IRR: Internal Rate of Return
What does it all mean?
IRR stands for Internal Rate of Return. Simply put, it's the annualized rate of return that an investor can expect to earn from a project. Companies use IRR to evaluate a project's viability and to compare projects to one another. For example, a manufacturing company may use an IRR calculation to determine if it's better to invest in expanding an existing facility or if it's better to build a new facility. Real estate investors use IRR to compare projects to one another. Generally speaking an IRR >15% is considered attractive to most passive real estate investors.
Real estate investments are often capital-intensive projects that have different returns each year. In a development project, it's common to have significant cash-outlay in years 1 and 2 when the building is being built. Once the structure is built, it's rented to tenants and at that point, investors can expect consistent positive cash flow in the years following its construction.
Apartment buildings, both existing and new construction, are often evaluated using a 5 or 10-year time horizon. If it's a 5-year project, the assumption is that the operator will sell the building in year 5 and investors will earn a significant in-flow of cash. The sale of the property creates a large return in year 5, assuming the property has been properly managed. In this example, an investor who buys into a 5-year apartment building development could expect negative cash flow years 1 and 2, strong positive returns in years 3 and 4, and a massive positive return in year 5.
Full Steam Ahead
We're full steam ahead at Daymark, our luxury condo development project in Portland, ME. The site is bustling with activity and will continue to be for the next fourteen months. A lot has to happen in that short time span to bring this project together. In our previous blog post, you read about the construction timeline. We'd like to add some color to that timeline by describing some parts of the construction process.
All buildings need a strong foundation, and generally speaking, the taller the structure the stronger its base must be. Daymark is a seven-story building. The first and second floors are steel and concrete podium construction. This steel I beam base supports 5 additional floors. The third to seventh floors are wood frame construction, similar to a single-family home.
Daymark is a luxury condo building and it's important that the construction materials and technique create a luxurious environment for residents. The architect, Archetype Architects, paid close attention to these details when designing the building. One important consideration is sound attenuation. Simply put, clients who buy half a million-dollar condo don't want to hear noise from their surroundings.
The flooring materials selected are stylish and functional. The first two levels have concrete composite slab floors. All other levels have finished hardwood floors which are laid upon 1.25" of gypcrete for sound attenuation. It's also important that the walls do not transmit sounds. The building features double-wall construction and sound attenuating fiberglass and/or mineral wool between each unit. The framers are installing resilient channels on all common walls and corridor walls to reduce sound reverberation. Steel-reinforced PVC windows will keep the city sounds out of our clients' homes.
Time Flies and Timelines…
Here we are, in the dead of summer, and it seems like just yesterday, er, maybe a few yesterdays ago, before COVID, that we started this amazing new luxury condo project of Daymark up in Portland, Maine. One of the critical elements of any good project management is establishing a realistic and structured timeline before the project even gets underway. The difficultly with that, of course, is that lots of moving parts can mean lots of delays or changes and the shuffling of the timeline on the fly. This was especially true during the past 12 months as we were challenged with supply chain delays, material pricing considerations, and market fluctuations in so many different aspects.
Recently, if you’ve been watching our Instagram or perhaps seen us on Facebook, you’ll know that things are picking up steam and moving quite nicely now! Almost all of the initial hurdles to getting dirt moved, piles driven in, logistics with the parking garage solved, and steel starting to go up, have been crossed and we are well underway! Check out some of the pictures of our progress :
Site work on our project officially began around March 29th, and we expect this will encompass much of the 10 months from that date onward, wrapping up early next Spring! Foundation excavation also began around that time, and while we ran into a bit of a delay with some soil issues, it only added a day or so to our overall timeline, thanks to fast responses by the team on the ground and great solutions from our project management partners on-site! The foundation wrapped up at the end of June, which was a huge milestone in getting the project underway!
Not only can challenges arise with the structure itself, and all of the moving parts that surround that, but of course sometimes staffing issues, permitting and city slowdowns, equipment breakdowns, and even weather, can add to a timeline and push a project out farther than anticipated. Luckily, we’ve seen only moderate delays so far in the project in those regards, and we expect the timeline will continue smoothly!
