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CANADIAN REAL ESTATE
By John W Carter, CEO
Parkhurst Asset Corp
Background on John
Historical returns vs. other investment options
Why invest in real estate
Hurdles and challenges, and how to overcome
How to run the numbers on a property
Options for investment in real estate
Background on John W Carter
John has over 10 years of experience managing
his personal portfolio of single family properties &
apartment buildings as well as a number of joint
venture holdings. He has done so successfully
through all market cycles.
Since 2002 he has transacted business volume
with clients and his
personal portfolio of over
$70,000,000 and over
100 property transactions.
Why Invest in Real Estate
percent of all
Equity repayment – tenants pay
down your mortgage for you
Should achieve 12-20%+ ROI on
Depending on financing strategy, breaks down
as: 3-5% cash on cash return, 5-8% with
equity paydown, and overall return includes
appreciation over 5 years+.
Equity Repayment & Appreciation
Income Grows too
Long Term Appreciation Formula
Research provided by Real Estate Investment Network & www.donrcampbell.com
Tax Advantages & Cash Flow
Can write off interest on debt used to buy investment
Depreciation of asset value against other income
Growth of capital is tax deferred until sale
Tax on sale treated as capital gains, and thus only 50% of
gain is taxable
Should always invest into positive cash flow from day one
Debt should be positively leveraged (explained later in
Invest in growth areas, and where high demand for tenants.
Ideal property types are 2 bed condos, 3 bed townhouses, or
3+2 bed suited houses
Hurdles and Challenges Overcome
but you need
cash flow to
wait for that”
- John Carter
Not enough cash
Friends, family, business associates to JV with
Qualifying for mortgages
Finding viable properties
Hire a Realtor that owns investments properties
Target growth markets where numbers make
Fixing toilets, tenant horror stories, and 2am
Hire property managers, have cash flow to pay
for them by structuring investment properly up
front, and do annual inspections yourself.
What is NOI?
What is a cap rate?
What is positive and negative leverage?
Net Operating Income (NOI)
Income after all expenses, but not including debt payments. Is an
equalizer to compare investment properties, and the primary value
of an investment property
Simply put, it’s the NOI divided by the purchase price. Represents
the return on investment assuming purchasing the property with
zero debt. Is the equalization for comparison of various properties.
Positive and negative leverage
Positive leverage is where the interest rate for debt on a property is
lower than the cap rate. The result is the investor achieves an ROI
on the banks money as the spread between cap rate and interest
Negative leverage is where interest rate is higher than the cap rate.
This means cash flow is reduced to pay debt payments, and can
result in the investor being short on cash to pay the mortgage and
potentially losing the property to foreclosure in future.
Options for real estate investment
Buy rental property – 12-20%+
Invest cash as a joint venture partner with a
successful real estate investor – 10-20%+
Invest cash into a limited partnership or private REIT
– 7-15%+ (some are RRSP eligible)
Invest in public REITs – 7-18%+ (avg. 18% in 2012)
(RRSP eligible through self directed account)
Invest in private first or second mortgages – 8-12%
MICs (mortgage investment corporation) – 8-12%
Options for real estate investment
If have $40-50k, and
ability to get debt, buy a
If not, invest cash with
JV proven investor
If less than $10k, invest
in public REITs
If over $10-25k, invest
in private REITs, but do
Best options for starting out
Real Estate Investment Success Plan
1) Own your own home
2) Keep your first home as a rental, and move up
3) Buy single family properties with secondary suites
4) Real life monopoly… buy 4 houses, then move to
Focus on tenant screening up front, effective
management, cash reserve
Slow, strategic moves. Buy and hold min. 5 years
Refinance when possible to bring debt costs down.
Use caution when refinancing equity. Must still be
cash flow positive, and use equity for re-investment
Increase rents with market, but keep tenants better
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