More often than not, real estate investment decisions are made based on two simple considerations – an investment property’s current ability to generate a healthy return and the asset’s future potential to produce a stable yield. However, when ‘value investing’ in real estate, the logic does not apply. Value investing considers the underlying intrinsic value of an asset, requires vision, and also commands a higher appetite for risk (which correlates to higher returns). In short, the opportunity to make a profitable investment occurs when the purchase price of the asset is less than the replacement cost of the asset. Consequently, the role of an effective acquisition strategy in value investing is vital. Every dollar saved, from negotiating the purchase price to minimizing the cost of performing due diligence, impacts total return and shareholder value.
Five basic steps during the acquisition phase
By deploying a systematic and efficient acquisition strategy, the value created in a real estate investment can be enhanced. Ensuring that a potential investment is in the right market/neighbourhood, is the right asset, and has the right deal terms in advance greatly reduces the time it takes to make an acquisition. In turn, this increases the chances of making a profitable investment. Conversely, a less methodical approach is often associated with higher (or unnecessary) due diligence costs, excessive legal fees, increased holding costs, thereby decreasing the likelihood of making a profitable investment.
Mainstreet Equity Corp. is a publicly traded (TSX: MEQ) residential real estate company in Canada. Mainstreet currently owns and operates properties in Surrey, BC; New Westminster, BC; Abbotsford, BC; Calgary, AB; Cochrane, AB; Edmonton, AB; Fort Saskatchewan, AB; and Saskatoon, SK.
Mainstreet provides affordable, renovated apartment suites to Canadians, and is committed to creating real value without diluting shareholder interests.