Some notable milestones coming up in the near term future are the completion of the elevator shaft, slated for early August, and finalization of the structural steel, scheduled to be completed around the second week of August. Upon completion of these items, we can begin doing some slab work on the second and third floors, metal stud framing, and by the end of August, we can start working on wood framing, which will be very exciting!
We’re so excited right now with where this project is at, and look forward to sharing more pictures, news, and updates with you in the very near future!
Money Coaches: An Investment in Yourself
While we live in the world of investing, we realize that not everyone may be in a position that allows them to make investments on any level. Money coaching is a fairly new industry that is continuing to increase in popularity every year and allowing people financial freedom that they didn’t have previously, which can, in turn, open them up to new opportunities...such as investing.
What Exactly is a Money Coach?
Simply put, a money coach is someone who educates their clients on the basics of personal finance and works with them to create a financial plan that reflects their goals. They help to identify what their objectives are and teach them the procedures to follow to achieve them. A money coach is not a financial advisor; they aren’t going to tell someone how to spend their money, they are going to focus on creating structure, teaching the basics of personal finance, and holding their client accountable. Think about a personal trainer; they are not going to do your workout for you, they give you structure and motivation and the tools you need to reach your goals.
Benefits of Hiring a Money Coach
Accountability
Pride needs to be left at the door when working with a Money Coach. You can’t be embarrassed by any bad habits that you have; be transparent and open to taking accountability for any decisions or slipups that may happen along the way.
Structure
It’s likely that a lack of structure is a big part of what leads a person to be in need of a Money Coach. The tools that a coach can provide to instill structure into financial habits going forward are going to be a major key to success.
Prioritizing
It can be overwhelming trying to determine where to start and what specific goals to accomplish first. A coach will help to organize and prioritize what to start with to help the process be much less daunting.
If you’re interested in the world of investment, but want to get yourself in better financial shape, a Money Coach could be a great place to start.
The Importance of An Emergency Fund
When it comes to finances, having a backup plan is the best kind of plan. We’re breaking down 3 reasons why you should start an emergency fund if you haven’t already done so.
You’re Self-Employed
There are several variables that come into play when you’re self-employed. The freedom to be your own boss is a huge lure, but it also comes with risk. Your business may have some months that are slower than others, for example, so you’ll want to have a safety net for yourself when times like this arise to avoid putting your business financials at risk.
You Own Your Home
Sure, homeownership can be very rewarding, but it also comes with its own set of stressors and unforeseen issues; usually when you’re least expecting it. Having an emergency fund in place for the next time your hot water heater needs to be replaced or your patio needs a facelift will give you one less thing to worry about in the home repair process.
You're Saving for a Goal
If you are working toward a goal (like becoming either of the two that we mentioned above), your emergency fund can stop you from dipping into your savings when unexpected expenses pop up. This is important because it can prevent you from moving backward with these goals that you’re working towards. Although your progress forward may slow a bit as you rebuild your emergency fund, you will be able to leave the money that you are saving for yourself, which is a great way to protect your savings. Think of your emergency fund as an insurance policy against unexpected expenses.
At the end of the day, it doesn’t matter what you start your emergency fund for, it just matters that you start one.
Credit: Build It + Track It
Having a credit card is easy - but maintaining it is not always as simple. Check out a few of our tips on how you can build and track your credit score.
Always Pay On Time
This seems like a no-brainer, but you’d be surprised by how often it plays a role in affecting your credit score. It’s the easiest way to build your score, and paying more than the minimum amount required helps pay back those loans even faster.
Lower Credit Utilization
Otherwise known as your Credit Utilization Rate, you calculate it by dividing the total amount on all of your credit cards by your total available credit. If you’re using more than 30% of your available credit, it can hurt your credit score.
Keep Accounts Open
Keeping your accounts open and in good standing helps you to have an easier time being approved for new loans or credit in the future. Using the card occasionally, even for something as small as filling your gas tank, and then paying it back off, is an easy way to keep it active and help maintain your credit.
