(Source: Globe and Mail)

Small companies often underestimate cost of doing business south of the border

The subprime mortgage crisis in the United States may have helped push that country into a recession, but for one Calgary company the financial fiasco represented a cross-border opportunity.

CBI Group, a real estate investment firm, has launched a fund that aims to raise up to $12.5-million to buy about 175 single-family homes in Phoenix over the next year. The idea is that Canadians will be able to invest in the United States, profiting from the housing market collapse.

“The opportunities are limitless for CBI,” said Jarrett Zielinski, CBI’s vice-president of property acquisitions. “For Canadians with a good cash flow, real estate has become so distressed the opportunities are boundless.”

For a minimum of $10,000, investors in the house-buying fund will receive a 6-per-cent bond interest that will be disbursed as the flow of cash permits. They will also share in 60 per cent of the net profits when the Phoenix houses are sold. CBI will keep the other 40 per cent as profit.

The houses CBI is buying used to sell for about $300,000 (U.S.). Most of the 1,800-square-foot homes are now valued at around $150,000, but CBI has so far grabbed 20 houses for $90,000 each in the depressed market. The company hopes the homes will be worth $175,000 to $200,000 when it comes time to sell them in a few years.

The owners of the Phoenix houses can remain in their homes as tenants, paying rent to a local property manager retained by CBI. The company aims to sell the houses in about five years to pay out the fund, and will give the tenants first crack at purchasing their homes.

Read Charles Mandel’s full article “Making the move into U.S. markets” in the Globe and Mail (March 23, 2009).

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