A Glossary of Real Estate Related Acronyms

Acronyms are a sort of abbreviation using initials and there are virtually hundreds of thousands. Our compendium is a short list of many of those most closely associated with real estate. 

AML – Anti Money Laundering

AMV – Affordable Market Value

APR – Annual Percentage Rate

ATF – Anti Terrorist Funding

ARM – Adjustable Rate Mortgage

AUM – Assets under Management 

BPO – Broker Price Opinion

CCO – Chief Compliance Officer in an EMD

CFE – Crowdfunding Exemption

CIM – Confidential Information Memorandum 

CMHC – Canada Mortgage and Housing Corporation 

COFI – Cost of Funds Index 

CRA – Canada Revenue Agency 

CSA – Canadian Securities Administrators 

DD – Due Diligence

DICO – Deposit Insurance Corporation of Ontario

EBIDA – Earnings Before Interest, Depreciation, and Amortization

EBIDTA Earnings Before Interest, Depreciation, Taxes and Amortization.

EGI – Effective Gross Income

EMD – Exempt Market Dealer

FICO – Fair Issac Co. (credit score)

FINTRAC – Financial Transactions and Reports Analysis Centre of Canada (money laundering and terrorism)

FMV – Fair Market Value

FS – Fundscraper 

FSCO – Financial Services Commission of Ontario (part of Ministry of Finance

FSRA – Financial Services Regulatory Authority of Ontario 

GDS  – Gross Debt Service

GP – General Partner

IIF – Investor Information Form

IIROC – Investment Industry Regulatory Organization Canada

IRR – Internal Rate of Return

ISDA – International Swaps & Derivatives Association

KYC – Know your Client

KYP – Know your Product

LP – Limited Partnership

LTC – Loan to Cost

LTV – Loan to Value

MI – Mortgage Insurance

MIC – Mortgage Investment Corporation

MLS – Multiple Listing Service

OM – Offering Memorandum

OME – Offering Memorandum Exemption

OSC – Ontario Securities Commission

OSFI – Office of the Superintendent of Financial Institutions

PITI – Principal, Interest, Taxes, and Insurance

PM – Portfolio Manager

PN – Promissory Note

PPM – Policy & Procedure Manual

REIT – Real Estate Investment Trust

ROI – Return on Investment

TDS – Total Debt Service

TVM – Time Value of Money

UDP – Ultimate Designated Person in an EMD

VC Venture Capitalist

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How to Invest in Private Real Estate Investment Vehicles Webinar

Rewatch a 20-min conversation about getting started in passive real estate investing and how you can take the step into building your portfolio. Luan Ha, CEO of Fundscraper, and other experts on our team will be discussing how to successfully invest in private real estate investment vehicles along with a Q+A session to answer any questions you may have.

Grab a coffee and join the conversation to put forward any questions or challenges you have.

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The contents hereof are for educational, informational and illustrative purposes only and may change in the future. Copyright in such content is owned by Fundscraper Capital Inc. (“FCI”) and no user may sell, republish, modify, or distribute all or any part thereof without written permission. The views expressed by any speaker, author or participant, are their personal views and not those of FCI, an Exempt Market Dealer, registered with the Ontario Securities Commission (and equivalent regulators across other Canadian jurisdictions), or its affiliates. Any content is not intended to provide, and should not be relied on for investment, tax, legal or accounting advice. Nothing in any presentation shall be construed as a recommendation or offer to sell, or a solicitation of an offer to buy any securities. The information presented may consist of investment opportunities that include projections and forecasts based upon information, including forward-looking assumptions and estimates. There can be no assurance or guarantee whatsoever that this information is accurate, complete or fair and any projections and forecasts  will be achieved. Historical performance is not necessarily indicative or a guarantee of future results and investments may be illiquid. You should refer to the offering documents contained within each investment opportunity for full details including risks relating to such opportunities. All securities involve speculation and a degree of risk and could result in partial or total loss of your investment. In addition, you should consult with your investment advisor and other professionals, including legal and tax, before making any investment. FCI may be a “related” issuer (as such term is defined in National Instrument 33-105—Underwriting Conflicts) of a party offering securities mentioned in this presentation and in some cases may receive a referral fee or other compensation therefrom.

