"NEED FOR SPEED" Model Drives Investors to Reinvest

“At our core, we are investment agnostic.  We are first and foremost investors focused on creating wealth with the lowest exposure to risk. We love certainty.”

Janet LePage and Dave Steele of Western Wealth Capital have a disciplined approach that fuels their long road of consistent returns.

There are three heartfelt words that can make any investor melt:  “Compound annual returns”.  For investors facing a volatile market, these three words resonate as deeply “I love you”.  However, no matter whether you are looking for love or compound returns, both are equally elusive.

To realize compound annual returns, you need certainty of market and strategy – a fixed outlook.  In our industry, some real estate investment trusts (REITs) can offer dividend reinvestment plans, allowing investors to reinvest dividends in additional shares of the company.  Typically, these REITs invest primarily in commercial properties, such as downtown office buildings, and pay routine dividends from rental income and capital gains.  These are long-life and predictable assets to generate compound returns.

But they’re not the only avenue.  Western Wealth Capital’s disciplined strategy, pace, and track record have created a new opportunity for reinvesting equity over time:  the acquisition, optimization and divestment of multifamily rental properties.

To date, we have executed on the full cycle of our business strategy 13 times, often over a relatively brief period of 18 to 28 months.  The average annualized return for these divestments has been 34.08%.

Our consistent performance has built certainty, and, similarly, fuelled investor retention and referral.  We estimate that 90% of our investors reinvest some or all of their equity in subsequent WWC opportunities.  Investors roll their money forward, project to project.  Some spread their equity over a number of opportunities.  We have become a dedicated slice of our investors’ overall portfolio pie.  As you see from the tables below, investors are not receiving strong performance but potentially realizing compound returns over several years.

There are three main pillars driving the ability to deliver consistent returns over an efficient timeline.

Disciplined, Precise Strategy

At our core, we are investment agnostic.  We are not real estate investors.  We are first and foremost investors focused on creating wealth with the lowest exposure to risk.  We love certainty.  Our thesis is simple:  People need a roof over their head, and in fast-growing cities, that can be hard to come by.  We look for cities where growth of GDP, population, and employment increase property and rental prices over the long term.  Specifically, we focus on markets where population growth outpaces both existing housing supply and near-term single-family and multifamily additions.  Declining or below-average rate of home ownership and affordable income-to-rent ratios are also winning determinants.

To date, we have focused on Phoenix and San Antonio because they continue to host our investment fundamentals.  We are just as precise as to where we allocate capital in these cities.  We acquire undervalued Classes B and C multifamily rental properties; carefully invest capital to accretive improvement; and optimize operations – including normalizing rents, updating kitchens, and adding washers and dryers – to increase the asset’s net operating income (NOI) and valuation.  We have never deviated from this strategy, only optimized it.

Pace and Scale

Repeatability not only creates scalability but ongoing opportunities to improve our business strategy.  In short: How can we do better?  As addressed in a previous column in this magazine, we call the end result “the need for speed.”  Our refinement has allowed us to accelerate the improvement in NOI efficiently, providing a shorter runway to achieving our investment goals. During the acquisition cycle, we consider the passing of the nonrefundable stage our triggering event.  At this point, we begin implementation of our 24-point checklist of near-term improvements and action items.  On acquisition close, we quickly execute all prearranged improvements.  Very quickly we begin our program of normalizing rents to market rates, marketing unit improvements that include upgraded kitchens and added washer and dryers, and investing in community renovations.

This modest capital investment generates materially accretive returns.  Our track record shows that the resulting increase to NOI, using a conservative capitalization rate, can increase a property’s valuation equal to investors’ original equity.  We leverage supplemental financing because our investors value certainty.  We ensure our loan terms allow for an annual appraisal to leverage improved NOI and property value.  And we increase the existing loan to return equity back to investors.

