How comfortable are you following advice from or investing with someone who says all the right things, but hasn’t been executing on their own advice? When you go to a bank and the advisor suggests a mutual fund; Are they invested in it themselves? I struggle with that question being someone who is discussing joint venture real estate and pumping up being a capital investor and letting a (skilled) managing partner (Me) do all the work. I am open and honest in this scenario as I am not someone with the financial means to be the capital investor (yet) and I have dedicated years to educating myself to being the managing partner.
I do truly believe in real estate as a great investment for a number of reasons; I do think real estate is an investment that carries a lot of risk; and I do believe that the majority of this risk can be managed with some education and hard work. I believe the risk in real estate can be mitigated to the point where for a comparable return the risk is significantly lower than anything else.
So where does that leave me. I want to help people invest, but I have not been the capital investor before, so considering my first point of view of this post who would invest with me? I say all the right things, but I am not currently a capital investor and yet that is what I put forth as a great investment to be in. I have also written about the positives of investing in commercial real estate, yet I am currently invested in single family doors.
Well…I have now. October of 2019 I closed on a deal on 16 unit apartment building in Saskatchewan with a couple other investors. I am a capital ivestor in a commercial building.
After a lot of brainstorming sessions, accountability calls, research, deal analyses and more; I wanted my next property to be heavier on the cashflow. To find a property that has great cashflow, you either need to put down a greater percentage (Which I didn’t have) or you need to leave the lower mainland. I am sure there are a few gems out there, but working out of town, I didn’t have the time to spend searching too many deals to find one. I chose to spend time with my family as I was already missing out on a lot at home. Sound familiar?
So, what worked for me was out of town cashflow. This meant I would not be able to property manage. Now I was going to be in the same scenario I have talked about before. I was going to be the capital investor.
I didn’t have much cash to invest, so how could I do it? I have been fortunate that the investment property that I purchased had increased in equity (early) enough that I could get a HELOC. I used that HELOC to purchase the Saskatchewan property. This had so many positives for me in this scenario.
- Because I was using a line of credit to purchase the property, the interest charged to the LOC is fully tax deductable.
- The cost of borrowing (HELOC interest) is covered by the cashflow.
- We purchased a commercial property that is valued by using cap. rate. This means that as we increase the net income (Increase income and/or decrease expenses), we increase the value of the building. We have more control over the value of our investment. See my previous post “The Mike Everitt Method”.
- I have invested with other investors, so I am not alone with this investment.
- The building was purchased undervalued and with lower than current market rents. As the building has turnover we are able to increase rents and therefore increase value. By purchasing the property at a discount we have some built in security to start.
- I do nothing but collect and watch it grow. A little simplistic, but I really just monitor what happens. I am not involved in any of the day to day.
The moral of this story is I put my money where my mouth is. It is working. I am on both sides of a deal and it feels great. I would love to be simply a capital investor in the future.