Why Real Estate Is an Essential Part of Every Investment Portfolio

Think you can’t afford a real estate investment? Think again. Worried now isn’t the right time to add another property to your portfolio? It is possible, and we’ve got you. Even if the extent of your financial experience is a high-yield savings account, you can should consider diversifying your portfolio with real estate backed investments. Fundscraper will teach you how the 1% invests.

Key Points

  • Think you can’t afford a real estate investment? Think again. Worried now isn’t the right time to add another property to your portfolio? It is possible.
  • Too often, the traditional portfolio mix fails to achieve optimum performance because of the under-representation of direct real estate investing. 
  • Every investor’s goal should be to build a more perfect portfolio designed for maximum rewards and minimum risk.

The case for diversifying your investment portfolio

Too often, the traditional portfolio mix fails to achieve optimum performance because of the under-representation of real estate secured investing. Our thesis is simple: You’ll likely be more successful if you diversify into solid real estate investing, while at the same time maintaining a higher degree of safety by reducing correlation to public equities.

Being risk averse is a good thing. We’re risk averse, too! Most people are naturally risk averse. We’re drawn to what we know and hesitant of what we don’t know. The average person knows more about traditional investments like mutual funds, publicly traded stocks, GICs, and bonds, so that’s where they put most of their money. But the investment environment, especially in the stock and bond markets, can be volatile. If you’re risk-averse, you should know that limiting your investments to only the public markets can be an investing risk itself due to a lack of diversification and highly correlated volatility.

Investing limited only to public markets risks the chance of devastation if the “bubble” precipitously bursts based on factors beyond our control, such as environmental disasters, world events, inflation, or fluctuating interest rates. Common sense tells us to spread our money out into a diversity of pots, hoping the ups and downs will balance out and we will enjoy a somewhat stable, if unspectacular, return on our investments. As such, it’s a good idea to consider diversifying into real estate backed investing.

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

Why is real estate an essential part of an investment portfolio?

Real estate secured investing fluctuates quite distinctly from other conventional asset groups like stocks and bonds. For instance, real estate is tangible and is what lawyers call an “immovable.” It’s not a substitute that should take the place of other assets in your portfolio, but rather an asset group all its own.

Unlike stocks and bonds, real estate trades privately based on local factors such as location, supply, demand, and investment lifespan. 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 investments backed by real hard assets providing a regular income stream and long term growth coupled with the benefits of diversification.

You can enjoy superior performance and diversity at the same time. This is especially true if you’re maintaining and growing the value of your retirement portfolio. Smart real estate investing can  enhance the prospect of enjoying the benefits of things like reasonable leverage and the miracle of compound interest over an extended period of time.

You can add real estate to your portfolio without actually buying property.

What are the benefits of real estate investment?

Meaningful real estate investing is essential for a well-rounded and successful investment package, and the benefits go well beyond diversification. The most obvious benefits of real estate investment are the potential financial advantages. Real estate can earn attractive stable monthly returns based upon regular fixed income like cash flow streams over a set time frame. Speaking of tangibility, that’s another benefit: Real estate is a hard permanent asset that can be securitized. It has value, and you can calculate that value based upon appraisals and analytical techniques different from techniques used on publicly traded securities like stocks and bonds.

Take advantage of having solid real estate investing as a meaningful part of your portfolio. It’s a self-evident way to enjoy risk-adjusted returns and balance out the volatility and unpredictable fluctuations in public securities markets, both domestic and international. It works best when you can invest for the longer term while maintaining a high degree of safety through careful management.

Other benefits of real estate investment to note include:

  • The ability to take advantage of leverage
  • Tax deductions
  • A chance to create added value
  • Professional management of the property in larger asset pools

What is the 20% rule of investing?

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 institutions. We are mostly left to public mutual funds, real estate investment trusts (REITs), exchange traded funds (ETFs), and the like.

