THE MODERN PLAYBOOK FOR SUPER SUCCESSFUL REAL ESTATE … … · Direct real estate investing for the most part ﬂuctuates quite distinctly from other conventional asset groups, like

THE MODERN PLAYBOOKFOR SUPER SUCCESSFULREAL ESTATE INVESTING

Luan Ha, MBA

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THE MODERN PLAYBOOK FOR SUPER SUCCESSFUL REAL ESTATE INVESTING


By Luan Ha, MBA

I. INTRODUCTION

II. BACKGROUND -- THE SCOUTING REPORT

A. Why Diversify with Direct Real Estate Investment

B. Tips and Quotes

C. Profiles of Best Investors

III. THE PLAYBOOK - THE 9 BEST “GO TO” PLAYS

1. GO TO PLAY #1 - Do Your Due Diligence

2. GO TO PLAY #2 - Determine the Location Works

3. GO TO PLAY #3 - Assess the Fundamentals of Supply and Demand

4. GO TO PLAY #4 - Understand the Zoning

5. GO TO PLAY #5 - Consider Debt as an Investment Vehicle

6. GO TO PLAY #6 - Carefully Analyse the Debt Leverage of the Project - a Two-Edged Sword

7. GO TO PLAY #7 - Figure Out Your Real Estate Investment Style

8. GO TO PLAY #8 - Maximize Your Exit Options

9. GO TO PLAY #9 - Avoid Mistakes

IV. SUMMARY

V. THE LAST WORD

ABOUT THE AUTHOR

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TABLE OF CONTENTS

“Study your playbook”

Tom BradyNew England Patriots

I. Introduction


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A good playbook is the secret of success, whether in sports or business. Just ask Tom Brady, star quarterback of the New England Patriots of the National Football League. He has been a master of executing first string tactics that have led to an insanely successful career - six Super bowls and still counting.

Just like Brady, real estate investors need exceedingly dependable “go to plays” that will locate them in the most favourable field position to win.

In this playbook, I am going to show you what I learned over 10 years at Canada’s largest real estate investment trust and how I use these same principles at Fundscraper.

A little research will turn up various blueprints, road maps, whitepapers and guides, too many to count, on how to invest in real estate. Unfortunately, virtually all are increasingly obsolescent in a world ever changing with innovative 21st century technology.

There can be no credible argument that meaningful real estate investing is not an imperative for a well rounded investment portfolio. However, today’s wise investors will invariably be quick to recognize that new advanced online, easy to use platforms are replacing the traditional, often old fashioned, outmod-ed avenues of connecting to real estate profits. Modern scientific techniques, processes and skills are rapidly transforming the Real Estate Industry in the same way they have revolutionized many other industries - from Communication to Manufacturing to Retail Shopping and on and on.

This paper is intended to be the definitive Playbook for super successful Real Estate Investors in today’s highly regulated digital milieu. It will talk about the benefits of diversification through real estate invest-ment for context, but more poignantly provide the “how to” game plan to assess and ultimately put the investment into your shopping cart.


II. Background -- The Scouting Report

What follows is the background homework that lays the foundation for the Playbook.

Why Diversify with Direct Real Estate Investment

Real Estate has been intrinsic to the human experience for thousands of years and that proposition is as valid today as ever.

The traditional paradigm calling for 60% in public market equities and 40% in public fixed income securi-ties for investment portfolios often misses the mark. This is typically due to an under representation of direct real estate investing, as distinguished from vehicles like mortgage investment corporations (“MIC’s”), Real Estate investment trusts (“REITS”), and mutual funds that pool a variety of projects. The result is that returns achieved are less than optimal.

Holdings in public stocks and bonds can be volatile. An ill advised portfolio mix is at all times susceptible to the “bubble” precipitously bursting due to unexpected uncontrollable events beyond our ability to forecast.

Just think of world conflicts, environmental disasters, extreme inflation or deflation, technological advances or miscues and changing tastes.

As to holding cash, trading in commodities or currency speculation, all can be risky, the intricacies being generally only understood by experts and insiders.

Everybody’s goal should be to build a more perfect portfolio designed for maximum rewards and minimum risk.

Meaningful direct real estate investing in your portfolio is an absolute must for any successful investor.

I will tell you why!

Direct real estate investing for the most part fluctuates quite distinctly from other conventional asset groups, like stocks and bonds. It has unique features. For instance, real estate is tangible and is what lawyers call an “immovable”. You can kick it.

