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Operational Excellence and Hidden Assets in Real Estate

There are so many factors that contribute to or prove to be detrimental to any business’s success. Being in the real estate industry for many years now, InvestPlus REIT has seen and experienced all sorts of challenges. During times of adversity, this is when businesses are tested most, and this is where operational excellence comes into play.

What is operational excellence, and why is it important to your business?

Operational excellence in real estate is being able to manage a huge volume of real estate properties really well—consistently. Not everyone can do it right, and it takes a certain skill set to grow a real estate company successfully. With operational excellence as part of your arsenal, better business-related decision-making can be expected, resulting in positive effects for your company.

Handling the marketplace can truly be stressful at times, especially during recessions and special unforeseen events such as the pandemic. When everyone is affected by soaring interest rates, measures must be taken in order to ensure profit for both the seller and buyer. How do we achieve this?

Debt Can Be an Asset!

About 5−6 years ago, we started exiting multifamily and went into industrial real estate. It is important to note that exiting and knowing when to sell falls under operational excellence too. Always keep in mind that exiting or selling will depend on where your company is, what your goals are for your company, and how exiting aligns with those factors.

For InvestPlus REIT, there were challenges when we moved into industrial real estate. Buyers wanted long-term financing and we found ways to work on this as well as timelines ourselves. Fortunately, we locked in our rates before the W.H.O declared the pandemic which drove interest rates up. It is in this kind of scenario that assumable debt becomes an asset.

With solid mortgage terms, you can sell your property along with it assumable debt that in time, still proves to be profitable even for the buyer. From the outside, this asset may be invisible! This is why working with reliable real estate investors can truly pay off for interested parties, as advice and factors taken into decision making are backed by years of experience.

Creativity is an Asset Too

It is important to note that each and every scenario is different. As an example, InvestPlus REIT President and CEO Domenic Mandato has faced about four recessions in his years as a real estate investor. All those instances raised the following questions:

  • How are the problems going to be handled?
  • How can we take advantage of the situation?
  • What is working/not working in the company?
  • What S.O.P.s can be standardized and improved?
  • How can we still generate income even within our portfolio?

Market crashes and times of adversity are always great opportunities to look inward. It’s a good time to reflect and rethink what works and how to build on it along with what is no longer serving the goals of the company. Discovering inefficiencies help us improve and exercising creative thinking plays an important role in coming up with solutions!

Scratch that—being creative is critical to success. No matter your role in the company there are always different perspectives that can and should be taken into consideration when coming up with innovative solutions. Consider this…

Ask your co-workers, spouse, someone who isn’t in the same field as you are, or even your kid a question that relates to your business and listen closely to their insight. This kind of creative brainstorming can spark genius solutions you would not have thought of because you’re so deep into the world of real estate. Hearing fresh input can re-jig your senses and come up with new answers to the all important real estate question: Where else can we grow?

Remember operational excellence and your hidden assets!

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From Dom’s Desk: Let’s Talk About Growth…

Right off the bat, if you’re not growing, you’re dying. It may sound harsh, but that’s the truth! For any business, growth is of utmost importance, and even more so in the real estate industry. Traditionally, the primary factors that contribute to growth in real estate include (but are not limited to) finding properties and investors. Here at InvestPlus REIT though, growth means something else.

We strongly believe in growing together with our tenants. In our years of experience, this has largely contributed to our continued success, and this is one of the things that makes us different and evergreen in the scene! So, what makes us different and how do we go about it?

We focus on understanding our tenants’ needs. This is crucial when it comes to providing an environment that helps our tenants grow. What are their plans for the future? What are their goals? Are they a national or international company? What can WE do to help them achieve these so that we can ultimately grow together? Unlike the classic landlord-tenant relationship where oftentimes there is a certain level of antagonized interactions, we eliminate that by maintaining a great relationship with our tenants—which we achieve by focusing on them; understanding their needs and putting those on the forefront of our business relationship.

