Monday, August 22, 2011

Investing in real estate without getting your hands dirty

Maybe 'landlording' is not for you. But you can still invest in real estate and let others do the 'dirty work'. Of course, the others want to be paid for their efforts so that will reduce your profits. Like other investments nothing is risk free. The easiest way to invest in real estate is through REITs such as RioCan and Boardwalk.

Today I will mention yet another alternative, but there is typically a minimum investment of $25,000 involved. This alternative is investing in limited partnerships, but as stated earlier they are not without risk. This weekend I received an e-mail from Thomas Beyer, president of Prestigious Properties which offers several limited partnerships and is very successful at what he does. Here are some of the more worthwhile remarks. This is not to endorse Thomas' ventures but it may give you more insight in yet another form of investing.

Something is changing in the world. What is it? (Excerpts from Thomas Beyer's e-mail letter. 

I think it is the realization that a) democratically elected officials cannot protect the average person as previously assumed and b) that Wall Street and its extension does not provide meaningful benefits for investors anymore. People across the developed world are starting to realize that the welfare state, the reliance on public healthcare, clean financial markets, safe investments, guaranteed pensions or the dream of Freedom 65 is seriously eroding! The "state" is not all powerful, will have far less resources going forward, is over-indebted and will give us far less benefits we hoped for. 

I too was enraged these last few weeks at the stock market collapse, the UK riots, the Greek riots, and all the capitalistic greed that caused so much money to disappear not only in the stock market, but also from real estate investments such as Shire, Concrete Equities, Signature Capital, Libertygate and the increased difficulty we now face to raise money into our fairly safe and still quite lucrative investments due to these failures but also due to recent changes in the exempt market. 

To the second point read this blog post by Mark Cuban, the billionaire owner of the Dallas Mavericks, on "What business is Wall Street in". The ONLY parties that make money in the financial industry are traders and banks, trading on extreme volatility. With several billions shares traded over the last few days of extreme volatility alone, with no transaction tax, there is no benefit to investors nor governments, only to trading houses. Why does the BC or ON government charge a 2% real estate transfer tax, but no share transfer tax ? Surely, that would be one good way to encourage stock ownership for more than a few seconds, to reduce volatility and to boost Ontario's, Ottawa's or Washington's empty coffers. Additionally, banks can borrow money at next to nothing and buy treasuries with a 1% (or 100% profit) uplift or lend it to homeowners for 3.5 to 4%. Why risk lending to a job creating small businesses such as a software start-up, a manufacturing or bio-chemical firm, or for a real estate land deals, if a bank can make money almost risk free. No wonder so little jobs get created in North-America anymore. ….

Well, you have a choice: continue down that same insane path of "investment" or try another path. Why not co-own some residential land or income producing real estate in one of the most advanced and prosperous parts of the world, namely W-Canada. We have what the world wants: oil, gas, coal, wind, water, uranium, potash, agricultural land, clean air, space, scenic beauty, less crowds, low debt, low deficits. W-Canada has high levels of in-migration due to very strong job growth. Our rents in Calgary and Edmonton are going up, and so are buildings values. After only 2-4 years of ownership we have sold a portfolio of 4 buildings in Yorkton, SK at an enormous profit. …

Here, I'll take over from Thomas. You may have heard about the 'financial transaction taxes' proposed by Nicolas Sarkozy and Angela Merkel at last week's EU leader summit that outlined a blueprint for the future evolution of the EU. This is similar as to what Thomas' suggests. Guess what? The Goldman Sachses of this world, high frequency traders and other hedge fund managers have been ho-humming these proposals for it will obviously affect their manipulative investment strategies. However, it may make your life as a 'buy-and-hold' investor a lot less volatile.

North Americans have the tendency to put down Europe as old and over-regulated but I wouldn't count these old worlders out, in fact you may be surprised to know that the combined EU-economy outsizes the U.S. significantly. The traders say that they will go with their business elsewhere if those transaction taxes are applied just like they did around 1984 in Sweden. Sweden is a small market, when applied to the entire EU, the question is where would the traders go? Especially if North America does the same.

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