The income gap continues to get bigger, and that leaves many young people asking why they’re scrimping and saving only to have a small amount of money put away, and meanwhile the wealthy continue to double their portfolio every ten years.
We talked to Land Baron Co-Founder Dak Molnar about how investors of any age can get better returns on their investments. According to Dak, it all comes down to one thing- what people choose to do with the money they put aside for later.
Average Investments, Low Returns
The reason the majority of middle-income investors aren’t seeing the amount of growth they’d hoped for comes down to not knowing the best ways to invest. But, Dak is quick to point out, this isn’t their fault.
“If you start with very little wealth, it’s pretty likely you’ll be told to give it to a financial advisor to invest it for you,” explains Dak. “That advisor will take that chunk of money, and in return give you a little bit of a return - maybe 2 or 4% max. Then, they’ll take their cut of that with a big fee.”
“It’s very hard for the average investor to know what to do with their money. Some people, if they’re wanting to take a bit more control of their investments, turn to the stock market,” he adds.
The problem with this approach is that the stock market only offers a slightly higher percentage of return. On average, a stock portfolio produces around a 7% return annually. That’s a small amount of profit, one that can easily go down based on the larger global and cultural climate, for example in the wake of global pandemics and conflicts.
“There’s just so much volatility spread out across the population and the market,” Dak adds. “When there’s a ripple on the pond, it goes a long way.”
On the other hand, real estate remains steady even during times of social upheaval. With tenants who pay rent inhabiting cities that continue to grow, real estate maintains its baseline income as well as its long term value no matter what the news cycle brings.
Real Estate Makes More Cents
Low payouts from the stock market are one of the main reasons that those who have wealth choose to invest in commercial real estate. The inherent stability of commercial real estate is another.
“Population drives real estate. Real estate isn’t a commodity that some people use and other people choose to go without,” Dak explains. “It’s a constant in all of our lives- every day we use residential and commercial buildings to work, eat, play, sleep, and live.”
Commercial real estate is especially feeling the benefit of this boom. That makes this avenue a particularly lucrative and reliable investment opportunity.
“Commercial real estate, for the past 30 years, in North America, and especially in the last 20 years in Canada is a market leader in returns,” Dak says.
“Let me put it this way,” he adds. “Let’s talk about Coca Cola. If I had taken $100,000 ten years ago and invested it in Coca Cola stock, I would be paid somewhere between 3.5% and 4% dividends. So today, I’d have about $900,000. But if I had taken that same money, and invested it in a small piece of commercial real estate, I’d easily have 2.5 to 3 million.”
Big payoffs, and stable market- so why aren’t more people buying into the commercial real estate market?
The real problem is that it can be prohibitively expensive to get your foot in the proverbial door. Typically, the minimum investment for this sector starts at hundreds of thousands of dollars.
The Unexpected Winners
Despite the lofty price tag, it’s still possible to invest in commercial real estate even if you wouldn’t call yourself rich.
“It’s true that for some people with a certain level of wealth, the thing to do is invest in real estate. But that’s, unfortunately, a very rare and privileged position to find yourself in and not very common,” Dak says. “But there still are other groups that find their way into this investment avenue.”
One of these groups is retirees. The common perception is that a pension acts as a replacement paycheque, doling out a stipend at regular intervals. But it’s possible for retirees to take out larger chunks of this savings all at once, and this is a choice some Canadian retirees are choosing to make.
“My mom was a school teacher. When she retired, she bought a fourplex on the block I grew up on. She managed that for 10 years after she retired, and then sold it,” Dak recalls. “Now she’s got some money and is traveling around the world painting and enjoying her life.”
Another unlikely player in the real estate game is the entrepreneur who hit a big payout thanks to the right amount of creativity, timing and pure luck. They know that once in a lifetime successes rarely happen twice, so they picked a safer place to put their newfound wealth- commercial real estate.
“I have a friend in this situation. He had a fantastic idea and then sold it. But his next few projects failed so he thought - well damn, what can I do instead?” Dak explains. “So he came to the conclusion that he’d invest right back into the community he came from through commercial real estate.”
These stories of commercial real estate success all have one thing in common. Each investor was looking for an investment opportunity that was consistent and performed better than the stock market in the long run. Additionally, owning these physical properties also gave them more control over the future of their investment, because they could manage the workings, repairs, and tenant relationships day to day.
Commercial Real Estate Investment for the Rest of Us
When it comes to commercial real estate, risk and opportunity go hand in hand.
For many people, the fear of risk is more compelling than a potential payout on the other side. It’s not an unfounded concern- real estate deals can go south due to a variety of factors including environmental concerns, zoning bylaws, and special interest groups.
“If you’re investing with a strategic real estate expert, when a problem comes up, they’re going to be able to weather that storm- whether it’s proverbial or not,” Dak says. “So it’s important to have the right people supporting you when you enter into real estate deals.”
When it comes to selecting the right strategic real estate expert to partner with, there are a few factors to consider. First of all, they should have a portfolio that shows both a breadth of experience in different markets, along with quantifiable successes in those endeavors. They should be able to describe their strategy, including how they pick their investments, why that method works, and how they maximize returns. Finally, this expert should be able and willing to share info transparently on all current investment opportunities.
“With Land Baron, you’ll be investing with professionals who have a long record of strong returns,” Dak explains. “And we’re always going to worry about the details ourselves. Plus, it’s affordable, so you can get a start in the market for just $500.”
A fan of the regulatory process, Dak highly recommends that any potential investors looking to invest through a digital platform instead to make sure that they’re placing their trust only in the ones that have proper regulatory certification. In Canada, this is covered under securities regulations that are specific to each province. In order for financial technology platforms like Land Baron to function, they must meet some specific criteria like those set out for Ontario here. These give investors security, and we’re happy to make sure we’re always acting in compliance with each province’s Security Commission’s regulatory rules.
We’re looking forward to introducing Land Baron, a digital platform that will connect everyday investors with opportunities in the Canadian commercial real estate market. In the meantime, join our waitlist and get front-of-the-line access to investment opportunities at www.landbaron.ca.
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*Cautionary Statement: Anticipated returns are estimates and do not represent guaranteed results. Expected performance is based on management’s expectations and could prove inaccurate as a result of one or more underlying assumptions proving incorrect. These assumptions include a robust commercial real estate market, continued economic growth generally, a consistent competitive environment, lack of changes to the regulatory environment, consistent and effective operation of the digital platform, and other known and unknown risks failing to materialize.