Having been in the industry for a good amount of time now, we’ve come to view “assets management” in a different, more personal way. Hear us out… This technically refers to the size of one’s portfolio; the number of buildings owned, figures on a spreadsheet, etc.. But it isn’t just that. Our relationship with our tenants is THE absolute asset. This is why we do our best to build and protect it. From the get go, we build authentic relationships based on communication. This circles back to communicating about what they need and what we can do to provide it. By understanding their goals and providing a support system, we help them become more successful. This, in turn, makes us more successful too!

Further to the above, we are a solutions-focused real estate business, and we look for solutions for our tenants’ needs. This is important because this makes a positive lasting impression on our tenants. Whether it’s providing a meeting room for 10 or 30 people, or having free parking that gives them and their clients the added convenience, we take all the measures to provide as much business solutions as we can. It’s these little thoughtful touches that go a long way. This is why even in struggling economies, we are able to rise and grow through the challenges because we are able to add value to our business and our tenants love us for it.

Providing solutions and support for our tenants is a powerful factor that tips more of the odds to our favor. We aim to be the first in our tenants’ mind when they need anything related to real estate by showing them they can depend on us when they need solutions for growth. By building and continuously taking care of our relationship with our tenants, our history of providing solutions allows us to standardize certain factors—terms and conditions in our growing relationship moving forward. If they’re considering an expansion outside of Western Canada (where we are), we willingly explore all options and communicate with all our tenants to find the most viable solution that support everyone’s growth.

We see even more opportunities in the months and years ahead. What’s amazing is how these opportunities open up and in part are supported by the tenants we have been growing with!

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From Dom’s Desk: Growing with the Times

Investing can be a truly scary thing, especially considering today’s market conditions. However, there are ways to mitigate your risks and position yourself in an advantageous spot despite the many challenges presented by investing in the real estate scene. At InvestPlus REIT, we take years of experienced backed by numbers and data into consideration when making investment decisions. These have allowed us to grow even during the pandemic—not an easy feat given the global challenges all businesses and markets were, and still are facing!

How were we able to do this?

We knew that industrial real estate was the next big thing way back in the day. Back in 2012, Domenic Mandato (CEO of InvestPlus REIT) had discussions with real estate investors who first introduced industrial real estate to him. That was when the seed was planted, but it wasn’t until 2017 that he positioned himself in that market. Industrial real estate isn’t governed by the same factors as residential or other commercial real estate market conditions. Because of this, it can stay in demand for the long-term.

The ecommerce boom placed a lot of pressure on commercial space. Opportunities for a business’s growth can often come from the birth of other circumstances, in this case, the legalization of marijuana and the rise of ecommerce. Investors in this market need buildings to grow multiple crops, and with industrial real estate properties, they are able to do so. The demand for space is there—it still is! And since the government takes a long time releasing land, being in a position where we can rent out industrial real estate properties puts us in an advantageous point. Acquiring in times of uncertainty can position you where there might be opportunities!

Last but definitely not the least, the InvestPlus REIT’s team’s expertise, strategy and talent paired with marketing and technological support has definitely contributed to the continuous growth of our company. We are very grateful for the people we work with in making this dream possible—for our business and for others!

REITs and the Future

While predictions always come with their own risks, we are able to take calculated risks by looking at the numbers because at the end of the day, numbers do not lie. We always consider: “What is the rental income for this property?” and determine the yield and cap rates because value comes down to that. We have seen a big trajectory in acquisition in the last two years, even buying in the middle of the pandemic. It is important to note though that InvestPlus is very selective when it comes to acquisition, taking cap rates, interest rates, and sellers’ expectations all into consideration. Some investors refinance properties. In our case, most of our portfolio is locked in with half of the interest rates today, and mortgage will come up at about 2025, and given the tumultuous market where the value of properties drop and interests rise, more investors are considering diversifying into REITS.

For anyone looking to diversify their investment portfolio, REITs allow them to do that with rules set in place that protect the interests of the investor. These rules include but are not restricted to: always having a board and the investors getting paid with 90% of REIT cashflow that the company produces. Because of this and other rules firmly set in place, there is safety, stability, strength, and protection when diversifying one’s investments with REITs.

