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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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 at any given moment.

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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How Do I Invest My RRSPs into Private Real Estate?

Private real estate investment is too often overlooked in an investment world dominated by hedge funds, ETFs, Principal Protected Products, publicly traded shares, and bonds. If you think private real estate investing is only for the wealthy or experienced, think again. Private real estate investing is for everyone, especially because you can use your RRSPs to invest. It’s an affordable, approachable way to get started. Not sure how to do that or what that means? We’ll explain.

Key Points

  • Most people don’t realize that they can invest in private mortgage investment entities like mortgage investment corporations and mortgage trusts, as well as mortgages directly, with their RRSPs.
  • What is evolving today is that the less risk-averse investor should actually be the one weighing their portfolio more favourably toward real estate than otherwise. This is because real estate is such a strong non-correlated asset class to the hoped for “high flyers” to which so many less risk-averse investors are attracted.

What is an RRSP?

RRSP stands for “registered retirement savings plan.” A “registered” plan means the plan, and the account associated with it, is registered (or held) by a service provided by the Canada Revenue Authority to manage accounts that benefit from the special treatment our federal and provincial government’s grant to these unique retirement savings plans. Other examples of “registered” plans are “Registered Retirement Income Funds” and “Tax Free Savings Accounts”. What is discussed below is applicable to RRIFs and TFSAs as well!

The majority of Canadians hold their retirement savings in registered accounts. Most often people invest their RRSPs in stocks, bonds, mutual funds, exchange traded funds and other public securities. Many people believe that is all they can invest in through their RRSPs, but that only scratches the surface of what’s possible.

Most people don’t realize that they can invest in private mortgage investment entities like mortgage investment corporations and mortgage trusts, as well as mortgages directly, with their RRSPs. If you’re interested in doing this, we can help.

What are the benefits? Considerations?

Investing in private real estate is an excellent way to diversify your portfolio. Savvy investors know not to put all of their eggs in one basket, and private real estate helps minimize risk of loss. It also helps generate return and preserve capital.

Investment advisors commonly recommend that a person’s portfolio have between 10% and 20% in real estate. It is generally thought that investors who are risk-averse would tend to hold a mix with more real estate and less risk-averse investors would tend to weigh stocks more heavily in their portfolio. What is evolving today is that the less risk-averse investor should actually be the one weighing their portfolio more favourably toward real estate than otherwise. This is because real estate is such a strong non-correlated asset class to the hoped for “high flyers” to which so many less risk-averse investors are attracted.

Most people don’t realize that they can invest in private mortgage investment entities like mortgage investment corporations and mortgage trusts as well as mortgages directly through their registered accounts.

How to determine which real estate investments are right for you

If you’re interested in investing your RRSPs in private mortgages, whether directly or through a mortgage investment entity like a MIC or mortgage trust, then the first thing you should do is seek expert advice if you have little experience in the private mortgage markets. The process is not difficult, but if you’ve never done it before, you’ll need an expert to walk you through it. That’s what we’re here for!

Your advisor should be a registered mortgage broker or an exempt market dealer focused on mortgages. At Fundscraper, we’re both. We begin by asking about your investing experience, investment portfolio to date, risk appetite, expectations, current needs, and future needs. This is called a suitability assessment, and it helps us determine whether private real estate is an appropriate investment for you at this juncture of your life. If yes, the next step is identifying a mortgage investment product that would be suitable for you.

How to Invest in Real Estate, How to Invest in Reals Estate Canada, How to Invest in Commercial Real Estate

How to invest RRSPs into private real estate

Once we have found something that is suitable for you, the next steps are setting up how you can acquire the private mortgage investment security with your current RRSP funds that are held by your bank or financial advisor. Those RRSP funds are likely tied up in mutual funds, exchange traded funds, and other RRSP eligible securities. We’ll help you with this process as much or as little as you need.

