Whether you’re a major commercial real estate investment company, a medium-sized investor or a small mom-and-pop investor, all commercial real estate investors have common banking needs. Real estate itself is a relatively illiquid commodity, so there always has to be additional capital available to the investor for the next opportunity, or for future maintenance and repair projects.
But with those different purposes come an array of varying timelines. Cash earmarked for imminent investment needs to be put in a temporary safe place that earns interest while being instantly accessible. Money set aside for medium-term projects can work a little harder before being put to use, while funds that won’t be needed for a while can be locked in at a great rate of return.
Western Investor spoke to Tricia McGarrigle, account manager, cash management at Canadian Western Bank (CWB), to find out the company’s recommended short- and long-term investment solutions that work in harmony with real estate investment strategies.
Even if you expect to be investing in commercial real estate fairly soon, you don’t want to have your capital sitting idle in a business chequing account. “You want to make sure that your money works hard for you,” says McGarrigle, “so you need to park your funds and earn some interest while you wait for that big project or investment.”
She suggests using a Business Savings Account, which earns more interest than a chequing account while keeping the money instantly accessible. “Often our business clients keep their excess funds in a Business Savings Account, and they can easily move that money between that and their chequing account, at the touch of a button.”
Another great short-term solution is the Redeemable Term Deposit. “Similar to our Business Savings Account, it also offers liquidity, as well as a top-of-market interest rate,” says McGarrigle.
CWB’s Redeemable Term Deposit is linked to the bank’s prime rate (3.95 per cent as of September 4, 2019) minus 2.25 per cent. “If the prime rate increases, so does the rate on the investment. If the rate declines, the client can fully redeem the investment within 30 days, with no interest penalty.”
This deposit would be an ideal solution for a multi-family landlord, for example, who wants to set funds aside for maintenance and repair projects, and needs access to money with no more than 30 days’ notice, suggests McGarrigle.
The Redeemable Term Deposit is also available at incrementally higher rates of return if locking it in for 60 or 90 days instead of 30.
Long-term investment solutions
For investors who don’t immediately require access to their capital, the best strategy is a term deposit that allows them to invest funds safely with a guaranteed rate of return.
“This would also pay a higher rate of return than a savings account, as it would be locked in for longer,” explains McGarrigle.
She recommends CWB’s Guaranteed Investment Certificate (GIC), which ranges from one to five years, during which time the funds are locked in. The longer the cash is committed to the deposit, the higher the rate of return.
McGarrigle acknowledges that investors’ plans can be unpredictable, so the team can work with clients to create a “laddering” strategy, whereby a portion of the capital could be put into a one-year GIC, some into a two-year GIC and the rest in a three-year GIC. “Then, if a year comes along and you need some capital, at least you have some of it available after a year, while the rest is earning more interest,” she explains.
Of course, the smartest way to manage your capital is to take a holistic approach that looks at not only your investments but also your entire financial portfolio.
McGarrigle says, “Our wealth management team will take a big-picture approach where they look at the investor’s overall financial objective, and then create a tailored solution. They can strategize to get a better return while minimizing risk, and also minimizing taxes.”
She adds, “We often include our wealth management experts in our client meetings as an added value, as Canadian Western Bank offers a rounded approach to investment and banking solutions.”
For more information, insights and advice on investment solutions, visit Canadian Western Bank at cwbank.com