These are just some of the reasons why REITs have performed so well in the past 20-30 years, and why it will continue to have an edge over residential and/or other commercial real estate properties.

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InvestPlus Hits $100 Million of Assets Under Management

InvestPlus Hits $100 Million of Assets Under Management, Pushing InvestPlus Commercial Portfolio to more than 500,000 SF Under Management!

InvestPlus REIT is excited to announce the addition of a 109,066 sq ft commercial building (Thatcher Ave) to its portfolio for $8,700,000 at an existing cap rate 8.78%. Thatcher Ave is located in a prominent industrial business park in Saskatoon. Conditions were removed in December of 2021 with a close date of June 20, 2022. The addition of Thatcher Ave will bring the overall commercial space under management to more than 500,000 sq ft and our Assets Under Management (AUM) to $100 Million. We continue to further our footprint in the Industrial Space and adding assets with strong tenant covenants. Thatcher Ave will be tenanted with a Fortune 500 company focussed on providing mechanical equipment to the agricultural and mining industries and has signed a long-term lease. This building will serve as their main distribution warehouse to supply 19 branches across BC, Alberta and parts of Saskatchewan. A great tenant with a strong covenant and business.

The Thatcher Ave building is in the heart of Saskatoon, Saskatchewan industrial park and is projected to be accretive by an average of more than $450,000/year after unit-holder distribution for the term of the lease. This accretiveness will help sustain our distributions and help push our unit value up. The acquisition of this building also pushes our overall assets under management to $100M bringing our growth for 2022 up by 12.8% since December 2021.

We will continue to target strong-tenanted buildings in Western Canada that will not only provide us the performance and returns we are looking to achieve for our unit-holders but also assets and tenants that can and are weathering the storm in these tumultuous times. Please look forward to our next acquisition announcement, coming to you soon.

InvestPlus Real Estate Investment Trust (IP REIT) is a private real estate investment fund, based in Calgary, Alberta. IP REIT is a growth-oriented real estate investment trust focused on increasing unitholder value through the acquisition, ownership and management of commercial and residential properties in primary and secondary markets in western Canada. Management currently manage 19 buildings located in the provinces of BC, Alberta and Saskatchewan. The current portfolio is appraised at more than $100,000,000 and comprised of 101 rental units and more than 500,000 square feet of rentable area.

Schedule a discovery call with InvestPlus REIT today.

Click HERE to find out more about InvestPlus REIT’s Current Offering Memorandum.

 

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InvestPlus Acquires Portfolio of 7 Buildings

InvestPlus REIT is excited to announce the addition of 7 buildings with a total of 131, 531 sq ft commercial building to its portfolio for $18,650,000 at an existing cap rate 7.56%. Lloyd Centre 1-7 is located in a newer industrial development in Lloydminster, Saskatchewan. Lloydminster has enjoyed the recent strength in oil and gas prices but is also strong in agriculture and construction. The acquisition was closed on December 16, 2021 and marks another milestone within the InvestPlus portfolio—bringing the overall commercial space under management to more than 400,000 sq ft and the Assets Under Management (AUM) to $88.65 Million. We continue to further our footprint in the Industrial Space and adding assets with strong tenant covenants. Being multiple buildings, tenants who occupy the buildings are made up of local, multi-national and global companies. Two buildings are utilized as truck storage and has a state-of-the-art truck wash bay business as well. There are opportunities for increases in rent and value creation for this portfolio which bodes well for the Trust. Best of all is how accretive this portfolio is to the Trust. More on this below.

We have also been successful securing financing for this portfolio with a large credit union. We have been able to secure financing with Servus Credit Union for a five-year term at a rate of 3.4%. These rates and terms allow InvestPlus REIT to provide their unitholders with the security of having a long-term fixed mortgage, providing predictable revenue to the Trust.

