Monday, February 8, 2010

Advising mom on real estate investment

Here is a transcript of my latest chat with our media consultant.

Q: Richard, if you were going to give your mother advice on what to invest in, when it comes to real estate or commercial real estate, what would you tell her?

RC: One of the things that I would do is ask her if the company that she's investing with, or the project that she's investing with, would it have all of the necessary experience regarding management? Does the management have good skills to ensure that they're going to do what they say they're going to do? She needs to do her proper due diligence on the company and the people she's dealing with, first and foremost.

Number two, what I would suggest to her is that she make sure that all of her funds go into a lawyer's trust account, and that when her funds goes into this trust account, that she has some kind of interest attached to this money that goes into this account until it closes. By giving her money to the lawyer's trust account, she ensures that she would get a proper and legal closing. That would be essential to make sure that she plays by the rules, and the company that she invests with, or the project that she's investing into, is also properly following the rules.

I would also ask her, what does the company sell? If it's investment in real estate, is the company an expert in real estate? Has it had a lot of experience selling real estate only, or is it also selling oil and gas, stocks and bonds, mutual funds? Is it selling insurance? Is it selling land banking? I think the most important thing is to always go to a specialist, who works in only one project or one area of expertise. I don't believe that anyone can be an expert in every subject, so I would be very concerned if they're selling everything. My thought would be that they're simply looking for commissions, to make money off of the deal. If they're responsible in selling one type of product, then that's all they're selling, and you know that they're experts, that's it and no worries.

When the monies come to my mom, I'd want to know if there's a third party appointed, to disperse and handle all of the funds. In other words: I love the developer, I think the developer is great and I love the people, but I don't want to love them to the point where I'm going to have to have blind trust in them, I'd want to know if there's a third party appointed to handle and disperse all of the funds. That is just another layer of safety for me, and that is something that I would tell my mother that is absolutely necessary.

I'd want to know if there are any third parties involved, if the third parties are indeed licensed by the provinces, and if indeed they are looking after the investors' interests. Again, you can't be a jack of all trades. If you use third-party, arms-length licensed property managers, what you're doing is adding another layer of disclosure, and another layer of people (and by that I mean the province) looking over the investment. I think it's important to layer yourself in as much protection as possible.

As well, when I get the form from the company, I don't want the company reports - company reports only tell me the nice and glossy things. I want to know that there's a third party, arms-length accounting firm - a proper accounting firm, like a big six CA firm - that's compiling the statements and issuing proper tax forms for investors.

Last but not least, I would tell my mother to go with her gut feeling. If your gut tells you not to invest, or that it's too good to be true, don't invest. I think if you've got a good checklist, and she's gone through it, then she should be fine.

Richard Crenian

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