# Is this a good real estate deal?



## kewlthing (Jan 30, 2010)

I have an opportunity to invest in a 29 suite apartment block with several other investors in the Winnipeg area. The minimum amount of the investment is $27,500 for a 2% ownership stake up to $550,000 for a 50% stake. The ownership stake is non voting so essentially you are a silent partner. The general thought is for the investors to refurb the initial first building and then look to eventually buy more properties with revenue generated from rents from the apartments. There will be no dividends paid to investors, except maybe for a one time payment sometime in the future. The idea is to keep your money in the project for around 10 years when the partners want to sell all the properties acquired and then distribute any profits to all the investors based on their share. My concerns are how to get my money out ahead of time is unclear. It doesn't appear there is any provision for this. Plus these shares are non voting, so then what if I don't like the direction the managing partners go? What if the real estate market tanks? How about interest rates? Of course some of the partners are saying this is a can't miss deal, (needless to say). Personally I would prefer a dividend of some type. I need some advice from experienced real estate people. Is this deal typical, and if so what are the downsides? Am I overlooking something here. I tried to give the very basic outline of this deal so I hope it makes sense. Any advice?


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## I'm Howard (Oct 13, 2010)

XRE is an ETF that is comprised of REITS,R.E made up of Professional Organisations that you can sell ANYTIME on the T.S.E

The properties are across Canada, not concentrated in one small city.

I would buy XRE.


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## HaroldCrump (Jun 10, 2009)

There are many, many red flags screaming out here, but the one that takes the cake is this:


kewlthing said:


> Of course some of the partners are saying this is a can't miss deal.


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## FrugalTrader (Oct 13, 2008)

Having no control over your money is a big no-no in my opinion. As others have mentioned, publicly traded REITs may be a better choice.


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## Financial Cents (Jul 22, 2010)

I read the words "appear", "if", "sometime", "unclear", "any provision", and I could go on. These are not the words of a great 'deal'.

I owned a rental unit for a couple of years. Nothing but headaches. I got out and bought a few dividend-paying stocks with the proceeds. The most headaches I've had with this strategy, is figuring out which Canadian bank to invest in 

Buy some dividend stocks or a few REITs if you really like real estate. Stay away from this deal. Just my opinion.


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## Cal (Jun 17, 2009)

Con:
-non voting=no control over the busines or your investment $
-can't sell when you want vs buying XRE as mentioned or REI.UN or any other RE investment that you can sell immediately if need be to get access to your $
-who does make the business investment decisions if all partners are non voting
-plan strictly relies on captial gain of equity if RE investment

I am sure there are not too many RE lawyers who will be business partners in this one.

I wouldn't have an interest.


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## LBCfan (Jan 13, 2011)

Run!!!!!!!!!!!


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## Four Pillars (Apr 5, 2009)

kewlthing said:


> Is this a good real estate deal?


I believe it's important to be able evaluate any investment you might make. The fact that you are asking this question means that you don't know much about real estate investing and shouldn't do this deal.

There are plenty of ways/opportunities to get into real estate investing - be patient and only invest when you don't have ask internet strangers the above question.


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## the-royal-mail (Dec 11, 2009)

There's nothing GOOD about this for you! It's good for them.

Run!


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## kcowan (Jul 1, 2010)

I had a boss who had a few good sales years and one of his investments was like this. He was partners with 2 others in a commercial building on Yonge Street south of St Clair. His third became worth a lot of money on paper. His other 2 partners were dentists and they both had offices in this building. They did not want to sell and he could not sell his share. His advice: Don't invest in anything that is illiquid.

I have followed that advice with good success.


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## Berubeland (Sep 6, 2009)

I don't have enough information to tell you if this is a good deal or not. 

To tell you if it's a good deal I would need to look at the building financials. That is the income vs expenses vs purchase price. 

Now knowing a little about these kinds of deals there are a few things you should ask. 

How much does the managing partner have at stake? 

What purchase fees and other fees are hidden in the contract? I was aware of one of these "opportunities" in Texas and the fees for buying the property were about 30% of the purchase price. 

How did you come about learning about this deal? Some people do form buying groups (they are far from silent investors however) but these serious legitimate players don't need your money and don't market to the general public. 

As a general rule if they are talking about how great this is and how much money you are going to rake in rather than the building they are sucking you into a scheme. You should be able to verify any facts about the building you get. Such as the building is below market rents, compare to CMHC rates for vacancy and prices in the area. 

If this is a genuine opportunity they should be able to pay you interest, private REIT's are paying 8% interest and some more. 

How do you fire the manager if they don't perform? Is the property manager getting a sweetheart deal or are they being paid market rates? Are they in conflict of interest? 

What is their way of dealing with cash calls, the building should carry itself for operations but what if you need to replace all the windows? Are you going to be asked for even more money?

Let me assure you that buildings run on very slim margins and it's easy to lose money if it's not run properly. 

For example in a world where you have an honest seller (impossible) who doesn't "forget" any expenses, if your cap rate is 5% and your mortgage interest is 4% you will make 5% on the downpayment and 1% on the rest of the property. Now if there are any errors the 1% can quickly turn to -2% which has to come from somewhere. 

People can and do lose money...the owner I am working with right now to turn his buildings around put $50,000 in just this month!


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## kewlthing (Jan 30, 2010)

This is the kind of advice I am looking for. I know there are some details I have left out of the original question for brevity's sake, but I feel the core of the questions I asked are sound. Although I appreciate all advice I get, I am not a buffoon who believes every scam that comes along. I am actually a very experineced investor in the stocks and mutual funds realm but I need some help in the real estate end. I know there are group real estate buying scenarios out there, I just need some insight into their pratfalls and inner workings.


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## kewlthing (Jan 30, 2010)

Great advice all. Thanks.


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## peterk (May 16, 2010)

If you know a lot about stocks you'll know that they provide superior growth, liquidity, and many studies have argued lower volitility as well, than realestate. This investment pays no income, which IMHO is the only reason for anyone to be invested in more RE than their personal residence.


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