Invest Like a Kennedy: Building a Real Estate Empire, Part 2


By David Sung & Wayman Crosby

Read the original article online

Reader note: This is part two of a four-part series

Part 1 | Part 2 | Part 3 | Part 4

In the previous installment, we reviewed the legacy of The Kennedy family’s real estate empire and what kinds of real estate alternatives are available to today’s investor.

At the end of that article were a few questions to help decide whether or not direct ownership of hard asset real estate was the right fit for your client. If you’ve considered those questions and decided that it’s something they have the capacity to pursue, read on to learn the next steps.

GETTING STARTED

Even before getting into real estate, Joe Kennedy’s business ventures helped him accumulate vast wealth. This afforded him the opportunity to “get in the game,” as it were, in the first place.

As financial advisors, we believe that real estate is still just one component of a well-diversified portfolio. Building wealth through real estate, just as with equities and other asset classes, involves a combination of good cash flow and limited volatility.

So let’s examine what financial and investment conditions are needed to get started on building an empire.

  • An initial $2-million of available capital as part of a larger investment portfolio. This assumed starting amount should be enough to get your client’s foot in the door in terms of participating in some decent real estate deals.
  • The ability to add capital to the real estate allocation over time. This is a crucial element; the ability to diversify assets and take advantage of opportunities as they present themselves is what will allow your client to successfully grow their real estate portfolio.
  • The willingness and ability to diversify from the start. That is to say, don’t put all your eggs in one building. As with equities, your client wants to diversify the portfolio by categories such as location (local, regional, provincial), type (self-storage, mini-mall, apartment building) and tenancies (types of retailers, office space).
  • An interest in potentially leveraging assets to enhance returns. It takes money to make money, and part of having access to capital may mean the willingness to leverage portfolio properties to create more cash flow. This is, of course, a carefully calculated strategy and not a suggestion that your client’s properties can be personal investment ATMs.
  • A desire for investment cash flow. We believe this is a fundamental consideration for owning real estate as an investment (or an investment of any kind, for that matter). Good, consistent cash flow is what will allow you to make the most of your leveraged properties.
  • Confidence investing in the Canadian market. This is more of a practical consideration. We will discuss “real estate knowledge base” in greater detail in our next installment, but suffice it to say that there is no substitute for understanding the geography of your investment and the state of the market in which your client is investing. It is safe to say that the majority of the investment options will be within Canada, if not local. If your client is considering investments outside of Canada, you’ll also have to consider the various tax and legal differences, which can be quite the hassle.

The conditions above are meant to help you assess your client’s financial situation, investing acumen and risk tolerance. Directly investing in private hard asset real estate can provide excellent financial rewards, but it requires certain expectations and an understanding on the part of the investor.

Hard asset real estate is not a liquid asset like equities that you can easily buy and sell within a trading day—directly owned private property requires dedicated capital and resources to be managed over the long-term.

Now that we understand the requirements for getting started, in our next installment we will dive into knowing what you need to be successful. We asked the questions in Part One and assumed your answers were “yes”. Now let’s find out why those questions were so important, and how they apply to your ability to invest like a Kennedy.

<< Read Part 1                                                                                                                         Read Part 3 >>

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David Sung is president of Nicola Wealth Management, a Vancouver-based investment management and financial planning firm. With 20 years of industry experience, David leads a team of dedicated and knowledgeable advisors, serving the needs of high net worth business owners, professionals, and their families.

Wayman Crosby is CEO of Nicola-Crosby Real Estate Investments Ltd. and oversees the management of SPIRE LP. A graduate of UBC in Urban Land Economics in 1978 Wayman has an extensive real estate career spanning over 25 years.