The Lloyd Centre 1-7 portfolio is projected to be accretive by an average of more than $530,000/year after unit-holder distribution for the term of the leases. This accretiveness will help sustain our distributions and help push our unit value up. The acquisition of this building also pushes our overall assets under management to $88.65M bringing our growth for 2021 up by 77.3% since December 2020.

We will continue to target strong-tenanted buildings in Western Canada that will not only provide us the performance and returns we are looking to achieve for our unit-holders but also assets and tenants that are capable of weathering the storm in these tumultuous times. Please look forward to our next acquisition announcement, coming to you soon.

InvestPlus Real Estate Investment Trust (IP REIT) is a private real estate investment fund, based in Calgary, Alberta. IP REIT is a growth-oriented real estate investment trust focused on increasing unitholder value through the acquisition, ownership and management of commercial and residential properties in primary and secondary markets in Western Canada. Management has transacted more than $150,000,000 in buildings in the provinces of BC, Alberta and Saskatchewan. The current portfolio is appraised at more than $88,000,000 and comprised of 101 rental units and more than 400,000 square feet of rentable area.

With more than 50% of our unitholders using their RRSP to invest in our Trust, find out more about our up and coming webinars where we will discuss how you too can use your registered funds or cash to invest in private commercial and residential real estate in western Canada.

Schedule a discovery call with InvestPlus REIT today.

Click HERE to find out more about InvestPlus REIT’s Current Offering Memorandum.

 

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InvestPlus Acquires Another 25,000 SF

InvestPlus REIT is excited to announce the addition of a 25,650 sq ft commercial building to its portfolio for $4,800,000 at an existing cap rate 7.1%. Clearview239 is located in Clearview Industrial Park, a newer development on the south side of Red Deer with easy access to Red Deer, Gasoline Alley and QEII Highway. The acquisition was closed on December 2nd 2021 and marks another milestone within the InvestPlus portfolio — bringing the overall commercial space under management to more than 275,000 sq ft bringing the Assets Under Management (AUM) to $70 Million. We continue to further our footprint in the Industrial Space and adding assets with strong tenant covenants. The tenant is a manufacture of gas manifolds for the natural gas market in north eastern BC. The tenant has signed a 7-year lease with step rents. A great tenant with a strong covenant and business.

We have also been successful in having one of the Chartered Banks, National Bank, provide us financing for this great building. We have been able to secure financing with NB for a five-year term at a rate of 3.5%. These rates and terms from a Chartered Bank allow InvestPlus REIT to provide their unitholders with the security of having a long-term fixed mortgage, providing predictable revenue to the Trust. Furthermore, having National Bank as our lender further confirms the steps we are taking as a trust to grow and acquire accretive properties like Clearview239 is a step in the right direction. We are excited to work with National Bank and look forward to furthering our relationship with them in the future.

The Clearview239 building is projected to be accretive by an average of more than $140,000/year after unit-holder distribution for the term of the lease. This accretiveness will help sustain our distributions and help push our unit value up. The acquisition of this building also pushes our overall assets under management to $70M bringing our growth for 2021 up by 40% since December 2020.

We will continue to target strong-tenanted buildings in Western Canada that will not only provide us the performance and returns we are looking to achieve for our unit-holders but also assets and tenants that can and are weathering the storm in these tumultuous times. Please look forward to our next acquisition announcement, coming to you soon.

InvestPlus Real Estate Investment Trust (IP REIT) is a private real estate investment fund, based in Calgary, Alberta. IP REIT is a growth-oriented real estate investment trust focused on increasing unitholder value through the acquisition, ownership and management of commercial and residential properties in primary and secondary markets in western Canada. Management has transacted more than $150,000,000 in buildings in the provinces of BC, Alberta and Saskatchewan. The current portfolio is appraised at more than $70,000,000 and comprised of 101 rental units and more than 275,000 square feet of rentable area.

With more than 50% of our unitholders using their RRSP to invest in our Trust, find out more about our up and coming webinars where we will discuss how you too can use your registered funds or cash to invest in private commercial and residential real estate in western Canada.

