A Real Estate Investment Fund (REIF) — also called a Real Estate Investment Trust (REIT) — is like a mutual fund. Instead of buying stocks or bonds, a REIF buys commercial real estate like office buildings, condo developments or industrial space as its primary investment.
We manage the properties internally, handling leases, renovations and emergencies, and provide stable cash flows and long-term capital growth. Because the properties receive consistent and predictable cash flows, investors passively collect regular disbursements and watch their investments grow steadily.
Land is a finite asset. We can’t make more of it or find a substitute. This is what makes real estate an attractive and tangible asset that will increase in value over time.
A REIF is a secure and comparatively low-risk investment that maintains competitive returns when compared to riskier class investments like emerging markets or individual entrepreneurial ventures. Maintaining a secure, diversified portfolio with BHD Commercial Investments means you can expect smooth investment performance, with consistent and growing monthly earnings.
To invest in and manage commercial real estate, you need more capital, knowledge and experience than you do for residential real estate. This partly explains why, historically, commercial real estate has provided favourable appreciation in value that meets or exceeds other investment types like stocks or bonds.
BHD Commercial Investments brings together high-net-worth individuals who want to pool their resources and purchase higher-yield properties that would otherwise be unattainable. Investors routinely struggle to amass this kind of income and equity appreciation alone. We have the knowledge to root out the best deals and execute them. We have the management skills to grow your wealth far above market average.
Generally, commercial real estate investments are secured by leases, which provide a regular income stream that’s significantly higher than typical stock dividend yields. You receive passive income, meaning you continue to increase your equity while away from work, spending time with family or pursuing new hobbies. Depending on how much you invest, it’s possible to live off the passive income generated by your investment. Give us a call and we’ll break down the numbers for you.
When you invest in a REIF, your cash is spread out across the country and among different assets and buildings. Your investment is wholly diversified. You lessen your risk by spreading ownership over many assets, rather than just one or two, allowing the fund to offer incomparable diversification. In some cases, BHD allows investors to invest in assets in more than one country.
Because commercial real estate returns can be so lucrative, it’s logical to assume that the risks are higher. But proper management combined with diligent purchasing and selling can significantly reduce the risk and nearly eliminate it altogether. Commercial buildings have the added benefit of housing longer-term tenants than apartments and condos, which stabilizes cash flows and secures income for longer periods of time.
Your investment is tied to a tangible asset, not a mortgage or subjective corporate values. A REIF is one of the few investment classes that’s a hard asset and has meaningful intrinsic value. The property’s land has value, as does the structure itself. Investors choose this fund because they have the security of owning an asset that has the potential to earn income from long-term leases, regardless of the tenants. Because of this, commercial real estate investments do not fluctuate with the same volatility and unpredictability as the stock market.
Commercial real estate is known for yielding the highest returns in the industry: “Over a period from 2002 to 2007, the average rental income from commercial property investment (expressed as a yield) was about 50% greater than from residential property.”
Commercial assets also outperformed the TSX Composite Index in 2013 by 2.43%, despite the far riskier nature of stocks.
We see this superior yield for many reasons. Long-term leases can mitigate the risk of unexpected decreases in rent. “Upwards only” rent reviews dictate that when a lease is terminated, the renewal rate cannot be less than what it was prior to the review. Tenants are responsible for cost of repairs and maintenance. In general, there is an increased difficulty in investing in larger commercial assets.
A low correlation between real estate and stock volatility makes a REIF a low-risk investment. The fund is private, making the unit value owned by the investors the actual value of all the land. This differs from the value of publicly-owned funds, where the values are based mostly on investor behaviour, which can be sporadic and volatile.
When an investor places positive leverage on an asset, they effectively invest borrowed funds at a rate of return that is higher than the interest rate on their loan. This means they borrow money at a lower cost than their property returns back to them. Here’s a brief example: Your friend loans you $10 and asks for $11 back. That’s $1 in interest. You immediately loan that $10 to someone else and ask for $2 interest. You pay back the original $11 you owe, while making a profit with no additional investment. You just participated in positive leverage. This happens all the time in commercial real estate investments. Book a consultation with us to see how this works on a much larger scale.
Commercial real estate investing allows you to place debt on the asset, which is several times the original equity. In other words, this allows you to purchase more assets with less money, and significantly magnify your equity — and incidentally, your total return — as the loans are paid down.
Even more, by combining your investment with several other qualified investors, the REIF can amplify the size of the overall investment and generate superior returns. The reason this is so beneficial is that when it comes to acquisition, large properties have fewer possible purchasers due to the significant cost associated with these larger buildings. This means there is less competition in the bigger asset divisions; therefore, returns are bigger than they would be with small or medium-sized investments. This is an important factor investors sometimes overlook when trying to invest in properties individually or with a small number of individuals.
Commercial real estate provides escalating leases, the most natural long-term hedge to inflation of any other asset class. When funds sign long-term leases with secure tenants, the leases are always written in an escalating manner, meaning the tenants pay more every year of their occupancy. Over time, your income and equity all appreciate at least at the level of inflation, something most other common investments can’t match.
Investments like stocks and bonds fail to provide any guarantee or confidence towards beating inflation over the long term. Only as recent as 2013 have stocks been considered to have regained their value after the last two financial crises, the Wall Street Journal reports.
Legislative real estate law is kinder to commercial real estate investors than it is to residential. In residential real estate, the law can sometimes “overpower” the tenant and require the landlords, who are the investors, to spend an inordinate amount of money and time repairing or maintaining properties. This translates to higher costs and a lower return for investors.
Proper and diligent management in commercial real estate can minimize vacancies and reduce overhead to ensure investors achieve the maximum return. BHD has very few overhead costs. Every dollar we receive as income is handed over to investors every month. Not every fund can say the same.
BHD is structured as a limited partnership, meaning that investor liability is limited to that of their investment and there are no corporate taxes on income.
We issue our income on a monthly basis and it’s only taxed at the personal level, and in the manner you decide. Funds that are structured as a corporation are subject to double taxation. This means they have to pay an initial corporate tax — prior to disbursement — which means a large portion of income (upwards of 30%) is not realized by investors. Unlike other private funds, BHD lets investors view financial statements by request. We’re committed to transparency and communicating openly with our investors. We adhere to the same mandates and security measures as any other trust or fund.