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CANADIAN REAL ESTATE
INVESTING 101
By John W Carter, CEO
Parkhurst Asset Corp
March 2013
Content
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
Questions
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.
Historical returns vs other options
Historical returns vs. other options
Why Invest in Real Estate
Why Invest in Real Estate
“Ninety
percent of all
millionaires
become so
through
owning real
estate.”
-Andrew
Carnegie
Leveraged appreciation
Equity repayment – tenants pay
down your mortgage for you
Tax advantages
Cash flow
Should achieve 12-20%+ ROI on
cash invested.
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+.
Leveraged Appreciation
Equity Repayment & Appreciation
Income Grows too
Long Term Appreciation Formula
Research provided by Real Estate Investment Network & www.donrcampbell.com
Tax Advantages & Cash Flow
Tax advantages:
Can write off interest on debt used to buy investment
property
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
Cash Flow
Should always invest into positive cash flow from day one
Debt should be positively leveraged (explained later in
numbers)
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
Hurdles and Challenges Overcome
“You make
your money
real estate
investing on
the
appreciation,
but you need
cash flow to
wait for that”
- John Carter
Not enough cash
Friends, family, business associates to JV with
you
Qualifying for mortgages
Get co-signer
Finding viable properties
Hire a Realtor that owns investments properties
themselves
Target growth markets where numbers make
sense
Fixing toilets, tenant horror stories, and 2am
phone calls
Hire property managers, have cash flow to pay
for them by structuring investment properly up
front, and do annual inspections yourself.
The Numbers
The Numbers
Key terms:
What is NOI?
What is a cap rate?
What is positive and negative leverage?
Proforma examples
The Numbers
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
Capitalization Rate
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
rate.
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.
Proforma Examples
Proforma Example
Options for investing in real estate
Options for real estate investment
Equity options:
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)
Debt options:
Invest in private first or second mortgages – 8-12%
MICs (mortgage investment corporation) – 8-12%
RRSP eligible
Options for real estate investment
If have $40-50k, and
ability to get debt, buy a
rental property
If not, invest cash with
JV proven investor
(amount varies)
If less than $10k, invest
in public REITs
If over $10-25k, invest
in private REITs, but do
diligence
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
apartment buildings
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
only
Increase rents with market, but keep tenants better
Additional Resources:
www.ptrust.ca – Download investment
guide and review ‘Learn’ section. Signup for
our email newsletter
www.reincanada.com REIN – take the
ACRE system intro. course and signup for
newsletter
Any Questions?

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Canadian Real Estate Investing 101

  • 1. CANADIAN REAL ESTATE INVESTING 101 By John W Carter, CEO Parkhurst Asset Corp March 2013
  • 2. Content 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 Questions
  • 3. 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.
  • 4. Historical returns vs other options
  • 5. Historical returns vs. other options
  • 6. Why Invest in Real Estate
  • 7. Why Invest in Real Estate “Ninety percent of all millionaires become so through owning real estate.” -Andrew Carnegie Leveraged appreciation Equity repayment – tenants pay down your mortgage for you Tax advantages Cash flow Should achieve 12-20%+ ROI on cash invested. 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+.
  • 9. Equity Repayment & Appreciation Income Grows too
  • 10. Long Term Appreciation Formula Research provided by Real Estate Investment Network & www.donrcampbell.com
  • 11. Tax Advantages & Cash Flow Tax advantages: Can write off interest on debt used to buy investment property 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 Cash Flow Should always invest into positive cash flow from day one Debt should be positively leveraged (explained later in numbers) 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
  • 13. Hurdles and Challenges Overcome “You make your money real estate investing on the appreciation, but you need cash flow to wait for that” - John Carter Not enough cash Friends, family, business associates to JV with you Qualifying for mortgages Get co-signer Finding viable properties Hire a Realtor that owns investments properties themselves Target growth markets where numbers make sense Fixing toilets, tenant horror stories, and 2am phone calls Hire property managers, have cash flow to pay for them by structuring investment properly up front, and do annual inspections yourself.
  • 15. The Numbers Key terms: What is NOI? What is a cap rate? What is positive and negative leverage? Proforma examples
  • 16. The Numbers 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 Capitalization Rate 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 rate. 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.
  • 19. Options for investing in real estate
  • 20. Options for real estate investment Equity options: 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) Debt options: Invest in private first or second mortgages – 8-12% MICs (mortgage investment corporation) – 8-12% RRSP eligible
  • 21. Options for real estate investment If have $40-50k, and ability to get debt, buy a rental property If not, invest cash with JV proven investor (amount varies) If less than $10k, invest in public REITs If over $10-25k, invest in private REITs, but do diligence Best options for starting out
  • 22. 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 apartment buildings 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 only Increase rents with market, but keep tenants better
  • 23. Additional Resources: www.ptrust.ca – Download investment guide and review ‘Learn’ section. Signup for our email newsletter www.reincanada.com REIN – take the ACRE system intro. course and signup for newsletter Any Questions?