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The Greatest Wealth-Builder

It is no secret that the greatest wealth-builder in history has been investment in real estate. And unlike investments in shares and unsecured debt, carefully selected income properties have value secured by physical assets.

Additionally investments in real estate, are not subject to the volatility and wide fluctuations common to public markets. This stability is a reflection of real estate's illiquidity. When properly managed, investments in real estate can provide a steady return on investment even when the real estate market is flat. Also, while typical real estate invesments do not qualify for Canadian RRSP investment, many REITs do.

Why Doesn't Everyone Invest In it?

In a sense, most people already are: Tenants pay monthly rents or leases to the owners of income properties in exchange for the use of the space in which they live or conduct their business. In addition to rent, the tenants may pay property management fees, financing fees, mortgage fees, and a multitude of other fees for services that the owners provide in exchange for these fees.

All of these tenants (and in the case of commercial properties, all of the tenants' clients) are trickling their money up (in the form of monthly rent, lease payments, or maintenance and strata/condo fees, etc.) to provide a return on the investments (R.O.I.) made by the owners of the property. So, although the tenants are receiving benefits from occupying the property, they are not realizing any residual income or tax-sheltering benefits from the ownership of the property itself.

Buildings, Not Burgers

When asked what business McDonald's is in, most people would answer "selling hamburgers." And although it's true that McDonald's has successfully sold billions of hamburgers worldwide, they are not only in the hamburger business.

McDonald's Corporation owns some of the most valuable and coveted income properties in the world. They lease this property to their franchisees at a price that produces a profit every month well in excess of their cost of financing and maintaining the property - but not so much as to make leasing the property unattractive.

These same franchisees not only pay McDonald's for their rights to operate their franchise; in most cases, their franchise fees pay for the investment real estate that they are now leasing from McDonald's as well. Wisely, McDonald's doesn't stop there. They also receive profits from the wholesale of food and drink to the franchisee, as well as a portion of the profits of each location in the form of franchising, advertising, and marketing fees. We should all be so smart.

Build Them Big

Just like McDonald's restaurants, some of the most profitable income properties are extremely large and expensive investments that are leased to other businesses.

Office buildings, shopping centres, industrial parks and warehouses, lodging facilities, medical centres, and even power production facilities all fall under the category of commercial real estate. Under the right management, all of these can become excellent income properties.

A different form of large and lucrative income properties are occupied by residents rather than businesses. Residential investment properties include condominiums, rental apartment buildings and senior's housing.

Occupancy Matters

Indeed property management is a whole other can of worms. It is one thing to have the funds required to purchase or build large investment properties, it is quite another to keep them profitably occupied, maintained, and managed year after year.

For this reason, many property owners choose to outsource their property management services to management firms that specialize in operating income properties profitably for their owners - of course, this valuable expertise is also provided for a fee. Even so, with the right mix of property, tenant, and management, large income properties can be profitable and worry-free investments.