By way of an aside and as a matter of general interest, in feudal times and for ages because few people could then read and write, the only recognized method of conveying land was by the gesture of actually handing over a piece of the dirt or the landscape to the new owner. This method of acquiring an interest in land, called “feoffment”, has long since been supplanted by conveyances founded in statutes - for example written and registered deeds and mortgages. Despite the obsolescence of the feoffment ritual, the notion of intrinsic permanent value of real estate remains embedded in our collected psyche. And so, a centuries old real estate investment strategy continues and thrives in today’s modern times.

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Back to the discussion.

Unlike stocks and bonds real estate trades privately based on local factors such as:

It is often scarce, particularly in growing areas, which translates to a history of appreciating value. In your portfolio, real estate investing is a channel to invest-ments backed by real hard assets providing a regular income stream and long term growth coupled with the benefits of diversification. Other benefits to note include:

There is no reason not to be able to enjoy superior performance and diversity at the same time.

Real estate investment for women, particularly, can particularly be very important for their portfolios. Women simply live longer than men! The need to maintain and grow the value of a retirement portfolio is a pragmatic concern. What better way than to include real estate investing as part of their overall investment strategy. Good real estate investing can only enhance the prospect of enjoying the benefits of things like reasonable leverage (typically as much as 4 or 5 times) and the miracle of compound interest over an extended period of time.

Accordingly, take advantage of having solid real estate investing as a meaningful part of your portfolio since it is self evident as a way to enjoy reasonable returns and protect against the vagaries of other classes of investment and vice versa.

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LOCATION SUPPLY

DEMAND INVESTMENT LIFESPAN

The ability to take advantage of leverage

Tax deductions

A chance to create added value

An increased voice in the management of the asset



Tips and Quotes

While there is nothing scientific about it, it can be instructive to heed the quotations and advice of some of our illustrious real estate friends and advocates.

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“Buy land, they’re not making it anymore”

MARK TWAIN

“Don’t wait to buy real estate. Buy real estate

and wait”WILL ROGERS

“I have always admired women that have a strong

sense of self, complemented by femininity. I especially

appreciate the presence of these women in traditionally male dominated industries,

such as real estate”

IVANKA TRUMP

“A funny thing happen in Real Estate. When it comes back, it comes back up like

gangbusters”BARBARA CORCORAN

“A simple fact that is hard to learn is that

the time to save money is when you

have some”JOE MOORE

“Certainly the advent of technology and electron-ic commerce has had an immense impact on the

real estate industry”

MICHAEL OXLEY

“Real estate is a commodity bought and sold everyday. Just like a stock you would buy from your broker. The difference is, if the value of my Real Estate goes

down drastically, I still have a tangible security. If my stock

plummets, all I have is a piece of paper”

RICO VECC

“The best Investment on earth is earth”

LOUIS GLICKMAN

“The major fortunes in America have been in

land”JOHN D. ROCKEFELLER


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Profiles of Best Investors

Most of us never get a chance to participate directly in a major real estate project -- usually grabbed up by big players, like private equity firms, banks, insurance companies, pension funds, and government institu-tions. We are mostly left to public mutual funds, real estate investment trusts (“REITs”), exchange traded funds (ETFs”) and the like.

In fact, these “best” investors always employ a direct real estate investing strategy. Typical allocations range from 12% to 16% of their entire investment package.

Benchmark returns with and without real estate make a compelling argument for the inclusion of real estate investing.

In that regard, consider the experience and the lessons to be learned from the Yale University Endowment, which is one of the best performing investment portfoli-os in North America, having a current value in the range of $30 billion. The fund is known for its “20% rule” which recommends at least 20% be invested direct-ly in private markets, like real estate.

This invariably translates into significantly higher returns over time for a real estate investor over one who employs a more traditional allocation based in public markets.

One can only conclude that it makes sense to piggyback onto a tried and true paradigm of real estate investing established by the major players.

0%

2%

4%

6%

8%

10%

FUNDSCRAPER SAVINGSACCOUNT

8.37%

0.9%

GICNon-Cashable

(TD 3-year)

1.8%

4.5%

High Yield Bond Fund(RBC $U.S

3-year)

High Yield Bond Fund

(RBC 3-year)

3.9%4.5%

(Actual Net Return)


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III. THE PLAYBOOK - THE 9 BEST “GO TO” PLAYS


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GO TO PLAY #1 Do Your Due Diligence

A. Real estate is a multidisciplinary field and requires a variety of experts depending on what stage the project has progressed.

B. Create a checklist of items you need to see. This can include the relevant items that portray the ‘story’ of the project objectively and upon which you can verify relevant details:

� Purchase and sale agreements (you want to know that the sponsor does indeed own the project and paid for the land as described).