Track Your Credit Score
It's essential to check your credit score frequently. There are several credit monitoring apps available that make it easy for you to stay on top of your score. Consistent monitoring can help you have a better idea of your current credit position, as well as understand what lenders are seeing.
How Often You Should Check Your Score
It is suggested that you check your credit score a minimum of once a year, but many experts recommend checking it monthly. Due to the COVID-19 pandemic, Experian, Equifax, and TransUnion are all offering free weekly credit reports through April of 2022 via www.annualcreditreport.com.
With how easy and convenient it is to track your credit these days, there is no good reason why you shouldn’t be taking advantage of the resources available in order to help build your score as much as possible. Get building!
The Importance of Asset Allocation
Asset allocation is an investment strategy that involves spreading your investment across different asset categories such as stocks, bonds, cash, or alternative categories, as a means of reducing investment risk.
Asset allocation protects investors from significant losses. The principle behind this strategy is that the different asset categories have little, or in some cases, negative correlation. This means that different types of assets perform differently under different market and economic conditions. For example, if your investment portfolio consists of stocks, bonds, and cash, when your stock investment is doing poorly, the same market or economic condition that caused stocks to fall, will favor bond returns. That way, you can protect yourself from significant losses, while maximizing on your returns.
What categories should you include in your portfolio?
There's no one formula that determines which asset category is the answer for every investor. The decision can be influenced by factors such as the level of risk tolerance and time horizon.
Risk Tolerance
This refers to the level of an investor's willingness to lose some, or all, of their money to gain greater returns. Riskier asset categories have the highest possible returns, so daring investors are likely to go this route, and have a higher percentage of stock investments in their portfolio, while those with low-risk tolerance are more comfortable going for less risky asset categories.
Time Horizon
This is the number of months or years an investor needs to keep investing in order to be able to reach a particular financial goal. An investor with a long-term goal, like saving for retirement, may be confident in investing more in riskier and more volatile options. In contrast, you may need to take a less risky option if you're saving for your child’s college education.
Here’s the bottom line: all investment types have associated risks. Asset allocation can help protect you from significant losses while maximizing returns, which is a win-win in the world of investment.
Investment Tips for Retirement
3 Tips To Know
If you want to enjoy a stable life when you're retired, a good savings and investment plan is the answer. You could choose to invest in stocks, bonds, mutual funds, or other cash investments. Whichever investment you choose to make as your retirement plan, here are some tips to keep in mind:
1. Start Investing Early
One good piece of advice is to start saving and investing early when making retirement plans. By investing early, you'll be able to take advantage of the power of compounding, which will help you generate income and grow your earnings over time so that when the time comes, you will have enough to take care of your finances.
2. Learn About Your Investment Options
Various investment options allow you to save for retirement. Some of them are provided by your employer, while others can be accessed through brokerage firms and banks. Before you start investing, always do your due diligence to conduct proper research to help you choose which option is best for you. Take it one step further by working with a professional to help you consider options that you may not have thought of yourself.
3. Pay Attention to Investment Fees
While it's common for people to focus their attention on the possible investment returns and taxes, you should also be aware that your investment gains can be affected by fees such as transaction fees, expense ratios, administration fees. That said, always be sure to find out how much you'll be spending on fees before you commit your money to any investment.
Ways to Benefit from Investing in Real Estate
Heard about real estate but don't know where to begin? Keep reading to find out the best kind of investment for your budget!
Build + Sell
Producing, buying, or selling a property is the backbone of the US economy. It's definitely beneficial to build and sell the property if you're into real estate. Residential real estate is the new trend whose great example is Daymark! With over 54 residential units, the project involves many more facilities that can wow the spectators.
Build + Hold
Not flipping over properties but waiting till the right moment can sometimes do wonders! The most significant commercial benefits for a property bought and held is retained equity and significant saving. Investors need to pay attention to the cost of development to do this right!
Buying Existing Real Estate Property
Buying existing real estate properties is much different than getting a new one. Existing ones offer established improvements like landscaping, utilities, faster access, lower cost, etc. You just need to pay attention to the past projects and do some research on the reputation of the construction company.
