Mark Ting is a Partner and Private Wealth Manager of Foundation Wealth, is CBC’s Financial Columnist for On the Coast with Gloria Macarenko and a Personal Finance instructor at SFU. He also happens to be a new addy member!
Mark spotlighted addy during his latest chat with Margaret Gallagher (who was filling in for Gloria) check it out:
Prefer to read it? We got you.
Margaret: And for many people in the Lower Mainland, buying real estate is out of reach because of high costs, but some determined Canadians have turned to crowdfunding. For more on this, we’re joined by Mark Ting, our Guide to Personal Finance and a partner with Foundation Wealth. Hello, Mark. OK, I have seen crowdfunding for all sorts of things, but how does real real estate crowdfunding work?
Mark: Well, your first step is to actually choose a crowdfunding company. And there’s there’s several some in Canada, some in the U.S. and their job is twofold. They first have to find a suitable property and then divide that property into fractional shares. So, for example, this week I bought a fractional share of a rental development that will built in Mission, BC. Their [addy’s] project crowdfunding goal was five hundred thousand dollars. So what they [addy] did is they split up that share into 500,000 units costing a dollar each and then put them on [the platform] for sale.
So meaning that myself and about a thousand other people are making an average investment of between about four to five hundred dollars, and then we’ll raise the half a million dollars. So it’s a longer term goal to the developer building 11 affordable rental units [out of a total of 105 units in the building] over the next two years and they’re going to rent them out for another three years and then it will likely be sold and then the money will be returned, hopefully with profits to all the investors.
Margaret: So you mentioned that the average investment was between four and five hundred dollars, but what’s the smallest amount that somebody can invest?
Mark: Yeah, that really depends on the crowdfunding company. So there’s a lot of them out there. And I’ve seen minimums of 5000 dollars investments or all the way up to like two hundred and fifty thousand or even higher. However, I ended up going with a local company [addy] who has a really low barrier to entry. It was just one dollar. So I’m not exactly their target audience because I’m older and I do own real estate, whereas this company is focusing mostly on GenZ or millennials who really want to invest in real estate but cannot do lack of money or credit.
So the main reason I bought this Mission rental property crowdfund was for me. I do agree with the company’s procurement team about Mission. I think it is a good place to invest in terms of capital appreciation and rental income potential. But the main reason I’m testing out crowdfunding is because I’m using it as a learning experience for both my kids. So to give you some context, for every A they get at school, I give them a hundred dollars. And this year they decided to roll that money into real estate investing via crowdfunding.
So we purposely chose a project that is local so that my kids can actually visit this development and monitor progress firsthand.
Margaret: OK, now, if somebody is interested in real estate and crowdfunding before committing, what should they consider?
Mark: Yeah. So, like, always ask about fees. Some crowdfunding offerings are, in my opinion, overcharging, or they might not charge a lot upfront, but in the end they’ll take a bigger cut of the process. Like 20 percent is quite normal. So before I invested, I did compare the fee structure of various crowdfunding companies and I ultimately went with a company [addy] that didn’t charge any fees, whereas some of their competitors were charging like transaction fees or property acquisition fees. That said, nothing is for free.
Like these are not nonprofit companies they here to make money. And for me, in order to participate in this crowdfunding project, I had to sign up for an annual subscription, which cost me $25. So that’s something to consider. If you’re only planning on making a minimal investment, for example, if you invested a dollar into a project but had to pay $25 annual subscription fee to do so, financially, that doesn’t make sense. So if you’re contemplating this, I mean, you should at least aim for a couple hundred dollars, ideally a couple of thousand dollars into various projects throughout the year.
Margaret: So what can a return of, say, $500 of a fractional share of real estate earn for you?
Mark: So it depends on the project that you pick there. There’s some that are more conservative than others. The projects that I chose has an estimated return of 14 percent [13.36%], which is good but is definitely not guaranteed. And people can lose money investing in real estate. I see it all the time in terms of dollars, a 14 percent return, that would mean that this investment would double in about five years. So not bad. But, you know, for someone like me, making $500 in five years isn’t really going to change my life.
However, for my kids, a doubling of their investment will be much more impactful. So my hope is they continue getting those A’s at school. They continue investing that hundred dollar for an incentive that I pay them to more projects, essentially building a small pipeline of investments, of different risk profiles that pay out at different times. So that’s my goal for them to actually just form these good financial habits. Accomplishing that would be worth many times more than the actual $500 profit returned by this crowdfunded project.
Margaret: So you mentioned earlier that you are not the target market for this type of marketing. Who do you think should consider crowdfunding when it comes to real estate investing?
Mark: So anyone that wants to invest in real estate but couldn’t do so because of this barrier to entry was too high. It just does it doesn’t have to be just young people. But I imagine this type of investing will resonate well with GenZ and millennials. That said, the most important thing is to pick the right project, something that suits an individual’s risk tolerance and return expectations. For example, I have a high risk tolerance, so I picked a project on the higher end of the spectrum with a higher expectations of returns.
Other projects will be more established, less risky. And but for those, obviously, you have to expect a lower rate of return, maybe five to six percent. And just like any other investments, you have to be patient, need to consider all your options, do your due diligence, really understand the offerings, fee structure. You might want to get some recommendations from friends, but at the end of the day, I’m telling young people just to take action, just to it. You know, it could be real estate, could be another investment. But young people need to be in the habit of investing regularly.
Margaret: Now, that can be done in real estate for less than the cost of a cup of coffee as long as you don’t have that 25 dollar yearly fee, right?
Margaret: OK, so so if you or more specifically, your kids just bought some real estate, even though it’s a little part of real estate, is it fair to say that you still believe that real estate is a good investment for the long term?
Mark: Yeah, I mean, if you followed me regularly, my bias is towards real estate. I do want my kids to eventually own a piece of real estate. I think they’re going to struggle or likely won’t get a, you know, a detached home. But I do ultimately want them to get real estate. And if you asked me, do you think real estate will be more value or raise in value like now compared to five years where this particular project will mature, then? My answer is yes. I do think real estate will cost more in five years. Just everything that we see about it right now, inflation and, you know, the amount of money printing, it’s sort of just goes in line with hard assets like real estate going up in value.
Now, the caveat is it doesn’t go up in a straight line. It doesn’t. It’s a cycle. So there’s going to be pullbacks. But overall, yes, I’m still bullish on real estate.