Feeling like the stock market is a little too close to the casino? Wondering how GIC yields will ever meet your retirement needs?
Real estate secured investments offer a middle way.
Here is a list of professionally managed real estate secured investments listed in order of increasing risk. Let us help you find the right on for you:
Mortgage Investment Corporations (MICs) - Mortgage investment corporations are pooled funds of private mortgage loans that reduce risk through diversification and professional managers who underwrite and service the loans. MIC investments can me made in large or small dollar amounts. The return generated by MIC investments guides up and down with the general level of mortgage rates, but the capital value of large and well-run MIC shares is usually very stable. Pros: Diversified portfolio, flexible investment amounts, constantly updating portfolio, professional management, secured and steady income stream generally higher than other secured investments, RRSP and other registered plan eligibility. Cons: Mortgage borrower defaults, mortgage market fluctuations, managment errors, longer capital commitments.
Real Estate Income Trusts (REITs) - REITs aggregate individual investor capital for the purpose of investing in real estate, usually apartment buildings and/or commercial properties. The value and the income of REIT shares fluctuate along with the value of the underlying properties fluctuate along with the underlying properties. Pros: Diversified portfolio of long-term real estate investments, professional mangement, steady income. Cons: Fluctuating value of underlying real estate and income, management errors, financing costs, liability management, longer capital commitments.
Commercial Syndicated Mortgages - There are many types of Syndicated mortgages, the one we are referring to here is called mezzanine financing usually for condominium construction projects. Investors pool their funds by buying units from a developer who uses the funds to cover the soft costs such as building a sales center and marketing condominiums of a planned new development. The developer pays a pre-determined rate of interest during the sales period - usually 2-3 years and a bonus yield based on a share of anticipated profits upon project completion. In recent years, yields tend to be 8% in the selling years with a bonus of an additional 4% in the year of completion. The investments are usually secured by the land to be developed. Pros: Potential for higher Income yields, experienced developers, secured by vaule of building lot. Cons: Limited upside potential, Investments must be evaluated project by project, lack of diversification, occasional delays in return of capital, occasional project failure.
Land Banking - Land banking is pooling resources with a site developer, usually adjacent to a growing city e.g. Edmonton, AB, who will use the funds to survey lots, install services etc, until the property can be sold off in individual building lots. The investor is usually assigned a particular building lot and receives a lump sum pay out when the assigned lot is finally sold anywhere from 1 to 7 years from the time of the original investment. Pros: Large mark-up between raw land and registered building lots, professional management, returns in the form of tax advantage capital gains. Cons: Sensitive to real estate market fluctuations, delays in zoning approval, illiquidity of investments, potentially long delays in return of capital.