� Project development plans, drawings, and renderings. Not all development plans are made equal. You can think of development plans along a timeline from the earliest (which is the most risky) to the latest (most certainty). Conceptuals drawings are preliminary, whereas, working drawings or building permits drawings are the set of plans upon which the City will grant a building permit and it’s what the contractors will reference when building the project. -The later you are in the process towards obtaining the building permits, the more cost certainty you have with the financial proformas or budgets provided. You simply cannot accurately estimate a budget based upon conceptual drawings. There isn’t enough detail to estimate the required quantities of materials needed and the costs of construction. You may need a Quantity Surveyor’s report.

� Insurance may include cost to complete, builder’s risk, public liability, and casualty coverages. It is best to consult an insurance expert to make sure of the adequacy of the project related insurance.

� Copies of third party opinions and/or reports including the condition of any existing buildings; the more of this the sponsor has, the more prepared they are towards advancing the project successfully.

C. Be disciplined in assessing the information:

� Have a third party opinion or objective data confirming information presented to you. -Have access to a team of advisors or resources who have expertise in the relevant areas who can discuss the project with you.

� Feel confident the integrity of the information and data presented to you is reasonable and complete.

� Never rely completely on the representations provided by the beneficiary of your investment. -Always have third party opinions on the major items. Real estate is multi-disciplinary so no one is an expert in everything, including yourself. Know where you need help.

D. Assessing Experience of the Manager:

� When assessing the track record of the sponsor or the manager you want to make sure they have the requisite experience in order to execute properly:

E. Due diligence is time consuming and it is complicat-ed! However, the more you do it, the more skillful you can become.

F. Make sure the ‘story’ makes sense and that the sources and uses fit in with the timing and staging of the project. Real estate development follows a critical path moving from one discipline to the next and iterat-ing between the stages. -Know what the key critical factors are before a project can be successfully com-pleted.

1. Ensure any prior completed projects are relevant or similar.

3. Assess whether they are seasoned (survived the ups and downs).

5. Ensure they have their own capital at risk (“skin in the game”). This means they are more likely to operate with a so called “fiduciary mindset”.

4. Satisfy yourself they have staying power. “Timing the market” is a key ingredient in any proforma. A flawed estimate might hint that the sponsor can only stay in the market for a short period of time. So you want a sponsor who has the commitment and financial resources to persevere in the market regardless of the market conditions. These sponsors have the ability to be patient and not be forced to exit at a disadvantageous time.

2. Don’t just pay attention to the financial performance. Look at the timing, their market assessment and their market projections.

GO TO PLAY #2 Determine the Location Works

On a more serious note, most of us are familiar with the common mantra of the prime importance of location, yet as Investopedia states. “Most people have no idea what it really means”.

Any analysis will, of course, need to be centred on the particular project site. The criteria for the ideal location for a skyscraper in Toronto will not necessarily be applicable to a condominium project in Markham.

The factors to consider are many and can be complex bringing into play numerous factors ranging from


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marketability to governmental regulations to societal issues.

Here is a reasonably comprehensive checklist of what may constitute a desirable location for a potential development:

ANONYMOUS

“Kisses are like Real Estate, it’s all about Location, Location,

Location”

Centrality - proximity to a municipal centre

Soil conditions

Climate

Environment factors

Air and water quality

Demographics - population growth

Employment sectors

Regulatory factors

Recreational facilities

Natural geographic boundaries

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Walkability and Transit - public and private transportation

Present and Future amenities - schools, daycare, hospitals, shopping

Neighbourhood - surrounding uses, appear-ance, accessibility to major transit routes, commuting time;

GO TO PLAY #3

Assess the Fundamentals of Supply and Demand

Demand is driven by a number of factors - economics, demographics, changing tastes, technological changes and the like. Supply is provided by developers who tend to start building when they perceive a tightening of the market for a particular type of product, typically as a result of strong demand.

There are four key things to keep in mind:


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First, because buildings can take a long time to be planned, approved, and constructed, tight

supply conditions can persist for years leading to spikes in rents and valuations;

Second, developers tend to over-build. So sooner or later rapid rent and value growth tend to reverse course;

Third, the demand and supply conditions for any particular type of property in any partic-ular geographic area may be quite different than the conditions for a different property

type or in a different area; and

Lastly, over the long term assuming a reasonably healthy set of economic and demographic conditions, real estate rents and values tend to grow at or slightly below the general rate of inflation.

