Real Estate Investments: what we have learned in 12+ years buying over $1/6B

What have we learned since 2000 in our real estate investments:

We have done really really well since our inception in the year 2000 to grow to around 600 investors and an asset base approaching $90M (we actually were over $100M before we sold assets in various secondary markets in 2011 and 2012). But, we have made some mistakes, specifically in the boom years of 2007 and 2008. This affected primarily two of our earlier LPs with assets bought around that time. Those investors have been updated on a regular basis. Capital preservation is key and we will likely lengthen the investment horizon to 10 years from 5 to allow sufficient time for investment recovery and growth. Unlike many of our competitors we are actually still growing and thriving, and did not lose assets to over-leverage (or gross incompetence) like many firms that opened pre-boom and are now bust due to shady or over-leveraged real estate investments.

What have we learned though for new LPs, such as the current open one, Kings Castle LP:

a) We will avoid smaller towns. This will afford us lower risk purchases and staying power if markets go sideways for a while with low to very low chance of property value decline.

b) We will use less leverage. This means we will put down more cash and thus, have a lower mortgage. Until 2008 we used up to 80% loan-to-value mortgages, which is a great way to enhance your cash-on-cash ROI in fast growing markets. However, it has higher risk and much lower cash-flow, frequently negative once one deducts operating expenses of an LP and required, ongoing property upgrades. The recent 120 suite Calgary purchase is a prime example: we have a mortgage at 4.12% for 5 years at less than 69% loan-to-value, and we might go lower still going forward to be even more conservative and have better cash-flow in these fairly flat, uncertain, volatile and deleveraging times.

c) We will provide early exit options in case of changes of mind or life circumstances.

d) We will provide an optional 5% annual distribution, paid quarterly, (to satisfy a line-of-credit perhaps or for retirees seeking income in addition to equity growth) or 6% equity creation through our DRIP program. To produce a 5% cash-flow far lower leverage is required. Most REITs are in that vicinity, many are lower due to far higher overhead. Anything over, say 7% is a high risk REIT with a likely erosion of principal or dubious valuations of remaining asset. [Give me $100,000 and I too can deliver 10%/year for 10 years for sure .. but then what ? Thus, look at remaining asset values which are often far from honest]

e) We will have low fees, especially initially, but also ongoing. It is critical that the vast majority of your investment goes into income or wealth producing assets. Some folks charging a 10% commission and a 3% acquisition fee, for example, on a 30/70 levered asset, means 20% of your cash goes to the syndicator and/or sales channel, right up-front. Add the necessary legal fees and the usual marketing expenses and as little as 65-70% of your dollars gets actually invested. To get from 65% to just your original investment one needs a 50% cash-on-cash ROI and that is very difficult in today’s market. That is why so many syndicators have failed and will continue to fail. In addition, ongoing salaries or overhead costs should be as low as possible. We charge a very modest annual 0.5% fee plus have a staff of only two in our Canmore HQ for accounting and administration, spread across 6 LPs, or roughly only about $2500 per $1M in assets managed. Very very low !

In addition, we will continue with our commitment to:

  1. Focus on high demand apartment buildings in cities with jobs, diversification and growth.
  2. Add a small percentage of slightly riskier asset classes, say industrial buildings or land development to juice up the return, but never more than 25% of the money invested. Preferably all cash, with almost no interest bearing mortgages.
  3. Not uplift asset values before syndication to investors; This is a major profit killer for investors. Great for the syndicator: get paid upfront. Beware of land syndicators or commercial property syndicators that take their vast profits upfront. What is their incentive to perform ?
  4. Continue with open communications about successes, major events but also misjudgments; We hate to send bad news but we do it (occasionally)
  5. Provide access to president or LP executives for any questions about your investment or any real estate related documents, or for any issue that you may have; something not available by a large REIT usually.
  6. Our uncompromising due diligence on area and property, before property acquisition;
  7. Sensible property upgrades to increase rent levels and thus, the value of the asset for medium- to long term ownership, [again, not just milking the cash-flow like some REITs do at the expense of property value erosion] and;
  8. Impeccably manage our properties with a focus on customer service, tenant selection and tenant retention.

If the points above resonate with you and you have capital you’re interested in investing, we have a current opportunity for investors with $20,000 and up to invest. If you would like to learn more about this opportunity, please let us know via the links on this website so we can refer you to one of our four EMDs that sell our product and are licensed to give financial advice (as we are not, although of course we have opinions, too)

Successful Investing & Yours Sincerely,

Thomas Beyer, President
Prestigious Properties Group
T: 604-564-7673 or 403-678-3330