Flipping The Property
Another thing you can do to a real estate property is flipping. It basically means improving the property after purchase and then putting it up for sale. It's a turnaround for your investment as it avoids the hassles of maintaining the property, finding the tenants, etc. This way you can do potentially safer investments and get the fastest return on your money.
What Makes an Accredited Investor?
Being an accredited investor allows you access to investments that you might normally be restricted from. Rather than sticking with registered securities, (equity, debt, hybrids) you can use your status to invest in assets that aren't available to the general public, such as private equity funds, crowdfunding ventures, or private placement programs.
As an accredited investor, you have the financial cushion and expertise to handle complex and potentially risky investment transactions. Generally accredited investors include high net worth individuals, banks, and other large corporations.
Think Shark Tank.
A reality television series focused on entrepreneurs who present a sales pitch to a panel of investors (or “sharks”) seeking an investment in their company. In turn, the sharks are offered a percentage of equity in the business should they choose to invest.
Some relatable examples of accredited investors include:
Ashton Kutcher investing in the investment app, Acorns
Madonna investing is Vita Coco Coconut Water
Oprah Winfrey investing in Weight Watchers
What’s It Take?
In order to be considered an accredited investor, you must meet one of the following criteria:
A high enough income: If you have made $200,000 as an individual (or $300,000 as a married couple) for the past two years, and you expect to make as much in the current year, you can be considered an accredited investor.
A net worth exceeding $1 million: Seems like a no-brainer. Your net worth when used as a qualifier, whether married or not, must not include the value of your primary residence.
Registered Brokers and Investment Advisors: If you can prove that you have enough job experience or professional knowledge in dealing with unregistered securities, you can be considered an accredited investor.
Remember that, as an accredited investor, you are taking on more risk and responsibility. Carefully consider where you put your money to work and make sure it's suitable for your portfolio and your financial situation.
To All Strong Women in Investment
As Women’s History Month winds down, we wanted to take a moment to highlight some powerhouse women in the world of investment that you should be paying attention to!
As Women’s History Month winds down, we wanted to take a moment to highlight some powerhouse women in the world of investment that you should be paying attention to!
Arlan Hamilton | Backstage Capital
Backstage Capital is a venture capital fund founded in 2015 that invests in new companies led by underrepresented founders. Today, her company has helped raise upwards of 15 million dollars and invested in over 150 startups. Learn more about Backstage Capital and check out their recent record-breaking campaign here.
Tricia Black | AmplifyHer Ventures
Although this company just launched in October of 2020, Tricia Black is no stranger to starting from the ground up. As the seventh employee ever of Facebook, she was the first VP of Sales for the company. AmplifyHer’s focus as a venture capital is to invest in visionary founders with women in decision-making roles. Their investment focus areas focus on:
COMMERCE | Identifiable brands with data-driven market opportunities and competitive logistics.
CARE | Tech-enabled innovations that yield greater efficiencies in consumer health, hospital infrastructure, and everyday living.
CONNECTIVITY | Groundbreaking platforms and tools that enhance the expression, distribution and monetization of information.
Cathie Wood | ARK Investment Management
Cathie founded ARK in 2014 with the mission of is delivering long-term capital appreciation with low correlation to traditional investment strategies by identifying and investing in the leaders, enablers and beneficiaries of disruptive innovation. In 2018, Cathie launched the Duddy Innovation Institute at her alma mater, Notre Dame Academy in Los Angeles. The institute offers a challenging educational experience for young women eager to stretch their learning beyond the boundaries of traditional acquisition of knowledge, while influencing a new way of thinking and learning throughout campus. In 2021, she is named in the Top 100 Most Influential Women in Finance and you can learn more about why here.
Susan Lyne + Nisha Dua | Built By Girls Ventures
Launching in 2014, BBGV was founded by Susan Lyne and Nisha Dua. Susan held several high-profile positions from CEO to Editor-In-Chief for companies like ABC, Disney, Martha Stewart, and AOL. Nisha, a former lawyer and management consultant, joined Lyne at AOL in 2013, and together, they created BBGV. They focus on female founders who intuitively understand the dominant consumer and their main goal is “to do one thing well: support women with big ideas to go the distance”.