Track Record

If investors wish to roll their equity forward, they require an ongoing inventory of investment opportunities.  By remaining disciplined to a model that works, we’ve built a strong reputation with commercial property brokers, financial institutions, and property management companies.  They know what we like.  This has given us exposure to large pipeline of some of the best multifamily investment opportunities in the American Southwest.  Along with building out our bench strength prudently. this deal flow has allowed us to execute on a large number of opportunities, year over year.  From 2015 to 2017, we acquired 30 multifamily communities (for a total of 5,908 units) in the southwest United States.  This year, we are on pace to match or exceed the 12 acquisitions made in 2017.

And we are now extending our viewpoint to the rest of the United States to leverage a business strategy that builds better communities and rewards more investors.

For more information, see the article here from REIN Life – May 2018 or contact the IRR team.

 


Own Real Estate Without A Mortgage With A Limited Partnership | Investment Revenue Realty Blog

With the new OSFI mortgage qualification stress test and other government measures put in place recently, many Canadians are looking for creative solutions to allow them to enter into the real estate market or expand their real estate investment portfolio. The Limited Partnership investment structure leverages the power of multiple investors, allowing independent investors to finance large-scale projects, starting at just $25,000.

So, what exactly is a Limited Partnership?

A limited partnership (LP) is a form of partnership that must have at least one General Partner and at least one limited partner. For the purposes of real estate development think of it as a very sophisticated joint-venture. The Limited Partnership structure is a legal structure that allows two or more partners to invest in a business but limits their individual legal liability (or risk) to the total of their respective investments – and no more. For example, if a partner invests $25,000 (which is the minimum US or CAD contribution for our LPs), they are only responsible for that amount.

The General Partner (GP) has management control, share the right to use partnership property, share the profits in predefined proportions, and has joint and several liability for the debts of the partnership. The GP has the actual authority, as agents of the firm, to bind the partnership in contracts with third parties that are in the ordinary course of the partnership’s business.

Like shareholders in a corporation, limited partners have limited liability. This means that the limited partners have no management authority and are not liable for the debts of the partnership. The limited partnership provides the limited partners a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the limited partnership agreement. General Partners thus bear more economic risk than do limited partners, and in cases of financial loss, the General Partner will be the one that is personally liable.

What does an LP look like in action?

We represent two North Vancouver firms (Western Wealth Capital and Western Canadian Properties Group) that leverage LPs to fund land development, and multifamily value add deals in emerging markets across Canada and the United States. These companies have a combined 30 years of experience and have completed a total of $2.5 billion in real estate transactions.

Our real estate investors contribute private equity funding for the projects and the LP’s are registered owners on the property title, but they don’t have to worry about the headache of acquiring financing, managing the property or delivering operating efficiency.

Investors can sit back and relax, while the LP’s General Partner carries out the business plan. Over the years, our partners have perfected a turn-key business plan that has delivered proven results time and time again.

Western Wealth Capital acquires underperforming US multi-family rental properties and increase net operating income and valuation through an approach that has been successfully applied across our portfolio. The GP manages these assets, distributes resulting cash flow to investors annually and, when appropriate, divests.

Western Canadian Properties Group acquires land, rezones to higher density and develops properties for sale to institutions, owner occupiers or investors. Buy by the acre, sell by the foot.

Read our blog on multi-family real estate for more details on the approach.

What are the benefits of investing in an LP?

The LP structure is better suited for a passive real estate investor looking to leverage equity by investing alongside an experienced developer. Typically, the deal size is larger, earning multiples greater and investment horizon shorter.  Many of our real estate deals generate double-digit annualized return within the three-to-five year investment term.

There is also peace of mind knowing you investing with the best in the real estate business. Financial models are available pre- and post- purchase to provide a transparent look at how each step impacts overall profits.  Ongoing progress reports, online portal access and annual statements are readily available and easily accessible.

Want to learn more about current opportunities to invest in a Limited Partnership? Contact us for details!