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GO TO PLAY #4 Understand the Zoning

New York City was the first American city to adopt a zoning ordinance in 1916. Now it is a universal practice virtually everywhere in North America.

While jumping through the hoops to secure the proper zoning and permits for a project may be expensive and time consuming, at the end of the day, it helps protect the value of the property.

Zoning reports help us to understand the official plan for a municipality - both as to applicable present uses, but also importantly the future.

Being satisfied on zoning is usually the first step for a developer to determine if they can build and will gener-ally help avoid ill advised decisions based on land use.

Some useful rules of thumb that will impact on whether a particular real estate investment will pay off follow:

�

Check the current zoning - specific uses, standards for size and placement of build-ings, surrounding zoning, process and time for a rezoning, if necessary;

�

Check future planning - what your property will look like in 5 years down the road? Governmental long range planning, new proposed roads, hydro lines surrounding future uses.

�Check possible design restrictions - historic buildings, existence of wetlands, flood plains, or endangered species; and


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That said, because there is less risk, the return that can be expected is also somewhat less than the expected return on the equity portion.

For the novice investor seeking exposure to the real estate asset class investing in a debt security may be a reasonable strategy.

Furthermore, debt securities may be an attractive alternative to low-yielding GICs and public REITs for investors seeking a regular and reasonably secure cash distribution.

GO TO PLAY #5 Consider Debt as an Investment Vehicle

The principle of debt investing is that debt has a priority claim on a project - in other words debt must be repaid before the project owner.

Accordingly, by investing in the debt or a portion of the debt used to finance the acquisition or development of a project the investor assumes less risk of loss than if they were to invest in the equity portion. Analyse the borrower’s ability to pay. Higher than normal interest rates and discounts may be red flags to be cautious.


GO TO PLAY #6 Carefully Analyse the Debt Leverage of theProject - a Double-Edged Sword

Real Estate developers typically make extensive use of third-party debt to finance their projects.

Typical debt to equity ratios range from 1:1.5 to 1:4.

Under healthy and stable market conditions real estate debt is generally relatively easy to obtain due to the attractive security that real estate assets represent.

From the sponsor’s perspective debt means that sponsors can build larger properties and portfolios than if they had to rely strictly on equity capital.

It also means that as long as project returns exceed the cost of debt the returns to equity are enhanced - this is to the advantage of both the sponsor and investors and is known as positive leverage.

Another positive factor from the investors perspective is that the possibility of generating higher returns acts as an incentive to the sponsor to perform.

With that said, investors need to be aware that the risk of failure to achieve target returns and even to suffer the loss of capital is also magnified by the use of debt.

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GO TO PLAY #7

Figure Out Your Real Estate Investment Style

When we speak of real estate the natural tendency is to treat all real estate as being somehow the same and subject to the same valuation drivers across the board, but as the previous discussion should have made clear this is not the case; every market and submarket and every individual asset is susceptible to unique factors and must be evaluated individually.

Similarly every investment opportunity must have its own specific investment thesis and objectives.

In general, real estate investments can be classified as belonging to one of four so-called investment styles: core, core-plus, value-added and opportunistic.

Core investments typically involve stable, well-leased assets in established locations requiring relatively little additional capital expenditure nor intense manage-ment. Core investments are relatively low-risk and command the lowest expected returns and are general-ly held for the long term.

Core-plus investments typically relate to similar types of

assets which require additional leasing or other actions or to less well-established location and or property types such that both risk and expected return are modestly higher than for a core investment.

Value-added investments typically involve well-located assets that require significant capital expenditures and leasing activity to achieve a stabilized operation and are usually exited once the value added program is com-plete. Value-added investments are rated as higher risk than core or core-plus and are expected to generate correspondingly higher returns.

Opportunistic investments are high risk investments (or “plays”) such as development investing in distressed or emerging markets and so on. These investments are intended to be exited as soon as possible and are expected to achieve the highest returns. However, the risk of capital loss is highest.

From this, it is clear that real estate investors must choose the types of deals they invest in carefully so as to match their risk appetite, liquidity, expectations and return objectives.

$$CORE

STABLE

CORE PLUS VALUE-ADDED OPPORTUNISTIC

RISKIERREAL ESTATE INVESTMENTS CLASSIFICATION


GO TO PLAY #8 Maximize Your Exit Options

Simply put, having more options is always better. You never know which scenario is optimal, depending on when and how your investment and the project unfolds. For instance, you might favour a debt invest-ment that has a feature allowing you to convert into equity or a transaction at a higher rate of return on the debt, but with an equity kicker as a bonus for assuming more risk.