Schedule a discovery call with InvestPlus REIT today.

Click HERE to find out more about InvestPlus REIT’s Current Offering Memorandum.

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Why are all the investors talking about getting into industrial?

Traditionally, industrial buildings have been used for manufacturing purposes more than anything and warehousing was a mere component. Today, the investment scene relative to industrial real estate has changed and this has been brought about by a need for space for two major industries which have been on the rise in recent years. Because of this, warehousing has become more popular in industrial spaces today.

Factors Impacting the Industrial Real Estate Scene

First, when the Liberal government legalized marijuana this led to the repurposing of vacant or older buildings which have been idle for some time into indoor farms. Geographically speaking, there is only one growing season in Canada and indoor farming gives growers the option to have a controlled environment which can result in increased yield––harvesting anywhere from two to four times a year. While not all growers have chosen to go for indoor farming per se, all growers require space to grow their crop which results in a need for land. As such, vacant or idle industrial buildings are either being occupied or absorbed for this purpose.

Second, the pandemic has changed consumer behavior in ways that have a palpable impact on all types of businesses. Because of this, business owners have been forced to adapt to keep their businesses going and growing. Over the past five years, online shopping has become more prevalent. This has resulted in budding businesses being able to sell products without a brick-and-mortar store or a rented space for people to visit. The ease of online shopping coupled with the pandemic and its effects on day-to-day activities has made e-commerce boom even more.

In the second quarter of 2020, the amount of retail purchased via e-commerce jumped by 16% of the total sales. This is a huge spike which clearly signifies realization from people who have never bought anything online and now found an alternative way to buy things safely and remotely. Retailers recognized this and now are rushing to get the amount of space that they need for logistics purposes. Products (from businesses of all sizes) operating on e-commerce platforms need a logistics center or warehouse where their sorting and delivery operations take place. Some have multiple logistics hubs so that the products can be shipped out to various customer locations in an efficient manner.

Lastly, there is the growing market of industrial bays as well. Given the rise of smaller businesses opening up and some businesses scaling down due to the pandemic, the need for anterior office space with warehousing at the back is also growing at a rapid pace.  

Learn how we acquire industrial buildings on an ongoing basis by joining us in our live FREE webinars on the following dates:

  • Oct 19th, 6 PM MST
  • Oct 26th, 6 PM MST
  • Nov 10th, 6 PM MST
  • Nov 16th, 6 PM MST
  • Nov 23rd, 1 PM MST

Register now for our live FREE webinars!

More in-depth information on why investors are talking about getting into industrial real estate will also be discussed, along with how YOU can take advantage of this growing need for industrial space especially in Western Canada. InvestPlus REIT doubled the size of the company amidst the 2020 pandemic and are continuously acquiring industrial buildings. Their goal is to increase the asset base within InvestPlus REIT to 100M dollars by the end of 2021 and to hopefully surpass that in 2022.

Domenic Mandato, President and CEO of InvestPlus REIT will cover these areas as well as trends and growth opportunities for the next 24 months using current market figures and personal examples.

Register now for our live FREE webinars!

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Inflation: Is it good or bad for real estate?

Inflation: Is it good or bad for real estate? How do you protect yourself from it? The value of a dollar 20 years ago is different from the value of a dollar today.

To an average person who works a 9-5 or maybe even several jobs, inflation is bad. It chews away at their money! With the classic definition of inflation in mind, money is “worth less” and in turn, buys less.

Domenic Mandato, the President and CEO of Investplus REIT likens inflation to gaining weight. You go on with your days and at the end of a year, you may have gained a pound. After another year, you’ve gained another pound. You’re kind of aware of it until one day you look at an old picture of yourself and ask what the hell happened LOL.

Inflation is kind of the same. Have you noticed the price of food lately? Just thinking about your Dad telling you a loaf of bread cost $0.75 when he was younger.

Currently, every market is on fire—from small towns to even big cities, and inflation is observable across the country. For business owners, every action carried out affects income. As such, you would want to make sure that you run your numbers and that your business is sustainable even in the face of inflation.

