Anyone in REIN who is talking about making tons of money using the REIN system is a speculator. Period. There just isn't much money to be made at 4 - 7%. If you want to get to 10 - 20% returns, you must buy into a market going gangbusters. PPD is just not going to get you there. You are better off to buy a long-term GIC through an RRSP...not being facetious, you will actually make more money with an RRSP in a flat market.
Hi Matt,
You can see my post was dated May 18th so I'm not even a month into learning about real estate. I'm certainly not an expert, but I find that many of the people I speak to about real estate have no clue about what you're talking about!
One of the criticisms I have about Don's book Real Estate Investing in Canada is that there isn't any discussion or framework for comparing private real estate to other investment options. Nor is there a discussion about overall asset mix (unless I missed it). It's an excellent road map for choosing the right real estate, but no decision is made in a vacuum. These things may be beyond the scope of Don's book but I think a brief discussion should be there.
Don meets the fellow on the plane and they go right to real estate. Where's the discussion about overall asset mix? How much real estate is prudent? What is the outlook for private equity? The stock market? Alternative investments? Commodities? For example, let's say you're considering a $200,000 investment property and you want to put down 20% ($40,000). The monthly rent is $1,350 so right away we know it's in the desirable cash flow zone of 8-10%. After deducting all monthly expenses (mortgage, utilities, maintenance, etc.) let's say the property has a negative cash flow of $250 per month. Using some basic assumptions like 1.5% inflation, rent inflation = cost inflation, refinancing at the current rate in 5 years, etc., the 10 year IRR on the property comes to around 8%. The investor is losing cash flow every month so an ACRE-minded person would probably say pass. But what is the alternative use? If you believe that your overall asset mix should have real estate exposure then you might want to look at a REIT like Riocan. Right away your cash flow situation is better since Riocan yields 5% (pre-tax). It has appreciated by 7% per year over the last 15 years so we'll assume that going forward. The 10 year IRR on that is 8.8%. So you can see the IRR for Riocan and the cash flow is better. If we assume 0% appreciation for Riocan shares then the IRR drops to 3%. If we assume that our investment property will not appreciate over the next 10 years then its IRR is 5%, much better than Riocan which pays you 5% every year! Then we can look at the stock market which over a long period of time does 5-8%. And it goes on and on. Tax sheltering in a TFSA or RRSP, deducting interest expense for investments, etc. etc.
It's fine to focus on cash flow but only IRR truly equalizes your investment options. Before evaluating a property I think one should know the IRRs of ALL the investment options in front of them (to make life simple one can just think about the major asset classes: equities, fixed income, commodities, private equity, alternative, real estate, and currencies). The IRR on private real estate should be quite a bit higher to account for time, relative illiquidity, leverage, etc.
Just 2 cents from a beginner!