Investing in real estate can mean more than buying a home

June 14, 2019

“Owning a home.” That’s a goal of many physicians. Many of our physician clients rent during medical school, and give true thought to actually buying during their residency. Most are likely to purchase a home once they’re established in practice.

Wherever you are on this path, making the decision to purchase real estate can be more complex than you might think. There are, in fact, quite a number of options—each one different from the next.

Buying a home and owning rental property

It’s unsurprising that so many people opt to buy their own home. Many think of it as “forced savings” and hope that the property will ultimately increase in value. Another option is buying property that you can rent to others.

Of course, buying and maintaining a rental property is a potentially profitable investment, but not without its risks. Cost of maintenance and repairs, tenants possibly defaulting on payments, property taxes and the ever-increasing costs borne by you as a landlord are all things to consider.

Investing in real estate investment trusts

Real estate investment trusts (REITS) are actual investments that you can buy in your portfolio. REITs are companies that own and operate income-producing real estate. This type of investment gives you exposure to real estate that can span several sectors, such as multi-family, industrial, retail, office tower, storage and hospitality.

Public versus private real estate

This is an option that you may not be aware of—an opportunity that’s open to physicians with significantly above-average income or significant assets. Imagine investing in an office building in Tokyo, a hotel in London or retail space in Australia.

Private real estate investments are not publicly traded. Since they do not sell shares to the public like REITs do, they have to find financing elsewhere.

How it works

Private real estate invests directly, or through other funds, in different types of real estate, such as office, residential, commercial, and industrial buildings or hotels. Managers of private global real estate have access to markets that are much broader than what is typically available to the average retail investor in Canada. In addition to their ability to cast a wider net, they can pursue active, alternative investment strategies that are difficult to achieve individually or within a publicly traded REIT.

The advantages

The biggest difference between public and private investments is that the managers of private assets do not have the pressure to satisfy shareholders in the short term. For instance, investment managers can create value in commercial real estate by increasing rents through renovations or by engaging better property management rather than having to sell a property to capture a value increase.

Also, some managers may pursue opportunistic strategies, preferring to invest in properties like undeveloped land or vacant buildings that require significant investment to realize their potential.

Who can benefit

Of course, private global real estate investment is not for everyone.   

With a holding period of seven to 10 years or more, you need to be a patient investor. This long time horizon gives managers of private global real estate the flexibility to set strategies that generate the most long-term value without worrying about having to sell holdings to accommodate redemptions by investors in the short term.

To ensure the strategies can be properly implemented, this type of investment offers a window of opportunity for investors to buy into the fund and then the fund is closed to further investments. Also, investors cannot withdraw their money before the end of the holding period.

The subscription deadline for the MD PlatinumTM Global Real Estate Pool is July 31, 2019. The minimum investment amount is $25,000—much lower compared with similar strategies for institutional mandates where miminums may range from $1M to $10M.

To find out whether real estate pools are right for your portfolio, contact your MD Advisor*.

 

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager. MD Platinum Global Real Estate Pool is only available to clients of MD Private Investment Counsel through a registered Portfolio Manager.

The information contained herein provides key information about the respective MD Platinum™ funds and is not intended to be taken by, and should not be taken by any individual recipient as investment advice, a recommendation to buy, hold or sell any security, or an offer to sell or a solicitation of offers to purchase any security.

The MD Platinum™ funds described in this document are subject to additional terms and conditions set out in the Platinum Funds’ operative agreements and regulatory suitability requirements as considered by the MD Private Investment Counsel Portfolio Manager. The Platinum funds’ operative agreements will also set out additional information about the investment objective, terms and conditions of such fund, tax information and risk disclosure that are material terms regarding a fund. Any investment in a fund would be speculative and would involve significant risks. The information and strategies presented here are not suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals. Employees of the MD Group of Companies are not authorized to make any determination of a client’s U.S. status or tax filing obligations, whether foreign or domestic. The fund is intended for individuals who are discretionary managed account clients of MD Private Investment Counsel, an operating division of MD Financial Management Inc.

Management fees and expenses associated with investing in MD Platinum private funds may be higher than fees and expenses in public security funds. No guarantee or representation is made that any MD Platinum private investment fund offered will achieve its investment objective. There are risks associated with investing in private investments that are not applicable to typical investments in the public securities markets. These risks include, but are not limited to, the following: private investment funds are speculative and involve a high degree of risk; an investor could lose all or a substantial amount of his or her investment; interests in private equity and private real estate investments are illiquid and there is no secondary market nor is one expected to develop for interests in such investments; there are significant restrictions on transferring private equity and private real estate investments; private equity and private real estate investments experience volatile performance; private equity and private real estate funds are often concentrated and lack diversification and regulatory oversight. Leverage may be employed, which can make investment performance volatile. Real estate investments are sensitive to factors such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and a manager’s skill as well as credit risks and tax and regulatory requirements.

Metropolitan is a registered trademark of Metropolitan Real Estate Equity Management, LLC. © 2018 Metropolitan Real Estate Equity Management, LLC. All Rights Reserved. MD PlatinumTM is a trademark of The Bank of Nova Scotia, used under licence. MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. For a detailed list of these companies, visit md.ca.

Certain information contained herein constitutes “forward-looking statements.” Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. As a result, the Recipient should not rely on such forward-looking statements. No representation or warranty is made as to future performance or such forward-looking statements.

The information contained in this document is not intended to offer foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals. Incorporation guidance is limited to asset allocation and integrating corporate entities into financial plans and wealth strategies. Any tax-related information is applicable to Canadian residents only and is in accordance with current Canadian tax law including judicial and administrative interpretation. The information and strategies presented here may not be suitable for U.S. persons (citizens, residents or green card holders) or non-residents of Canada, or for situations involving such individuals.

Management fees and expenses may be associated with pooled fund investments and the use of an asset allocation service. Before investing, please read the prospectus of the pooled funds in which investments may be made under the asset allocation service. Pooled funds are not guaranteed. Their values change frequently and past performance may not be repeated. The MD Family of Funds is managed by MD Financial Management Inc.

MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. For a detailed list of these companies, visit md.ca.

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