The Impact of Inflation on Real Estate Investors

In line with the efforts to ensure that your business is sustainable, it is important to know how to take advantage of the benefits that inflation has on real estate investors. Yes, you read that right: Inflation can be beneficial to real estate investors.

You can hedge against inflation as a real estate investor, and this is especially true when you already own real estate. As building costs go up, it becomes more expensive for new developers to build. You, on the other hand, already have a building which will benefit from the presence of newly-built buildings in the same category around your area.

So as this new building is being constructed and costs more than your building, your real estate gets a little bump up simply because in comparison, your building is similar in space and has the same value to a person needing shelter. The difference is new verse older.

Yes there are other amenities but let’s think about just the essentials of having a place to live for now.

Notice also, I said older, not old. Keeping your older building up to date with the latest paint colors and renovation helps keep rents up.

Speaking of rents, if the new build costs more, their rent has to be more. Depending on the condition and demand for rent in your neighborhood, you can also increase your rent. See how you’re protecting yourself from inflation?

This is also made possible by buying below replacement costs. When your costs are lower, you can be competitive against the newer buildings because you can offer more or less the same amenities which you have purchased at lower costs.

Another (advantageous) impact of inflation on real estate investors is the income. Some people consider real estate investing as the “lazy way” to safeguard investments against inflation.

Think about our market right now. Even if you’re not thinking about selling your home, chances are, if you live in city of 100,000 or more, the value of your home has gone because of the demand for homes similar to yours.  What did you do to increase the value of your property? Nothing!

Should You Invest in Real Estate?

There are many options to look into when considering investing in real estate, and it can all get confusing. Fear will then kick in, and this can stop you from making that investment. To make your money grow, however, it is imperative to take that first step.

You can be new to all of this and still make solid investments by joining Investplus REIT.

Spearheaded by Domenic Mandato, Investplus REIT unitholders experience the diversification offered by multiple buildings across western Canada. With years of experience in the real estate field and with multifamily and commercial buildings under his management, Domenic continues to grow Investplus REIT’s unitholders investments.

We hope you enjoyed reading this article “Inflation: Is it good or bad for real estate?” Should you have any questions or if you’d like to speak to one of our consultants you can.

Book a discovery call with our Licensed Exempt Market Dealer today.

Corporate Strategy | Our Portfolio | Current Offering

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Gaetz Professional Sublease

Gaetz Professional Sublease. InvestPlus Reit has an amazing property listed in their Commercial Portfolio.

The Gaetz Professional, situated at 5018 45th Street, Red Deer, Alberta, is part of a Medical Retail Centre: (12,870.00 Sq-Ft) and is the perfect location for the following Businesses.

  • Medical Practitioners

 

  • Pharmacy Owners

 

  • Medi-Spa Business

 

  • Massage Therapist

 

  • Chiropractors

 

  • Wellness Centers
Gaetz Professional Sublease

5018 45th Street, Red Deer, AB Purchased January 2020 Medical Retail Centre: 12,870.00 Sq-Ft

 

The property is a turnkey retail and medical opportunity for the right business.

With aggressive market rates and affordable operating cost’s. This property is offered on a 5-to-10-year lease and it also has ample surface parking. This property is well located on Gaetz avenue, with great exposure to high traffic areas and a top Pylon signage position, which will ensure high visibility.

InvestPlus? Learn more about the InvestPlus Reit.

InvestPlus Real Estate Investment Trust (IP REIT) is a private real estate investment fund, based in Calgary, Alberta. The REIT provides an opportunity to invest in a diversified portfolio of multi-unit residential apartment and commercial buildings in western Canada.

Their mandate is to provide investors with the most attractive, well structured, and ethical real estate investment in Canada. Their track record proves their method. Management has transacted over $100,000,000 in buildings comprising of 23 commercial and multifamily buildings.

Why InvestPlus?