How To Invest In Multi-Family Real Estate | Investment Revenue Realty Blog

From dinner table chit-chat to media coverage, British Columbia’s exploding real estate market has been on the tip of everyone’s tongue for some time.  But, what about the booming real investment opportunities south of the border?

With a burgeoning tech sector, Phoenix, Arizona, is on the verge of massive growth. The local government has committed to investing millions into office space and amenities for its growing population. People go where the jobs grow, and with every booming job market, comes an increased demand for housing.

In Phoenix, our partners at Western Wealth Capital are the community’s second largest multi-family owner. Investing in multi-family properties (apartment buildings) is often a very lucrative real estate investment strategy as this sector of the real estate market tends to be in highest demand.  

By developing a repeatable, scalable and profitable system that has the potential to deliver double-digit investment returns for our clients. Here’s how it works:

Finding Underperforming Assets In High Growth Markets

We apply a proven business model to our real estate investments. Instead of simply relying on real estate prices going up to generate a profit, WWC strategy focuses on acquiring underperforming properties in markets it knows are booming due to job growth. WWC identifies properties that have under market rents, don’t show well and are located in high traffic areas close to emerging business centres. It increases their value by increasing the income through its value-add program and ultimately, generates a positive return on investment. Multi-family properties provide the scale needed to create exponential growth.

How We Transform Properties

Generally, our investment projects have a three- to five-year window. During this time, WWC does cosmetic “Goldstar” updates to the apartment units, raises rents to market rate, and installs washers and dryers. The WWC team oversees the project and tracks progress every step of the way to ensure it is on time and budget.

All the while, investors needn’t worry about managing tenants, vacancy or repairs on the building. This is all handled by WWC team.

In doing so, WWC increases the profits for our investors. It’s called the multiplier effect. For example, for every unit that is upgraded, residents can pay another $150 per month. For every washer/dryer installed, another $50 month. This would achieve approximately $270,000 in rent revenue per year for a 150-unit building. Based on a 6% cap rate using the income approach to appraisal that equals $4,500,000 increase in value.

No Mortgage Necessary

In partnership with WWC, we raise funds for investment properties through a Limited Partnership structure. Our investors contribute to the LP without having to acquire a mortgage or dealing with the headache of pre-approvals and rigid mortgage stress tests. WWC teams manage the financing and execute a proven process.

Maintaining A Human Connection

We love WWC approach to business. Janet Lepage, CEO of Western Wealth Capital, the mantra is, “We do business on human terms”. WWC focus is to create a nice place to work and live, so nurturing caring relationships with property managers and tenants is a major priority. We support those that care.

You get what you give. Every year WWC gives to its communities, “We Got Your Back”, a back to school program that provides 1,500 backpacks with school supplies for children in our buildings. Rent Free Christmas for one family in each community that needs a helping hand.  This year WWC raised its own bar giving 3 families Christmas in a Box – rent free December PLUS gifts for the family.

After all, a healthy and happy community is great for residents, and, in turn, investors.

Interested in learning more about investing in multi-family properties? Call 604-764-5647 or book a webinar!

 


real estate vancouver, real estate development, condos, surrey real estate, real estate investment, investing, investment

Real Estate Development 101

Real Estate Development 101

Did you know that between Downtown Vancouver and Langley there are just over 2,000 total units available for sale – and only about four dozen of those are move-in ready right now?  With so many towers going up throughout Metro Vancouver, it may seem surprising that there is so little supply. But, the truth is that almost everything that’s being built today is nearly sold out before it’s even built.

But, that isn’t stopping those presale lineups. The math is simple: we have a finite amount of land in the region and a growing population that’s leading to increased housing demand.

This is particularly apparent in the City of Surrey, where the population is expected to grow by another 300,000 people by 2030.  There are approximately 150 new towers in the cue for development in Surrey, and exciting new amenities and transportation for the city’s five neighbourhoods make this community an appealing focus for real estate investment. In particular, Surrey City Centre is set for massive growth with a new LRT, expanded amenities and emerging businesses.  