  1. Fund your investment. Liquidate a fraction of your RRSP holdings to the cash amount you need to make your new investment.
  2. Open a self-directed RRSP. Ask your financial institution (any Canadian chartered bank or trust company) to do this.
  3. Transfer your liquidated funds to your new account. You’ll complete a “transfer instruction” whereby your new financial institution will request that your current RRSP institution transfers the liquidated funds to your new self-directed RRSP account. Once all the forms are completed, they are filed with the originating institution instructing it to transfer your cash portion to your newly created self-directed RRSP account with the new financial institution.
  4. Wait for the funds to transfer. The transfer can take up to four weeks. In order to maintain RRSP eligibility, funds must move directly from one RRSP account to another. You cannot withdraw the funds yourself, take them to your financial institution, and deposit them.
  5. Invest your RRSPs into private real estate. Once the funds arrive in your self-directed RRSP account, tell the self-directed RRSP account to fund your investment in the private mortgage investment entity. You do that by way of delivering to the financial institution a “payment direction” — the financial institution has a standard form of payment direction that it will provide to you. The payment direction tells the financial institution to invest in the private mortgage investment entity for you through the newly created self-directed RRSP account for the amount set out in the direction.

Investing your RRSPs in private mortgages is easy! Nevertheless, it’s important to have your advisor orchestrate the process on your behalf, as there are moving pieces that have to be coordinated.

How do I get started?

Your registered account savings are your nest egg. Be careful with how you employ and invest these funds. Work closely with reputable dealers to first determine whether investing in private mortgage securities is suitable for you and, if so, what the best private mortgage investment products are for you at the time you want to make the investment.

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How to Invest TFSA

Private real estate investment is too often overlooked in an investment world dominated by hedge funds, ETFs, Principal Protected Products, publicly traded shares, and bonds. If you think private real estate investing is only for the wealthy or experienced, think again. Many people don’t realize they can invest their tax free savings account (TFSA) dollars in private real estate. 

Key Points

  • Many people don’t realize they can invest their TFSA in private real estate. We put together a guide to walk you through the process and show you how to invest with a TFSA.
  • Private real estate investing is for everyone, especially because you can use your TFSA to invest and you don’t pay taxes on your profit!
  • Investing your TFSA in private mortgages is easy! Nevertheless, it’s important to have your advisor orchestrate the process on your behalf, as there are moving pieces that have to be coordinated.

What Is Investing with a TFSA?

Private real estate investing is for everyone, especially because you can use your TFSA to invest and you don’t pay taxes on your profit! In fact, TFSA investing is an affordable, approachable way to get started. Not sure how to invest with TFSA or what that means? We’ll explain.

How to Invest with TFSA

Real Estate Investment Trusts (REITs): Investing with a TFSA

The majority of Canadians hold their retirement savings in registered accounts at major financial institutions. When folks open a TFSA they normally invest in stocks, bonds, mutual funds, exchange traded funds, and other public securities that trade on public stock exchanges. Many people believe that is all they can invest in through their TFSAs. But stocks, exchange traded funds, and the like only scratch the surface of what’s possible.

Most people don’t realize they can invest in private mortgage investment entities like mortgage investment corporations (MICs) and mortgage trusts, as well as mortgages directly, with their TFSAs. If you’re interested in doing this, we can help.

Not everyone knows how to invest TFSA funds. Interested in investing through TFSA? Fundscraper can help.

Investing with a TFSA in Mortgages

If you’re interested in investing with TFSA in private mortgages, whether directly or through a mortgage investment entity like a MIC or mortgage trust, the first thing you should do is seek expert advice if you have little experience in the private mortgage markets. The process of direct investing TFSA is not difficult, but if you’ve never done it before, you’ll need an expert to walk you through your due diligence. That’s what we’re here for!

Do you qualify? Find out your investor eligibility here.

Your advisor should be a registered mortgage broker or an exempt market dealer focused on mortgages. At Fundscraper, we’re both. We begin by asking about your investing experience, investment portfolio to date, risk appetite, expectations, current needs, and future needs. This is called a suitability assessment, and it helps us determine whether private real estate is an appropriate investment for you at this juncture of your life. If yes, the next step is identifying a mortgage investment product that would be suitable for you.