None of us would be where we are today if we hadn’t been given an opportunity somewhere along the way, so cheers to all of the strong women out there making a difference and giving a chance to our future generations.
COVID’s Impact on the Construction Industry
From the outside, the construction industry may have looked like it was going to be one of the “lucky ones” in the early days of this pandemic.
Deemed “essential business”, construction projects carried on over the last year, but this industry has by no means been left unscathed.
Projects that were well underway behind the scenes when the pandemic came along have been forced to revisit initial concepts and plans and resort to a plan B...or even plan C for some.
Lead times on materials have increased exponentially, as well as become less reliable. Original material pricing that was approved in the bidding phases has also been shattered in many cases, due to the soaring costs of goods.
Naturally, there are going to be certain aspects of these price increases or delivery delays that are out of our control in how they impact the Daymark project. However, we were fortunate enough to be early on in the project when the pandemic hit. We were able to restructure initial plans and stay ahead of as many foreseeable delays and roadblocks as possible.
For instance, while ordering appliances to outfit a 54 unit residential building typically would come further down the road in the process, we have adjusted our timeline and are now in the final stages of placing this order in order to account for the 6-9+ month delivery time that we’re faced with.
By looking ahead 20 steps, instead of 10, we are doing everything in our power to keep Daymark on track to be a continued success for everyone involved. This pandemic has taken enough from all of us over the last year, it’s time to start looking forward to brighter days!
Daymark is Officially Groundbreaking
The build has begun
The build has begun
As anyone in the world of construction knows, there are always going to be the typical “unexpected” delays that come along with any large project. We are thrilled to announce that the days of build delays are over as we officially broke ground at the Daymark project on February 23, 2021!
It is extremely important to us to be involved in as many of the big picture moments as possible, so we took the trip from Connecticut to Maine to get in on the action ourselves.
Below are some images to document this long-awaited day for both Daymark and CTIG!
Hands-On Vs. Hands-Off
Approaches to Investing
Approaches to Investing
When diving into the world of investment, you’re faced with several decisions.
What kind of investment do I want to get involved in?
How much am I comfortable investing?
How involved do I want to be?
We’re taking a closer look at the different approaches you can take when it comes to the way you choose to be involved in your investment, specifically that of real estate investment.
Hands-On Approach
Let’s say you choose to purchase an existing apartment complex with the intent of having a hands-on approach, you’re going to be personally active in ensuring that the property value increases over time. This most commonly will come from renovating and upgrading empty units between tenants, allowing you to charge a higher rent to the next tenant. After a few years, you may decide to sell your property. Not only have you seen sustained and increasing income due to the rising rent for incoming tenants, but you have also greatly increased its value over time, allowing you to likely sell it for substantially higher than your purchase price.
Hands-Off Approach
If you are looking to enjoy the benefits of real estate investment without having to be actively involved, you will likely take the hands-off, or passive, approach. One way to do this would be through Real Estate Investment Trusts (REIT’s), which are essentially companies that hold a portfolio of properties across multiple markets and pool investors’ capital together to purchase large real estate deals. There are also private placement offerings or “real estate syndications” which is a structure in which you pool your capital together with other investors in an equity or debt-based investment. In this instance, you are investing directly into the property, giving you direct ownership.
At the end of the day, neither approach is better than the other, it all comes down to what you’re most comfortable with and what is most conducive to your lifestyle!
What’s the Connection?
In 2020 alone, Brooke Group was ranked #1 in most units sold in the state of Connecticut.
As you know by now, our background is in real estate. Those who know us well, know that we live, breathe, and dream all aspects of it. This passion (possible obsession), is what caused us to want to branch out into the world of investment. We talked a little about each of our backgrounds in one of our previous blogs (read here), and as you likely noticed, Brooke Group Real Estate is our common home base.
What does that really have to do with CTIG?
With investing, trust is undoubtedly a critical element. Trust in where exactly your money is going. Trust in the project. Trust in the team. Trust in the process. Our investors need to have a high level of trust in the people who will be responsible for the sales of the Daymark units. Lucky for us, our partners did not have to look far from home for that trust.