Despite the looming growth, Surrey is still very affordable market to invest in real estate. Earlier this year, condo units were selling for around $750 per square foot. In contrast, the average new concrete condo in Vancouver sells for between $1,200 – $1,500 per sq. ft.

For most investors, the prices don’t make sense unless you get in on the ground floor and partner with other investors to fund the purchase or re-development of a real estate project in a top market like the City of Surrey.  

With mortgage rates creeping up and a more strict stress test for qualifying for a mortgage, many investors are opting for the partnership model. Our team at Investment Revenue Realty has developed the RealSimple investment strategy – a proven approach that often nets our investors’ double digit annual returns from their first year.

So, how does it all work?

1. Market Research and Discovery

As an investor, you’ll want to learn as much about the market and the real estate opportunities as possible. Investors can sign up for online webinars, walking tours, discovery trips, and real estate investment events to learn more about the process, the top markets, and the specific properties we have on offer.  Our team is also on hand throughout the process to help answer any questions you might have along the way.

2. Investment

We create a Limited Partnership (LP) for each property. One of the benefits of the LP is that investors don’t need to sign for the financing or qualify for a mortgage. We take care of the paperwork and secure financing from lenders. All you have to do is make the commitment, and let our team take care of the heavy lifting.

We also structure returns so that the investor receives 85% of the profit for returns up to 18%. Once we achieve this milestone, the investor will then receive 15% of the profits going forward. This is the second layer of protection for the investor to ensure they’re receiving sound returns should there be cost overruns.

3. Refreshing The Property

When we acquire an existing apartment unit, one of the benefits is that it is already cash flow positive. This means that the units are already tenanted and their rent is generating income for investors from Day 1.

We’re often able to increase that rental income shortly after acquiring the building by improving the units with small updates, such as a fresh coat of paint, flooring or new appliances. This means profits will increase right out of the gate.

4. Rezoning

When we purchase a property, there may be potential to rezone it for redevelopment.

These days, buildings are designed to be efficient and sustainable, so we can add more units to the existing land. For example: a six-story building with 200 units has the potential to become a 26 story building with 350 units, which will ultimately increase the amount of returns we can yield throughout the process.

Junior one bedroom units are common, offering comfortable living space at reasonable prices. At today’s going rates in Surrey, a 450 sq. ft. would only cost under $350,000, which is a fraction of the cost of a Vancouver condo. New buyers will be lining up to buy in no time!

It’s important to note that the building remains tenanted while we are going through the rezoning and permitting process, ensuring that our investors are protected against unexpected delays and we aren’t sitting on vacant land.

5. Pre-sales

Developers are required to pre-sell a property by between 75-95% before breaking ground. Once we’ve received approval to rezone an acquired property, we can then create a marketing plan to promote the new vision. We partner with British Columbia’s top firms, who specialize in pre-sales to ensure we are selling out as quickly and efficiently as possible.

6. Construction

Once we’ve achieved our pre-sale threshold, we will then go through the process of notifying tenants, demolishing the building and bringing to life the new vision for the tower. Depending on the building design, construction may take between 18-24 months.

7. New Owners Move In

Once the building is completed, the new homeowners move in and the investment term has completed. It’s then time to move on to the next opportunity!
So, there you have it, our RealSimple investment strategy. Want to learn more? Get in touch with one of our experts.


BC working with feds on Pacific NorthWest LNG delay

Provincial officials are in Ottawa today to work with their federal counterparts on overcoming the latest delay for Pacific NorthWest LNG (PNW), B.C.’s natural gas minister says.

In a statement, Rich Coleman said senior officials from the province are in the capital to “reach a positive final outcome that helps our economy, protects the environment, and respects First Nations.”

“I’m confident that any remaining questions can be answered completely and quickly. They have to be. Jobs for British Columbians should not be held by unnecessary delays,” Coleman said.