It starts with economic fundamentals. Economic fundamentals tell us if jobs are being created in a specific market. By knowing where GDP growth is, which begins with investment dollars invested by companies or government, there is a good chance that jobs will be created.

As jobs are created, population growth increases in that geographical area which increases demand for rentals/housing. The increase in rental values increases building values.

The same applies to commercial assets. New businesses migrate to those areas and existing business are flourishing because of the increased demand.

  • Find a Deal that adds value to our company
  • Manage it efficiently
  • Reap its added value to pass along our unitholders

Combine this knowledge and timing with the ability to buy apartment and commercial properties. Now have a recipe that will see the value of those assets increase due to both the management’s value creation and market upswing.

While a simple concept, it is a learned skill from experience in transacting over $100 million in assets over 16 years and riding through three economic cycle, both up and down.

Let us be clear – we do not buy “western Canadian” real estate!

We buy assets in specific geographical locations that are in western Canada that shows signs of a growing economy, job growth and growing population.

We trust you found this article about “Gaetz Professional Sublease” intriguing and if you want to learn more about our Portfolio, this property, or this amazing opportunity in Red Deer, then reach out to.

JENNIFER CLARK – LEASING AND PROPERTY MANAGER

Click HERE!

C: (403) 200 – 9264

E: jclark@investplusproperties.com

W: www.investplusproperties.com

Corporate Strategy | Our Portfolio | Current Offering

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Buying Below Replacement Costs

Why Buying Below Replacement Costs is Key to your Real Estate Success. Making informed decisions helps tip the scale of success to your favor. When it comes to investments, knowing what you’re getting into––and investing your money on––is crucial to avoiding costly mistakes and improving your return on investments.

One of the first things my mentor taught me was “Whatever you do, make sure you buy below replacement costs.”

What are replacement costs?

“Replacement cost” is the cost to build a similar building you are acquiring, only brand new.   In other words, it is the cost that in the event your property gets damaged to the point of no return and renovation is not possible. Replacing the building and the cost to do so is your “replacement cost.”  It’s also referred to the cost of building new.

Understanding Replacement Costs in Real Estate

When I first started in real estate, there wasn’t much to compare to. There were not a lot of new rental purpose multifamily buildings being built in the early 2000s, but around 2008. There was an increase of new construction. A major factor that contributed to a rise of new construction  were the demand from two generations who were ok to pay a premium for rent; millennials and the baby boomers.

Millennials have been all too happy to pay for a higher-quality product and are willing to pay, $200-$300 more than an older building.  Boomers are driving this demand mainly due to downsizing or moving out of the suburbs and into the city.

While the goal for Boomers is to reduce their cost and out of the suburbs, they are only willing to do so if they live/rent in a place similar to what they currently own or better.  New multifamily rentals is their choice.

Buying below replacement cost or a brand new building ultimately means you can charge lower rent while still being able to achieve a good ROI. For example, a brand-new wood-framed building costs $200,000/suite to build. If the cap rate is 5%, the monthly rental rate would be rounded up to about $1,167/month.

If you were to buy a similar building only orders, with similar floor space, that has the purchase price of $120,000, a cap rate of 5 % would mean that a monthly rate of $833/month.

That’s a 40% difference.  Which means you have some flexibility in the rental price and a wider market to attract given a more competitive rental rate.  Even if there is a need for renovation of your older building, adding say $15,000/suite in  renovation (which is plenty) would still allow you some room to be more competitive than a new building, with now a renovated suite and likely a higher rent as a result of the renovation.

The Inherent Values of Buying Below Replacement Cost

The advice given to me early allowed us to grow our company and maintain higher occupancy. Even during recession periods or when vacancies increased.  It helped us with having a competitive product and the flexibility to charge a more competitive rate while still achieving a good rate of return.

We hope you enjoyed reading this article “ Why Buying Below Replacement Costs is Key to your Real Estate Success” and should you have any questions or if you’d like to speak to one of our consultants you can contact us. 

Corporate Strategy | Our Portfolio | Current Offering 

 

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