In 2020 alone, Brooke Group was ranked #1 in most units sold in the state of Connecticut. Brooke Group completed over 500 transactions, which landed them in the top 10 for overall volume in the state. We are confident that Brooke Group has the experience and tools to manage the sales process.
Brooke Group will begin pre-selling condo units once the project is underway. As this project progresses, we continue to form relationships with agents in the Portland area. We will eventually partner with a local brokerage that will continue selling units once construction is complete. With each new update we receive, our enthusiasm for the Daymark project continues to grow and we are thrilled at the opportunity to have our Brooke Group family be involved in a piece of what we’re “building” at CTIG.
From the Soil to the Sky
Why do we test soil?
Why do we test soil?
Before building can officially begin, the soil onsite needs to go through a variety of tests that help determine a number of things, including:
It’s bearing capacity
Structure stabilization
This determines the length and depth of the pillars put in the soil to lay the foundation
Results help in the selection of suitable construction techniques, as well as foreseeing possible foundation problems
Environmental tests of the soil are also conducted in order to establish if any contaminants are present that may require remedying before proceeding.
As a proactive measure taken by our team for the Daymark project, we are choosing to conduct our own soil study and present our findings to the DEP (Department of Environmental Protection); rather than prolong the process by waiting for an opportunity to coordinate schedules to make this happen.
Should anything of major concern be found, which is unlikely, we will be way ahead of the game in determining what steps need to be taken to remediate and continue unhindered in the progress of building this amazing new project.
As our build officially gets underway, we’ll be sharing all of the ways that we’re doing our part to minimize our carbon footprint whenever feasible throughout this process. Let’s get ready to build!
The Green Light
Building Permits Approved
Building Permits Approved
We’re happy to announce that as of 1/6/21, we have received all of the permits required to start building! For those who have been following closely, the short answer is - yes, we technically did have all of the building permits when we originally signed onto this deal. Within the whirlwind of 2020, the entire Building Department in the city of Portland turned over and we had to start back at square one.
Even though the building permit approval process can be incredibly frustrating, there’s a reason that they’re so important.
Let’s have a little storytime.
In 1992, Hurricane Andrew struck South Florida with vengeance. Think wind speeds of 170 miles an hour. Ultimately, the storm destroyed more than 53,000 homes, at a cost of $25 billion, but part of this damage could have been prevented. Inadequate codes, shoddy construction, and -- believe it or not -- lax enforcement of building permits contributed significantly to the destruction.
Isn't a building permit just a nuisance that plagues every construction project? Isn't it just a way for bureaucrats to tell you what you can and can't do on your own property?
That's how a lot of people think of building permits, but something like a natural disaster can be a wake-up call. The fact is, the building permit process can save your life. It can also play a big role in protecting the value of your property.
Building permits are the way counties, towns, and municipalities enforce their building codes. Local governments adopt these codes in order to ensure that all buildings meet minimum safety and structural standards and they update them every few years as new building methods and materials are introduced.
Hurricane Andrew caused many Florida communities to beef up building codes and to enforce permits more rigorously. From their beginning, building codes and permits have often been responses to disaster.
In 1625, the Dutch West India Company addressed problems of fire and poor sanitation by passing a building code for “New Amsterdam”, which we now know as New York.
A devastating London fire in 1666 led to the London Building Act.
The Great Chicago Fire of 1871 resulted in new regulations there four years later.
Today, those initial responses to disasters have grown into comprehensive building codes for both commercial and residential construction. They're common in America, Europe, and many other parts of the world. Many states and municipalities base their own codes on “model codes”, which have been around since 1905 when the National Board of Fire Underwriters published the first set in the United States.
There you have it, friends, a little background in the importance of getting us to our “green light” and we couldn’t be more thrilled to break ground!
Picking Procopio
Partnering with an industrial powerhouse
Partnering with an industrial powerhouse
When deciding to move into the world of investment in 2018, it was a no-brainer that Procopio Companies was who we wanted to team up with.
With over 70 years of experience, Procopio is a family-owned, full-service construction, development, and management company out of Lynnfield, MA who effortlessly turns under-valued and under-appreciated urban sites into unique and exciting communities for residents to call home.