“After all, this just isn’t any project. At $36-billion and 18,600 jobs, PNW LNG would be the largest private sector investment ever in Canadian history.”

“The positive impacts of PNW would be felt across almost every community in BC and across [full article here] 


Jordan Cove LNG lands sales agreement for gas

Jordan Cove LNG, a natural gas export facility proposed on the Oregon coast, has signed a 20-year sales agreement with world’s largest liquefied natural gas buyer.

The deal appears to put the project, which could take gas from the B.C. Montney formation, back on track after running into a roadblock with U.S. regulators.

JERA Co. Inc, a joint venture of the Tokyo Electric Power Company and Chubu Electric Power Co., Inc., signed on to buy 25 per cent of the project’s proposed 6 million tonnes per year output in a deal announced Tuesday.

The company is owned by Veresen Inc., a major midstream natural gas player with assets in the Dawson Creek area. [read full article]


Site C Dam civil construction begins in May

Site C Dam is 8 months into the 10-year Site C Dam project. While the physical construction of the Dam doesn’t begin until May, there has been lots of progress made to date.

This is the largest infrastructure project happening across Canada, located 7 km from Fort St. John.

Over the course of the project 33,000 jobs are expected to be created.


Billion-dollar gas plant approved for Dawson Creek area

A partnership involving Veresen Inc. and Encana Corp. that has already committed $1.5 billion to two new gas processing plants in the Dawson Creek area has announced plans to spend nearly $1 billion more on a third gas processing plant.

Veresen is already building two new gas plants in the Dawson Creek area – the Sunrise and Tower plants – with a combined capital cost of $1.5 billion.

Last year, Veresen acquired natural gas gathering and compression assets from Encana and the Cutbank Ridge Partnership.

As part of that deal, Veresen committed to $5 billion worth of investments to build out additional assets for Encana and the Cutbank Ridge Partnership. Under the agreement, Veresen is funding 55% to 60% of the three new gas plants.

The investments underscore the attraction of the Montney formation in Northeastern B.C. [full article here] 


Squamish Woodfibre LNG project gets federal environmental approval

The federal government gave its stamp of approval to the $1.6-billion Woodfibre liquefied natural gas project Friday.

Exporting and processing 2.1 million tonnes of LNG each year from the former pulp mill site southwest of Squamish is unlikely to hurt the environment, according to a release from Catherine McKenna, Minister of Environment and Climate Change.

Winning environmental approval from the federal government was the last major hurdle to clear for the polarizing project, which can start launching 40 double-hulled LNG-bearing tankers to Asia each year, beginning as early as 2017.

The project should create about 650 construction jobs during the building phase and more than 100 jobs once the plant is operational. [full article here]


14 Factors To Help You Predict The Price Of Real Estate

Following my past post on the 7 things you need to know about investing in real estate, I’m going to expand on investing in the fundamentals. Why? Because this is by far the most work and, depending on how much work you put into this step, it will take your investment portfolio to a whole new level. This is the work that will allow you to predict, within a fair margin, the price of the real estate within the region in which you are investing.

What are the factors to look for when you want to predict real estate prices? There are many to consider. I’ve collected a bullet-list of the what I believe are the most important ones below. Each is important in its own right and by doing your homework on each and everyone one, you can enjoy the security afforded by such detailed knowledge.

The Factors

Economic, job, and population growth. Demand for real estate is driven by population growth. Population growth is fueled by job growth. Job growth is fueled by economic change within a region (ie employment trends, net migration, industry diversification, etc.). Let’s look at these factors one by one.

Employment trends are one of the most important economic factors related to the current and future health of a market. People who have jobs have the income to afford to pay their rent. Those that don’t will not be able to afford to pay their bills, and may be forced to move to find new employment which often involves moving to another city.

