All posts by Financial Independence Hub

An overview of Investment Real Estate

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By Matt Guenther

Special to the Financial Independence Hub

Real estate investment is the process of buying properties as an asset. The goal is to generate income rather than use it for living purposes. Typical examples of real estate investments are: office building, a commercial plot, a house for rental purposes, or an office building for running and managing businesses.

In this post by Cash for Homes Arizona, we look at different types of real estate investments and best ways to invest in them.

Different Categories of Real Estate

Real estate investments have three main categories: residential, industrial, and commercial. Each one then further has sub-categories.

Commercial Real Estate 

  • Office
  • Retail
  • Industrial

Residential Real Estate

  • House flipping
  • Vacation rentals
  • Section 8 rentals
  • Single-family rental homes
  • Small multi-family homes

Industrial Real Estate

  • Land for mining
  • Residential development
  • Commercial development

How to obtain Real Estate Investment Financing

Hard Money

It’s called hard money for the reason that the lenders would use some kind of hard assets such as property as collateral to secure the loan. These loans are typically short-term so mostly borrowers who plan on house flipping generally seek it.

As a rule of thumb, hard money covers anywhere between 70 and 80% of the property’s purchase value before it goes through any kind of renovation or construction work.

That is why it’s important that the property is worth more than the loan’s value and that in case you default, the property should be able to liquidate the cost of the loan.

Attention must be paid to the fact that hard-money lenders generally charge high interest rates, so choose wisely.

Microloans

Microloans are mostly meant to help small businesses: typically startups that need capital to fuel initial growth. Because they are ‘microloans,’ the amount up for a loan is typically smaller than what you would get via a traditional financing route from banks. Because the amount disbursed is generally lower, terms of qualifications are usually less strict in terms of credit score, etc.

Therefore, microloans are ideal for those who have limited borrowing capacities. But it’s important to consider the overhead costs involved with microloans. Also, interest rates can be higher than those imposed by standard loan programs.

Real Estate Crowdfunding

Crowdfunding is a relatively new concept that allows people to raise money from the general public for any cause they support and believe in. While popular sites like Kickstarter and GoFundMe will allow you to raise money for any cause, some sites are designed for real estate crowd funding only. Sites like Feather The Nest and Hatch My House allow raising of funds for homebuyers and investors.

Best ways to invest in Real Estate

REITs (Real Estate Investment Trusts)

You can think of REITs as companies that own, operate, and derive money from the management of real estate assets. Most REITs are tradeable on stock exchanges so if you want you can also buy stocks of one of the companies online. Real estate ETFs and real estate mutual funds are also in this category.

Note that not all stocks related to real estate are classified as REITs. Also, some of these may only be accessible to eligible investors.

Use an Online Real Estate Investing Platform

There are many real estate investment platforms available for those who want to join hands with others who want to be part of a big commercial or residential property deal. Most investments are done online through real estate platforms. The capital investment requirement is less than is needed to complete the purchase.

The upside of online real estate platforms is that interested investors can diversify their portfolios by investing in multiple projects. It also has room for geographic diversification.

The downside is that the management fees can be high sometimes with overhead costs. Also, liquidation can be difficult due to high due to lockup periods.

Rent out a room on platforms like Airbnb

Today to rent out a property you don’t need to buy one separately. Continue Reading…

Your most valuable asset

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By Michael Meyer

Special to the Financial Independence Hub

What is your most valuable asset?

If you are like most Canadians, you may answer your investment portfolio or your home. What if I said it was your time?

If you can imagine your life as a timeline, consider three milestones that are up ahead:

1.) Your healthy life expectancy

2.) Your estimated life expectancy

3.) Your 100th birthday

With diet and exercise, you are able to push out the first two, and give yourself a healthier and longer life.  In the near future, it is possible that with medical advances both one and two may exceed your 100th birthday.  These adjustments are already being considered for pension portfolios.

Now what if I said each of those future years on your timeline are not of equal value?

How should you compare your 40s to your 60s? How do you value those years differently, and how do you weigh your spending in each year for an optimal result?

Next, I want you to think about a stacked timeline, with a separate line for each of your family members.

Certain years are more pivotal than others

You will quickly see that certain years are more pivotal than others. The years your children leave the nest, or the years after the first partner hits retirement.  What about when your parents need help, and your role shifts and becomes that of the caretaker? Predicting health outcomes is a science, and a probability can be assigned to each year of your future. It is helpful for planning purposes to be aware of these milestones, and also to understand how you differ from the average person. Continue Reading…

Valuations: The route taken matters

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By John De Goey, CFP, CIM

Special to the Financial Independence Hub

The other day I had a lovely exchange with some friends on Twitter about advisor behaviour considering current market valuations.   Every time I write about this, I need to begin with the caveat: this is NOT about forecasting or market timing.  I can’t do it.  You can’t.  No one can do that if reliability is properly considered.  What follows is not about predictions.

It is about what, if anything, can be done – either proactively or reactively – considering high market levels and what that might mean for investors.  To be clear, I will admit that “what that might mean” is my code for “if markets take a really big tumble.”

By now, you’ll know that I have been concerned about the frothy levels of market valuation south of the border for over a year.  The fact is that the Shiller CAPE for the S&P 500 has been above 30 for about four years now.  In early February, it hit 35 for the first time since the dot.com bubble at the turn of the millennium.  Based on valuation alone, markets are much higher today than they were at the start of the GFC [Great Financial Crisis], for instance.  I think we should be worried, but most of my colleagues don’t seem to be.

At these levels, returns next decade could be poor

The thing about CAPE is that although it is a poor tool for short term market timing (i.e., it is essentially useless in picking ‘tops’), it has, over the years, proven to be a highly reliable predictor of returns over the next decade or so.  When valuations are this high, the ensuing decade is pretty much always ugly.

