of the following.  Which do you feel would best serve you or your family over the coming years?   (a) GIC  or cash-deposit paying 2% over the next 5 years.  (b) Government bond paying 2% for 30 years.  (c) Real estate fund averaging +/- 7% annualized over the years, helping sustain income for your future.  Your answer is…..?

Real estate cannot safely be your only investment.  As a key and vital component of five Life Income Mandates (or watch video) real estate stands alongside dividends, infrastructure, fixed income, and insured or annuity income streams.  This helps guarantee income for life while protecting your wealth for future health and long term living expenses.  If real estate is 10-20% of a portfolio it can reduce your risks and diversify wealth while perpetuating income for life – even to your estate for family and philanthropy.  As we build and maintain your Certified Financial Plan, diversified real estate can be simple to understand, and a powerful engine for your life-long financial security!

Brian Weatherdon, MA CFP CLU CPCA MDRT.  905-637-3500905-637-3500 x 223
627 Guelph Line, Burlington, Ontario. L7R 3M7.   1-877-937-35001-877-937-3500 FREE x 223
Ret.Coach SEALCertified Financial Planner.  Certified Retirement Coach.
brian@SovereignWealth.ca 
Amazon: “A Lifetime Of Wealth — And How Not To Lose It.”

3 comments

  1. The is a well written and compelling argument to adding global real estate as part of anyone’s portfolio of investments.
    I very much agree that we need to look for low risk but reasonable return opportunities and real estate looks like it is one of these.

  2. Dear FM, yes thank you for sharing your comment. Depending on the approach (and one’s experience) real estate may or may not seem “low risk”. Within the larger setting of investment mandates, real estate can definitely reduce risks in two ways. (1) Reduce volatility or losses. (2) Reduce possibility of outliving money invested at today’s deposit rates. To sustain reasonable returns over time and protect Income-for-Life, global real estate as we’ve discussed above can be a vital piece to help protect one’s overall plan and financial wellbeing.

  3. “Until now, most Canadians did not have (easy) access to commercial real estate – these investments were typically reserved for institutional and well-connected high-net-worth individuals. The capital requirements alone made it impossible for most individual investors to own this asset class. From a return perspective, commercial real estate does not generally move in line with residential real estate, and the risk/return profile can be more attractive if you partner (effectively). Many investors are looking to grow and/or develop their real estate exposure, and adding commercial real estate … is a promising strategy.”

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