The Revival – August 2020: Privates and Joints… Wait, what?

This week on social media, I’ve seen headlines like – “Tiny Toronto House for $1 Million!!” + “Toronto’s Real Estate Rising Fastest” and TRREB released their July Sales Data showing the housing market’s unbelievable resiliency.

Increasing asset prices combined with a sluggish economy (due to the haphazard, government-imposed, COVID response) doesn’t seem like a great recipe for getting your foot in the door of Real Estate investing.

Yet this month we decided to highlight these challenges, but more importantly we wanted to share TWO strategies that a passive investor, or beginner, can use to overcome them.

Both strategies address the beginner’s biggest questions:
How much money do I need? Don’t I need more experience?
I’m busy with work and life; how much time will be required?

The answer to the 2nd & 3rd questions are the same: By working with a trusted expert you are able to leverage THEIR time and expertise. By partnering with an experienced, active real estate investor, you can create wealth and build your experience + knowledge in a hands-off, passive way. As for how much money is needed, we will outline that in the two passive strategies below.

PASSIVE STRATEGY #1: PRIVATE LENDING

• Think of private lending as you being the bank. Private money lenders are basically regular people who lend money to real estate investors to purchase, refinance, or renovate a property. Just like the bank, your money is secured (or “collateralized”) against a real property; typically in the form of a 1st or 2nd mortgage, or through a promissory note.
• This strategy is a fantastic option to earn passive income from interest and available to anyone who has between $25,000 – $500,000. However these amounts are just general guidelines.
• This allows you to eliminate the middleman (the bank) and earn a higher interest rate than the bank is currently offering. Your typical bank investment vehicles are likely earning you between 0%-5%. Private money lending can earn you 5%-10% (or even more, depending on how the deal is structured or how the loan is collateralized.)
• The term length of a loan is always negotiable, but they usually run from 6 months – 2 years (again based on the type of deal, the rate chosen and/or the type of collateral.) These details are always written into a legal contract by a lawyer of your choosing.

Private lending is a good way to get your funds working for you, creating passive income, while lowering your risk and taking control of your investments.

• A joint venture is basically a partnership between a Passive investor (like you!) and an Active investor who brings specific expertise to the investment. These rental property purchases can be structured in many ways, but are typically a 50/50 split of ownership and profits. The term of these “partnerships” are usually 2-5 years to maximize the above state benefits.
• In this strategy, the Passive partner benefits from cashflow, mortgage pay-down, and appreciation pushing their returns much higher.
• The Passive partner is simply required to bring the funds + financing to the partnership. Typically this is between $85,000 – $200,000 (within the Greater Golden Horseshoe.)
• The Active partner sources the property/deal, creates accurate budgets and timelines, then works with the municipalities, inspectors, and contractors. They typically also vet, select and manage tenants + property manager relationships. (They do all the heavy lifting!)
• A joint venture, although typically a longer term commitment, is a fantastic way to increase your returns (often between 15-25% annually), while still remaining a completely hands-off investor.

For either strategy, an experienced Real Estate expert will know which legal forms are used and they will also pay for your legal fees (for your lawyer to review and approval.) They will also work through various deal structures until they find what fits your situation best.

At Ontario Assets we do just that and we specialize in both of these strategies; We have ongoing deals and partnership opportunities for private lenders and/or joint ventures.

We typically work with people who are too busy building the important things in life: a connected family or working on their own businesses, as examples. We also enjoy enabling novices to learn the ropes and get into the real estate market. Lastly, many of our clients just want someone else to take care of the details and have someone else execute the strategy.