Consider the experience of and the lessons to be learned from the Yale University Endowment, which is credited with an enviable investing track record in North America, having a current value in the range of $30 billion. The fund is known for its “20% rule” which has historically allocated up to 20% be invested directly in private markets, including real estate (1) (2) (3).

Notes: 

(1) https://investments.yale.edu/about-the-yio

(2) https://investopedia.com

(3) https://origininvestments.com

*Historical returns are not indicative of future results. Returns are never guaranteed. Always seek professional financial and tax advice before investing

One might easily conclude that it makes sense as part of an overall investment strategy to piggyback onto a tried and true paradigm of real estate investing established by the major institutional investors.

Your investment portfolio can enjoy superior performance and diversity at the same time.

How do I get started?

If you’re new to real estate investing, the idea of adding such a large asset to your portfolio may seem intimidating. But it’s easier and more attainable than you might think.

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Due Diligence Checklist Before You Invest in Private Real Estate

Today, there’s a wealth of options for accessing the market for investors of all kinds. Many investors struggle with the private real estate investment due diligence process. It can be intimidating and stressful to know where to start, what information to review, and how to determine whether or not a property is a smart investment. We’re here to make that process a lot less intimidating by explaining essential due diligence to-dos for investors, whether you choose a fund, service, or platform.

Key Points

  • Many investors struggle with the private real estate investment due diligence process.
  • Past performance does not guarantee future results, but looking at track record is one way to gauge an organization’s expertise.
  • Make sure you understand a service’s fee structure and confirm that it makes sense in light of the value the investment manager is creating for you using your capital.
  • People turn to real estate to improve their portfolio’s overall diversification. Public REITs are terrific products, but if your investment portfolio is generally made up of publicly tradable shares, you may lack diversification.

See If You Qualify

Before spending too much time envisioning your future with a particular service, be sure to check and confirm which kinds of investors it admits. For example, some funds provided by famous private equity real estate companies, like Blackstone, have a history of only admitting investors that meet certain salary thresholds, while newer platforms, like Fundscraper through Fundscraper Property Trust, allow anyone to invest.

Check Past Performance

Past performance does not guarantee future results, but looking at track record is one way to gauge an organization’s expertise. How has the manager fared in prior years? Did they show responsible custodianship over investors’ funds in the past? What does their portfolio say about their investment biases? How is their portfolio weighted? Each of these factors can help you determine what your investment experience might be like with a particular service.

 Due Diligence Checklist Before You Invest in Private Real Estate

Understand the Fee Structure

Every real estate investment has built-in expenses. In order to generate dividends, a property incurs ongoing fees, such as property management and future upkeep. Make sure you understand a service’s fee structure and confirm that it makes sense in light of the value the investment manager is creating for you using your capital.

Make Sure You Can Manage Your Investment

One of the big advantages of investing in real estate directly is that you never have any doubt about what your money is up to or how to track it. On the other hand, when you invest through a third party like a fund, partnership, or corporation, you can only track what they make visible. Now that most investment services are online, make sure you can interact with, manage, and evaluate your investment to your desired level of involvement.

 Due Diligence Checklist Before You Invest in Private Real Estate

Consider Diversification

People turn to real estate to improve their portfolio’s overall diversification. Public REITs are terrific products, but if your investment portfolio is generally made up of publicly tradable shares, you may lack diversification.

Public REITs in Canada correlate very closely with our public markets. When the markets go up, so do the REITs; when the markets go down, the REITs follow. Private real estate investment does not correlate with the public market. It’s one of the important reasons folks look to “anchor” their investment portfolios with private real estate investment. It sits at the bottom of your portfolio and chugs along, regardless of what’s happening in the public markets.

At Fundscraper, part of our due diligence is making sure you understand yours. Download our due diligence checklist template for real estate property investment here.

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If you have any questions, email info@fundscraper.com and one of our team members will direct your inquiry.

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The Modern Investor's Playbook
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Become a master of real estate investing! This playbook has inside industry knowledge that you can use to help generate passive income! Discover tactics used by the savviest investors, how to diversify, maximize your returns and avoid mistakes. It’s everything you need to know to invest like a pro.

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