How will you accomplish financial freedom through real estate investing?
Start by thinking where in the U.S. you’ll be investing, what type of asset you want to hold, and how you’ll form the relationships you need to make foreign investments.
Once you’re ready to make your first real estate investment in the U.S. the question is: Where should you look? Real estate markets are constantly changing, but Scott Smith, head attorney at Royal Legal Solutions, has a few tips especially for Canadian investors. Scott gave this tips on a recent appearance on the The REITE (Real Estate Investing Training and Education) Club podcast, which you can check out below.
In a hurry? Keep reading to get the high-level overview of everything covered on the show ...
Canadians looking for a good deal in real estate should keep a few specifics in mind. What kind of investment makes sense to you?
Our last article had lots of tips for Canadian real estate investors (go check it out if you haven’t already), but we’d like to look a little more at the “location, location, location” aspect in this article.
“I’m hot on the Midwest now, inside the Rust Belt,” Scott says. “I’m liking some of the deals I’m seeing in Florida. And Tennessee has some interesting deals coming through, as well as San Antonio in Texas. This is where I’m seeing people buy those single-family homes, or one to four-unit properties. Those are the areas where people are buying $90,000-150,000 properties and can scale from there.
“I talk a lot about those properties because that’s where you get really great financing instead of personal financing. For most Canadian investors, that’s where you’re going to start.”
If you’re investing in an area that you don’t know anything about and can’t even visit, you are building more risk into the proposition. If you CAN scope out the property in questions, do your due diligence. Walk the neighborhood or ride a bike—you’ll see a lot more than you will just driving around the block. Get a feel for the neighborhood.
Research will give you insight into what kind of tenants you can expect to attract. For example, you should research the income range for your neighborhood. Government agencies have a lot of this economic data available for the taking.
“There are some key things you want to stay on top of regarding what makes a good deal in the U.S.,” Scott says. “You want the median income for the area to be above $40,000 per year. Look for job stability and job security as well. That’s why I like investing where the employers are the government, big corporations and universities.”
What about crime statistics? A lot of Canadian investors think about crime in the areas where they are considering an investment. But Scott says you shouldn’t focus on it too much.
“Almost invariably in the U.S., crime follows job stability and economic depression. So as long as wages are high enough, and we have job stability, crime won’t be a factor for you. I don’t even pay attention to crime reports at all, really. They don’t give you the best source of information for an area.”
Scott says you shouldn’t necessarily let high prices scare you away. It’s important to watch the macroeconomic trends of a given area or market. That’s more important than historic information based on what people think the prices “should be.” As long as an area has long-term population growth, big price tags shouldn’t frighten the investor away.
“If I have a lot of people moving into a city over time, I am not so price sensitive. I know the demand will push prices up over time. This is exactly what happened in Austin. Four or five years ago in Austin, nobody wanted to buy property at $200 per square foot, because just a few years earlier it was $150 per square foot. That was insane, we thought. But the demand to move to Austin and the tech industry there was so strong, now it’s $400 per square foot.”
You may acquire property directly in the name of the Limited Partnership. However, some of Scott’s Canadian clients get better financing rates when they purchase property in their personal name first. It just takes a Land Trust to do it right.
The Land Trust will let you own the property anonymously. It also allows us to avoid something called the due on sale clause.
“This means you can actually buy the asset in your personal name, then transfer it into the Land Trust,” Scott says.
Next, you’ll create a warranty deed to transfer the asset into the Land Trust so it's now held by the Limited Partnership. This is a huge cost saving measure for Canadian investors.
No matter what type of financing or what type of asset you’re working with, the Limited Partnership/Land Trust structure lets you hold that asset anonymously, in a way that's protected. You're also going to be able to always be able to take advantage of the best possible financing and have the best possible tax advantages.
You’re a first-time Canadian investor in the U.S. It may be tough to know where to start, especially if you can’t fly out to a property and visit it in person.
Royal Legal gives you access to a network of coaching, preferred vendors, and connections to people who can help you with your U.S. investments. In addition, you'll have access to other investors and to turnkey professionals, including tax and accounting specialists who are used to working with Canadians.
When you partner with Royal Legal Solutions, you will have some of the industry’s finest attorneys and CPAs on your personal real estate dream team. We’ll help you break down the numbers you need to hit to reach financial freedom.
We’ll even help you develop acquisition strategies. What do you see as your vision moving forward? Once you answer that question, you can set up the appropriate legal structures to get lending, estate planning, and all the other components needed to put your plan in place.
What’s your target ROI? Let’s analyze your full capital stack. What’s your target return over time to hit your retirement goals? Start with our investor quiz and we’ll help you. A coach will help you clarify your situation. Goals and tactics from books and websites are great, but you need to know something beyond “I want to invest in apartment complexes.”
It may take a couple of sessions to get all the numbers, but knowing the answers to these questions can help you know exactly what kind of ROI you need to hit your goals. From there, you'll work backward, using your current income to pinpoint the asset classes you should be targeting.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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