Frequently Asked Questions

Why should I invest in real estate?

There are many reasons to invest in real estate including:

  1. Earn an annual income: investment properties earn rental income from tenants that will exceed all expenses. Once all the bills and mortgages are paid, the leftover profits are paid to you monthly.
  2. Capital appreciation on your investment: As long as there are tenants that need places to live, real estate will have value. When the local economy is growing and more people need places to live, there is more competition for vacancies and rents increase. Growing rents causes real estate values to appreciate.
  3. Leverage: mortgages on properties allow you to increase your returns while having the rental income pay down the debt
  4. Security: real estate is a physical asset that has intrinsic value, unlike volatile stocks or bonds. If a tenant departs, they can be replaced by a new one.

How can a real estate investment complement my stock portfolio?

While stocks often times produce consistent returns, they can be very volatile and lose a lot of their value overnight based on market sentiment and mood. Real estate produces returns based on rental income which is very stable and doesn’t change on a regular basis. In a proper real estate investment, investors will likely earn indefinite cashflows due to rental income exceeding expenses and mortgage payments. A growing economy that lifts rents and increases property values is icing on the cake.

Why not invest in my own direct investment property?

We love real estate investing and encourage everyone to look into buying and managing their own investment property. However, it is a challenging task that requires a large up front investment and a lot of time and knowledge. At Open Avenue, we aim to allow like-minded investors to invest in direct investment properties without requiring you to put up an entire downpayment or have the technical know-how to operate commercial real estate or interest in being a landlord.

Why not invest in a REIT?

Real Estate Investment Trusts (REITs) are another method of investing in real estate that can diversify your portfolio. They invest in hundreds of properties in many cities all over the country and have many layers of management to operate the trust. While they can produce steady returns, REITs are publicly traded and often times follow the emotional patterns and volatility of the mass market. The casual investor doesn’t have a lot of transparency or choices into the types of assets that REITs choose to invest in.

Why invest in Open Avenue crowdfunded real estate?

We’re glad you asked!  Crowdfunded real estate blends the best opportunities of being able to directly own and choose which real estate properties to invest in while avoiding all the pitfalls of having to fund and manage a property on your own. You can invest in lucrative community projects that you believe in while taking part in the benefits of real estate investment – monthly cash flows paid directly to you and capital appreciate as real estate values rise. Open Avenue is modernizing pooled real estate investment in a very transparent manner by providing you with the ability to manage your personalized investments online in real-time. Every last financial detail will be made available to you including rents as they are collected and deposited each month, itemized expenses, and more!

Who can invest?

Due to present securities regulations by the Ontario Securities Commission, we can presently only accept investments from Accredited Investors, defined as:

  • You alone, or together with a spouse, own financial assets (reasonably liquid assets and excludes real estate) worth more than $1 million before taxes but net of related liabilities
  • You alone, or together with a spouse, have net assets of at least $5 million
  • Your net income before taxes exceeded $200,000 in both of the last two years and you expect to maintain at least the same level of income this year;
    or
    Your net income before taxes, combined with that of a spouse, exceeded $300,000 in both of the last two years and you expect to maintain at least the same level of income this year

If you don't qualify as an Accredited Investor, then we have to wait for the proposed OSC Crowdfunding and Offering Memorandum regulations likely being announced in Q1 of 2014, followed by a 90-day comment period and eventual release hopefully sometime in 2014.

What is the minimum investment?

The minimum investment is presently $10,000 but will be reduced to $1,000 once the crowdfunding regulations are approved by the Ontario Securities Commission. Learn more about who can invest.

What is the length of an investment?

Real estate investments in general are a long term investment. Investment length will vary based on each project but most will generally have a 5-7 year investment period at which point the asset is sold and proceeds are distributed to investors.

For investors in some development projects, you will potentially receive 50-70% of your invested capital back within 1-2 years when construction is completed and the property is fully leased. The project is then refinanced at a lower interest rate and a higher valuation and some of the proceeds are distributed to investors.

What is the legal structure of an investment?

For most investments, a legal entity known as a Limited Partnership will be formed that owns title to the property. Investors will become unitholders of the Limited Partnership. An entity formed by the Sponsor acts as the General Partner. Limited Partnerships are generally tax efficient as income "flows through" to end unitholders. Limited Partners are also limited in liability to their investment capital.

How are investment returns taxed?

We cannot offer legal or tax advice and recommend you speak with your accountant or lawyer as everyone's situation is unique. However, a general benefit of a Limited Partnership (LP) is that all income and profits are "flow through" in that all income flows directly to the LP unitholders (investors) instead of being taxed at the corporate level and then taxed again as dividends.

Additionally, building depreciation can be written off against income, potentially minimizing the annual income tax until the building is sold. All traditional real estate expenses including mortgage interest, insurance, property taxes and operational expenses are written off against rental income.

What are the fees?

It is free to join Open Avenue and browse investment opportunities. Investments will typically have some fees associated with each investment in order to cover the costs of administrative and legal expenses, as well as ongoing reporting and communications for the investments. The investment fees will be clearly stated in the documentation of each investment opportunity. Returns projected are net of all fees.

Are these investments risky?

Yes. Like all investments, including real estate and the stock market, there is no guarantee and it is difficult to predict economic cycles and changes in the marketplace, among other risk factors. If you are not prepared to potentially lose your investment capital, these investments may not be suitable for your investment portfolio.

Are these investments secure?

No investment is guaranteed, but you are investing in a physical real estate asset located in Canada compared to a stock or bond or other non-physical asset.

 

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