Despite this, all I ever seem to hear about is how the good times are rolling and it would be folly to ‘fight the fed’, that ‘the trend is your friend’ and that investors seem to be more confident than ever before.  Like they say in the movies… “it’s pretty quiet out there … a little TOO quiet.”

People like Jeremy Grantham at GMO have taken to suggesting the coming returns for North American stocks and bonds are likely to be negative (!) over the next seven years at least.  Who has THAT in their financial plans?  Perhaps more to the point, what if there’s not a single, monumental point where markets fall off a cliff?  If markets drop by 1% or 2% every year for the better part of the coming decade, how will people react … and who will be genuinely prepared?

A Thought Exercise

Here’s a thought exercise.  Continue Reading…

Making the most of the money you already have

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Image via Pexels

By Jim McKinley

Special to the Financial Independence Hub

It does not matter if you have $1,000 or $100,000 in your account: you probably want to make the most of the cash you have. But how, exactly, is this accomplished?

There are many strategies. The Financial Independence Hub details some of the easiest and most effective below.

Get Help

If money management is your weakest link, look for an accountant or financial consultant to help you get a better grip on your financial future. You can find experienced financial professionals through different online job boards and platforms.

Manage your Debt

There is nothing wrong with having a house or car payment. These are debts that most people expect to take on. However, credit-card debt is something that eats away at your bank account more than you might imagine. According to Business Insider, average credit card interest rates in 2020 are more than 15 per cent. And these only compound, meaning that you pay interest on interest accrued each month as your balance continues to rise. Look at it this way: For every $100 you are in debt each month, you pay an extra $15. To keep more of your money, eliminate debt as soon as possible. Pay down your lowest balances first and then add that payment each month to your high-balance cards.

Check your Bank Accounts

When it comes to bank accounts, there are two primary types of accounts you might think about: chequing and savings. What you may not realize is that each of these has different subcategories, and some pay higher interest rates than others, and you may only be getting a small interest payment each month. Consider switching to a money market, which has a higher interest rate. Continue Reading…

10 smart spending tips from frugal Small Business owners

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How can small business owners be more frugal and spend smarter?

To help you and your small business to be more frugal and spend smarter, we asked small business owners and financial experts this question for their best advice. From polyphasic sleep to developing your IT skills, there are several tips to help your small business to be more frugal and to spend smarter.

Here are ten ways your small business can be more frugal and spend smarter:

  • Google my Business
  • Unsecured Loan or Line of Credit
  • Outsource to Experts
  • Free Trials
  • Check annual discounts for Services
  • Reevaluate your Digital Marketing Strategy
  • Budgeting ahead to Avoid Impulsive Spending
  • Use Free Software
  • Automate and Delegate
  • Only Spend if it adds more Value than it Costs

Google my Business

Google Ads offers small businesses a great opportunity to develop visibility in search result pages. By expressing a willingness to bid on keywords relevant to a business, small business owners can pay per click to attract potential customers to their website. However, as competition amongst advertisers increases, so does the cost per click. In our industry, keyword costs can be $50 – $100 per click. With rising advertising costs, small businesses have less and less margin for profits. To spend smarter, small businesses can invest in an organic search presence to increase their visibility for keywords without paying for each click. One simple step for small businesses is to start a Google My Business page to increase visibility on the local level. Alternatively, businesses can blog about topics similar to keywords in a Google Ads account to reduce paid ad costs and increase organic traffic. — Dan Reck, MATClinics

Unsecured Loan or Line of Credit

Pre-revenue businesses still need to spend in order to launch a new venture. Sometimes the best time to be frugal is when a small business owner is seeking financing and needs to pay extra attention to the interest rate that comes with an unsecured loan or line of credit. Many funding sources tout simple application processes and short pre-approval turnaround times. Be careful not to move too fast on a loan that carries a higher interest rate. Instead, take the time to do your due diligence because some upfront work can save on long-term frugality. — Craig Johnson, Unsecured Funding Source

Outsource to Experts

Let’s say that you’re a small business owner who wants to invest in something like SEO (search engine optimization). You can pay an SEO agency like us $2,500 per month, or $30,000 per year to perform SEO at an expert level. Or, you can hire an SEO manager internally for $65,000 to $85,000 annually to perform SEO for a company. Sometimes, it saves to outsource certain services to experts instead of hiring internally for a business need. Consider the alternatives before posting a job description to a career page. –– Brett Farmiloe, Markitors

Free Trials

Sending secure communications typically comes with a cost to ensure security and compliance. However, some communications companies offer free trials to test their service. For example, our company offers small businesses the ability to send a free fax. If a small business owner is looking to be frugal when it comes to communications, seek out these free trials as a way to save money and discover services that can truly support your business. — Eli Patashnik, iFax

Check Annual Discounts for Services

If you know that you are going to be using a service for an entire year, see if you can pay the entire year in advance for a discount. This often netted us 10-20% discounts on services that we were already paying for. Even if a service doesn’t appear to offer this type of discount, you should inquire as some companies will offer quarterly or semi-yearly discounts as well. I also recommend a quarterly review of your small expenses and ensure that everything is being used. There were many times, we were able to cut costs by simply realizing that we no longer properly utilized a specific service. — Matt Blake, Entrepreneur, Investor and Partner

Reevaluate your Digital Marketing Strategy

Look at your digital marketing ad spend, analytics and metrics. Are you meeting goals and objectives? There is a lot that can be done organically (non-paid) with content marketing — blogging, videos, podcasts — in conjunction with social media marketing, that will help with Search Engine Optimization (SEO) and drive traffic to your website without spending money. Continue Reading…