investment
Joint Ventures
What is a Joint Venture Partnership in Real Estate?
A joint venture is when two or more real estate investors enter into agreement to combine their resources in an effort to acquire, renovate or develop real estate properties.
Despite working together, each investor is considered a unique business or individual even though they are partnering together on the deal.
This sounds like a partnership, correct? Well, not necessarily
To get a better understanding let’s compare the two:
partnership
Multiple individuals form one company and all their business interest is conducted with the one entity.
Joint Venture (JV)
Each party works under its own entity. JV partners only work together on a specific deal or project
When Would A Joint Venture Be Used?
Many real estate deals are acquired and financed through a JV agreement. There are many reasons when you need to use this model, such as when you need capital for down payments or if a partner is needed to qualify for a residential mortgage.
If the property requires a commercial loan, the need for a partner with business experience, assets and net worth would be a factor in utilizing a joint venture
How Does A Joint Venture Work?
In a joint venture, there are commonly two types of partners; an active partner and a passive partner. Each partner contributes to the overall success of the property. Therefore, in a typical JV model each partner has a 50% equity stake, unless a different structure is agreed upon.
The active partner is sourcing and evaluating opportunities in addition to managing the day to day operation once a property is acquired.
The passive partner, also known as a money partner, contributes funds for down payments, closing costs, renovations and any other capital needed such as a reserve fund.
Advantages of a joint venture in real estate
Joint ventures allow multiple people or businesses to work together to reach their investment goals. Parties involved may lack the experience, expertise, or capital that other partners may have.
For the active investor, it allows them to grow their portfolio if they have limited access to capital. On the other hand, it allows passive investors to add another revenue stream through cash-flow while owning real estate without the hassle of the day to day operation. Passive investors generally receive the majority of the cash-flow until their initial investment is returned.
Both partners benefit equally from mortgage paydown and capital appreciation
Private Lending
What is private lending?
Private lending is when an individual has the ability to utilize their capital to lend money to a borrower, and secures the loan against a real estate property.
In many cases, investors who have a need and use for these loans are looking for a short or medium term loan. On average, most private loan terms are between 3 months and 5 years.
The length of the term is usually determined by the property type and investment strategy. For example, a duplex conversion might take 3-6 months while stabilizing a 20 unit building could take up to 24 months.
How Do Investors Earn A Return?
The lender earns a return by charging interest and often fees to the borrower, typically paid monthly or quarterly.
Just like traditional lenders, private lenders can recoup their money by attempting to foreclose on the property in the event the borrower defaults on the loan.
Is There A Minimum Investment Amount?
There is no minimum amount of money required to be a private lender. However, there are many expenses associated with lending privately. Lawyer fees need to be taken into consideration as a lawyer is required to draft the lending agreement. Fees to register the mortgage on the borrower’s property is another expense to keep in mind.
Most private lending opportunities require at least $25,000 of available capital. That’s because the legal fees associated with granting a loan, which can amount to thousands of dollars, can be prohibitive for smaller deals.
Is Private Lending Regulated?
Private lending is not regulated but if an individual is utilizing a loan broker or private fund they must follow provincial and federal regulations.
Please consult with your lawyers to make sure you are following all local regulations.
Self Directed rrsp
Can You Use Your RRSP To Invest In Real Estate?
If you have contributed a significant amount to your RRSP and are not happy with your returns for the last 10 years, there is possibly a better solution; investing in real estate!
So your next question will be, How?
Many people do not know they can leverage their RRSP to invest in real estate. Most individuals believe this action will trigger a tax event. This is not true if the process is done correctly.
How Can I Invest With My RRSP?
There are a few steps that need to be considered in this scenario. First, you need to set up a self-directed RRSP account as the majority of banks will not allow you to conduct this transaction when investing with their institution.
You can set up a self-directed account with Olympia Trust. Once you are all set up, there are a couple ways you could invest your RRSPs;
Lending
A typical scenario is one where an investor is looking to borrow money to fund a purchase and/or renovation costs of a property.
You will need to work with a lawyer and mortgage broker to set up the mortgage agreement which will include the term of the loan and interest rate. To protect your investment, you might consider registering the loan as a second mortgage on the property. In the event of a default, you can attempt to foreclose.
Your mortgage broker will charge the borrower fees to set up the loan. The mortgage broker will give instructions to the lawyer to reach out to the financial institution and register a second mortgage on the title.
The major advantage of this investment option is the interest earned from the loan is tax-free. Since we are not legal or financial advisors, we highly recommend you speak to your accountant and lawyer to make sure this is a sound investment option.
Investing In a REIT or Private Fund
If you are looking for a hands-off passive investment option, then you can invest in 1 of 50 Real Estate Investment Trust (REIT) which are publicly traded on the stock market.
Another option is to invest in private investment funds such as Equiton. These funds have different investment options with varying return on investment.
Pinnacle Realty Holdings Inc. is not a financial or legal advisor. All investors should consult with certified professionals to get investment advice.
Current investment opportunties