Investing Through a TFSA in Commercial Properties

Your tax-free savings account is very flexible. First, determine your TFSA contribution limit. This is very important and easy to do. It’s important because you cannot invest more than the limit CRA imposes on your TFSA account. It is easy to find out what your maximum contribution limit is by going to your “MYCRA” account. You’ll find out there how much available room you have to invest in a TFSA in any calendar year. Unused amounts from previous years are carried over!

Once you know how much you can invest, you’ll need to know what investments qualify for your TFSA account. CRA provides a handy schedule of qualified investments for all registered accounts, including TFSAs, here: Qualified Investments for Registered Accounts. In this schedule, you’ll find that in addition to stocks and bonds, there are other types of investments such as mutual fund trusts and corporations, and special investment vehicles like MICs. If you want to hold a mortgage in your TFSA, you’ll see that certain “debt obligations” also qualify for your TFSA. You cannot hold property directly in your TFSA.

After you make contributions to a TFSA, the investment income that accumulates may be withdrawn by you tax free.

How to Invest with a TFSA Through a Private Limited Partnership

There are two ways to make an investment through your TFSA account.

If this is your first time, you will do the following:

  1. Visit a bank, trust company, or credit union and ask to open a “self directed” TFSA account.
  2. Once the account is open, deposit the amount of money you wish to invest into the account.
  3. Next, you have to instruct the account what to buy. To do this, the financial institution will provide you with a “payment direction” that tells the financial institution, on behalf of the TFSA account held by the financial institution, what security to buy.
  4. The financial institution will then purchase the security on behalf of the account pursuant to your instruction.

You may already have a TFSA account at a big bank. If you do, that account is likely capitalized with big bank sponsored products like big bank mutual funds and ETF. Once we have found something that is suitable for you, and you know precisely how much you need to make your investment, you will need to contact your big bank account manager. If you want to use what’s there to fund your private mortgage or investment fund investment, you have to take the following few steps. We’ll help you with this process as much or as little as you need:

  1. Fund your investment. Instruct a big bank account manager to liquidate a fraction of your TFSA holdings to the cash amount you need to make your new investment.
  2. Open a self-directed TFSA. Ask your financial institution (any Canadian chartered bank or trust company) to do this. If you are purchasing a private investment fund or shares of a mortgage investment company, those issuers will have registered account “service providers” who will help you open your new TFSA self-directed investing account.
  3. Transfer your liquidated funds to your new account. You’ll complete a “transfer instruction” whereby your new financial institution will request that your current big bank TFSA institution to transfer the liquidated funds to your new self-directed TFSA account.
  4. Wait for the funds to transfer. The transfer can take up to four weeks. In order to maintain TFSA eligibility, funds must move directly from one TFSA account to another. You cannot withdraw the funds yourself, take them to your financial institution, and deposit them. DO NOT WITHDRAW YOUR MONEY. TRANSFER ONLY.
  5. Invest your TFSA into private real estate. Once the funds arrive in your self-directed TFSA account, as above, you will issue a payment instruction to tell the self-directed TFSA account to fund your investment in the private mortgage investment entity. The financial institution has a standard form of payment direction that it will provide to you.
    The investment income that accumulates in your TFSA may be withdrawn by you tax free!

Investing your TFSA in private mortgages is easy! Nevertheless, it’s important to have your advisor orchestrate the process on your behalf, as there are moving pieces

Summing Up How to Invest with a TFSA

Your registered investment account savings are your nest egg. Be careful with how you employ and invest these funds. Not everyone knows how to invest TFSA funds. Work closely with reputable dealers to first determine whether investing in private mortgage securities is suitable for you and, if so, what the best private mortgage investment products are for you at the time you want to make the investment.

Start Investing in Real Estate Backed Investments Today

Explore the investments available on Fundscraper.

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