GO TO PLAY #9 Avoid Mistakes

Execute the first 8 Go To Plays and the 9th will follow. Learn from other projects - comparables, the key importance of trusted, experienced players with proven track records.

Whoooops!

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IV. SUMMARY



That’s where Fundscraper fits in. It will do the heavy lifting for you. You call the plays

and Fundscraper runs with the ball.

A. BackgroundIt is important that you feel you are in trustworthy and capable hands and not have to worry about an unreli-able sponsor or nefarious investment scheme. Govern-ments everywhere are being proactive in enacting consumer protection legislation and strict regulations are the order of the day.

Fundscraper Capital Inc. is on the leading edge of compliance. It is an Exempt Market Dealer registered with and strictly enforced by the Ontario Securities Commission in the Province of Ontario, as well as British Columbia, Alberta, Quebec and Prince Edward Island. Further it is registered as a mortgage brokerage with and comes under the jurisdiction of the Financial Services Commission of Ontario.

IV. Summary

Meaningful real estate investing is essential for a well-rounded and successful investment package.

Here is a recap of why:

� Real estate is a hard permanent asset that can be easily securitized;

� Direct real estate investing will balance out the vagaries and unpredictable fluctuations in public securities markets, both domestic and international;

� Real estate can provide a regular fixed income stream over a set time frame; and

� Direct real estate investing will pay off in the long term and at the same time maintain a high degree of safety.

However, unlike Tom Brady, not everyone, no matter how well intentioned, has the time or skill successfully to quarterback the Playbook.

My playbook will give you the edge in making your real estate

investment decisions.

Fundscraper is a registered EMD in Ontario,British Columbia, Alberta, Quebec, and Prince Edward Island.

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Transparency and trust are priorities. While it does not charge for or provide investment advice per se, it puts forward all the pros and cons of the real estate invest-ing opportunities list on its website, so you can make an informed decision on which to choose.

Fundscraper makes every effort to ensure that any given investment is right for you. It goes to great lengths to observe all the regulatory rules related to “Know Your Client” (KYC) and “Know Your Product” (KYP). It has a concierge service which makes a knowl-edgeable, registered representative available to assist you in all things you need to know to take advantage of Fundscraper’s platform for real estate investing.

In Conclusion, it is fair to say that Fundscraper has officiated over the marriage of the time honoured traditions and modern technological innovations in the Real Estate Industry. Please visit Fundscraper’s website at www.fundscrap-er.com for the full story. Sign up with no obligations and receive Fundscraper’s newsletter and regular updates on available investments.

B. Online Platform and TechnologyFundscraper is an online platform that facilitates direct private investments by qualified investors into an array of real estate projects and investments sponsored by proven developers and owners. You select individual projects that interest you and invest directly, rather than through a conglomeration.

Fundscraper’s cutting edge technology uses best practice compliance standards and introduces investors to direct real estate investing opportunities usually reserved for institutions or deep pocketed and well-heeled, connected investors.

There is a high degree of comfort, not to be underesti-mated, in knowing exactly what you invest into, a unique experience you do not get in public markets.

C. More than a PlatformFundscraper is far more than an online platform.

Its team is comprised of dedicated and experienced industry experts in all facets of Fundscraper’s business.

www.fundscraper.com

F U N D S C R A P E R®

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http://www.fundscrap-er.com



http://www.fundscraper.com


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About the Author

The Author, Luan Ha, MBA is the founder and CEO of Fundscraper. He earned his Masters of Business Admin-istration degree on the Dean’s Honour List from the prestigious Schulich School of Business at York Universi-ty in Toronto. For over a decade he served as senior management with RioCan a prominent Canadian real estate investment trust, which involved him in all facets of large commercial and mixed use property develop-ment.

He acknowledges contributions to this article by Profes-sor Andre Kuzmicki, BA, MBA, retired Adjunct Professor at the Schulich School of Business, a prominent corpo-rate director and senior member of Fundscraper’s Board of Advisors and John J. Pizale, BS JD, Fundscrap-er’s General Counsel.

Luan Ha, MBAFundscraper CEO

Last modified date: December 4 2019

V. The Last Word

GO FOR THE TOUCHDOWN AND PASS THE BALL TO FUNDSCRAPER!

www.fundscraper.com

F U N D S C R A P E R®

http://www.fundscraper.com

Documents

THE MODERN PLAYBOOK FOR SUPER SUCCESSFUL REAL ESTATE … … · Direct real estate investing for the most part ﬂuctuates quite distinctly from other conventional asset groups, like