In addition to their decades-long track record of success, it was important for us to align ourselves with someone whose mission matches with what we want CT Investor Group to stand for. At the end of the day, we represent each other throughout our projects and we are proud to put our names on something that they have been a part of.
Procopio Mission and Values
Mission:
The Procopio Companies exist to develop extraordinary places to live that are equally valuable to their investors, residents, and the communities in which they build.
Their development process is rooted in three generations of experience and by the idea that even after 70 years, they can still find new and better ways to deliver the best homes for their customers and the best returns for the investors they work with.
Values:
1. Multifamily living should still feel like home
2. Any place can be better
3. There’s rarely one right answer
4. Own your work
5. Think bigger
Check out more about Procopio, including other completed or current projects.
Why Real Estate Investment?
Real estate is both a powerful investment vehicle and a necessary part of any investor's well-balanced portfolio. While there are dozens of benefits to investing in real estate, we’re going to highlight our Top 5 for you.
1. Allows for a Passive Approach
With many rental property setups, assets can be structured to be managed by a third party, which means little to no time or involvement on a personal level. A properly structured investment affords the investor the ability to offload work to a management company on a larger scale, resulting in slightly smaller, but more secure returns. Partnering with the right professionals takes risk out of the investment, and shortens the proverbial learning curve.
2. Incoming Cash
Incoming cash from rental properties can fund further growth and operations. The alternative to this being returns that are locked up in an investment, with only value-based "unrealized" returns. For example, a stock may be “worth” a higher amount than the price you purchased it for, but until you sell the stock, you haven’t realized any true profit. Furthermore, once you dispose of it, you also remove the opportunity for further growth, leaving you looking for another investment. Real estate assets can provide both real value growth over time, as well as cash flow from operations. This cash can be used to make capital improvements (which improve cash flow and increase value), as well as give an investor the ability to reduce their debt liability, or to fund further expansion.
3. Tax Benefits
There are many provisions in the US tax code which allow savvy real estate investors to reduce their tax liability. The most common type of real estate tax benefit is the often-mentioned "write-off". There are many types of tax write-offs an investor can take including depreciation, loan interest, capital expenditures, and operating expenses. In some cases, an investor can even accelerate depreciation. Other tax benefits include the ability to roll losses in these asset classes into subsequent years, also helping offset the overall tax burden on an individual or business entity. Perhaps the most powerful tax benefit is the 1031 exchange, which allows an investor to sell a property and roll the proceeds from the sale of that property into a new property, tax free. The US tax law changes annually, and this article should not be taken as guidance. It is important that you contact a CPA for tax planning advice.
4. Value Growth Compared to Inflation
Real estate generally tends to appreciate over time, typically keeping up with, or exceeding inflation, while other asset classes may lag behind inflation. Many investors use real estate to hedge against the negative effects of inflation on their other holdings. Rent also tends to increase over time, meaning that you may generate higher cash flow returns in the future, with no increase in liability on the real estate.
5. Risk
In comparison to other investments, such as startups or the stock market, real estate is much easier to manage - not to mention, may help you sleep a little easier at night. A stock market crash will have only minimal impact on a real estate portfolio. Diversification of what you own is important to hedge against other risk factors.
As always, a diverse portfolio of different types of investments is the key to healthy, long term growth and success!
Insider Look: Daymark Design
What’s our vibe?
We’re all about community. A welcoming city with loads of diversity, history and a little bit of grit. Engaging people from diverse backgrounds who value each other and want to stop and chat - not a hustle and bustle city.
Check out how our aesthetic inspo marries industrial grit with the community feeling, by offering a variety of shared amenities to help neighbors become friends.
CLUB SPACE
Bar | Kitchenette | Fireplace | Wine Storage
SPORTS LOUNGE
TVs | Dart Boards | Pool/Ping Pong Tables | Foosball | High Bar | Sofas + Flex Seating
FITNESS CENTER
Boutique Vibe | Not Fully Outfitted | Not Your Typical Chain Fitness Center
RIDE SHARE LOUNGE
TV | Charging Station | Seating