Net migration is another key factor. Are more people moving into the market or moving out? This has a major impact on the market as demand for housing increases and decreases based on the total population in a given market. This increased population growth creates demand for more local housing which helps push property values and rental rates up, in addition to an ongoing need for good residential housing stock. Be sure to put yourself on the right side of the trend.

Past population growth is can be extremely persistent. The best way to predict a counties’ population growth is to look at how much it grew in the past decade. The forces that shape an area’s attractiveness have persistent impacts. If a county grew significantly in population last year, it is more likely than not to also grow this year

Local amenities include things like shopping experiences, proximity to attractive activities, good schools, good social life, conducive to both work and play. The capacity to generate and retain amenities adds considerably to the appeal of a city. The attraction to a city on the basis of its physical and social environment represents a major paradigm shift; whereas people formally followed jobs, jobs now are also starting to follow workers.

Immigration trends tend to concentrate wherever previous immigrants have settled. Kinship ties, shared language, in the existence of common amenities in public goods make; immigrant enclaves; attractive to subsequent immigrants. This might explain the growth of San Francisco’s Chinese population, which already has one of the largest Chinatowns outside of China.

Age Distribution. Countries with very young and very old populations tend to grow more slowly. Specifically, we find the population growth is negatively related to both the share of people younger than 25 and the share of people older than 65. Populations grow faster if the share of people between 25 and 60 is significant.

Industry Diversification. A market with a diversified range of industries offers less market volatility in harder economic times or recessions. A market driven largely by one or two industries tends to be affected harder than more diversified markets, and takes longer to recover afterwards. Although many investors do well in “one trick pony” markets, it’s best to mitigate your market risk by focusing on markets with a broader employment base.

Supply and demand trends. Real estate supply is restricted by availability of land, geographic boundaries (such as water and mountains), political boundaries (permit fees, restricted density policies, etc.) and economic boundaries (availability of development capital and the ability to build and sell new properties at a profit).

Market Conditions. Are you in a buyer’s market or a seller’s market? A buyer’s market is what you get when there’s more supply than demand. There are more people looking to sell houses than there are people looking to buy houses. In a buyer’s market, sellers may have to accept a lower price than they want to sell their property and may have to resort to providing incentives. This is the ideal situation for buyers because they can get a better deal. A seller’s market is just the opposite. The demand is larger than the supply. People have more money to spend on real estate, so sellers will often see several buyers competing to buy their property, which drives up the price. The buyers will have to spend more to get what they want. This is the ideal situation for sellers because they often get a better price on their properties.

Median price (the midpoint between high and low) is often a very good proxy for indicating real-time market activity. As the median price changes, this can indicate key market movements. A rise in median price means that sellers are responding to more sales in their local area which means that the local market might be “strengthening” or getting “hotter” – favoring sellers, so they will ask more for their home. A fall in the median price might indicate the opposite – few homes selling at the current price levels which causes homes on the market to drop their price and for new homes on the market to price more aggressively. A rise in median price could also mean that homes at the lower part of the market are selling and leaving the market. This means that the remaining homes on the market are at a higher price point, which causes the aggregated median price to rise.

Market Inventory Trends. Inventory is simply real estate lingo for “the number of homes for sale.” This stat shows you how much supply is available in the market you are researching. Inventory levels can ebb and flow frequently due to seasonal effects. There’s usually more inventory on the market in the spring-time as the natural rate of real estate activity picks up during this time of year. Alternately, there’s generally less inventory in the fall or winter as real estate activity slows.

Average Days on Market (DOM). Simply put, the Days-on-Market tells you how long the active properties currently for sale, in aggregate, have been on the market.

Capacity to Pay. The lower percentage of your income you use to pay for housing, the greater your capacity to pay. Lenders know this and it is a useful tool towards predicting the price as real estate.

Again, I cannot emphasize enough how important it is that this is the work that will allow you to predict, within a fair margin, the price of the real estate within the region in which you are investing. You will be glad you put in the effort.