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39 Website Resources for Canadian Real Estate investors

Resources

Getting information off the Internet is like taking drink from a fire hydrant. – Mitchell Kapor

I have a confession to make. I hate the Internet.

Okay, well maybe that’s not totally true. But I certainly have a love-hate relationship with it.

On the good days, I marvel at how quickly I can put my finger on a precise fact or figure or locate an invaluable resource for my real estate business. I count my lucky stars at just how available access to great information is.

Then there are the bad days, when the Internet is like a giant black hole that sucks me in but only spits me out after precious minutes – and sometimes hours! – have mysteriously vanished.

As a real estate investor, access to information – especially info from reputable, trustworthy sources – is a critical part of my toolkit for helping me make informed, strategic decisions about my business. I need good, reliable information, and I can’t afford to waste a single minute finding it.

Armed with a desire to improve my productivity (and encouraged by my coach, Julie Broad, from RevNyou.com), I have compiled a list of real estate websites and blogs that will hopefully save real-estate investors from the clutches of the dreaded Internet black hole.

Think Tanks/Due Diligence for Canadian Real Estate Investors

Savvy real estate investors know that a lot of homework and due diligence goes into buying the right house, in the right location, at the right time. To make that ideal purchase, having access to a variety of reliable economic and financial data is a must.

  1. myreinspace.com provides the latest global real-estate news, market updates and unbiased economic research. REIN reports are designed to keep investors informed and ahead of any trends so they can make the right decisions about where and when to buy – and, just as importantly, when to sell.
  1. conferenceboard.ca delivers authoritative economic data on the business cycle, labour demand and trends, and several barometers of consumer and business confidence, including the widely quoted Consumer Confidence Index and the leading economic Indicators.
  1. theglobeandmail.com, especially the Friday Real Estate Section, is filled with timely, relevant articles describing the various real-estate markets across Canada. “Done Deals” is a personal favourite, as it showcases local homes and reveals both the asking and selling price and the number of days on the market.
  1. rbc.com/economics/economic-reports/canadian-housing-forecast.html RBC’s housing reports are an invaluable resource. They provide an excellent analysis of national and provincial trends in housing affordability and developments in major metropolitan housing markets.
  1. cmhc-schl.gc.ca is another resource offering objective housing research and advice to Canadian consumers.
  1. statcan.gc.ca If you need to put your finger on projected population growth, migration or household income trends to help determine whether the timing and/or location of your next investment is right for you, Statistics Canada is the go-to site for these or any of your stats-related queries.
  1. The big banks all have useful economic data information, but RBC is particularly reputable in this department (see #4 above). So is CIBC, and especially anything by Benjamin Tal, as the IMF calls him “one of Canada’s leading experts on the real estate market.”
  1. canadianmortgagetrends.com This site has plenty of up-to-date information, articles and videos that discuss the current state of affairs and long-term trends in the mortgage world.
  1. housepriceindex.ca. I think this site is super-cool. Even if you aren’t a numbers-geek like me, the charts showing year-over-year (or month over month) appreciation by market are pretty awesome. Or maybe I just like this site because it shows how incredibly strong my investment towns (Toronto: +7.32%) and Hamilton: +7.97%) have been relative to last year!
  1. landcor.com With access to 77 unique characteristics on each of British Columbia’s 1.9 million properties, landcor.com provides up-to-the-minute valuations on everything from a Vancouver condominium to a ranch in the Kootenays.

MORTGAGE COMPARISON TOOLS

The mortgage on your rental property is its single biggest expense, so getting the best possible rate is critical to your bottom line. Use the tools below to shop around and to compare what’s being offered by a multitude of lenders. Knowledge is power, so knowing the mortgage landscape will help you decide whether to sign on the dotted line or walk away from a lender offering uncompetitive rates.

  1. ratehub.ca will allow you to compare just about any kind of rate you are interested in – mortgage rates, credit-card rates, GIC rates or USD rates – with the click of your mouse.
  1. ratespy.com utilizes a network of assets to monitor virtually every Canadian lender that publicly advertises mortgage rates. That includes 345+ banks, credit unions, trust companies, insurance companies, wholesale lenders and online brokers.

RENTAL RATE COMPARISON TOOLS

Rental income IS your business. Price your rents too high, and you might find your unit vacant. Price them too low, and you will leave cash on the table. As a real estate investor, you need to be an expert on rental rates in your area. In addition to commonly used sites such as Craigslist and Kijiji that allow you browse rental listings, the following site helps you easily compare your rent to other areas:

  1. rentometer.com: Paying too much for rent? Charging too little? Rentometer is the easy way to compare your rent to other neighbourhoods.

LANDLORD SUPPORT SITES

  1. ltb.gov.on.ca. Understanding your rights and obligations as a landlord is extremely important from a legal perspective. Every province is different, so be sure you find the landlord tenant board in your particular province. This link is for the Ontario site.
  1. Don’t know how to write a letter to your tenant to complain about excess noise, garbage, or late rent? This site has lots of free documents, forms and templates and also includes a lease builder that is customizable for your province. www.ezlandlordforms.com/documents/free-landlord-forms/
  1. landlordselfhelp.com provides information, advice and referrals on a variety of topics related to residential rental relationships in Ontario. It’s geared toward the needs of small-scale landlords. (Note from Julie – In BC, we’re members of https://www.landlordbc.ca/. They are an excellent service and also have all the documents you need for every step in the process working with your tenants).

FINDING THE PERFECT PROPERTY

There are lots of great resources out there to help you find the ideal property or agent.

  1. realtor.ca will help you find residential real estate for sale or rent by agents anywhere in Canada, while www.icx.ca is a listing and search site that features commercial and business properties for sale across the country.
  2. rew.ca (Real Estate Weekly) has a variety of interactive maps showing open houses and houses for sale in the Vancouver and the lower mainland areas. This site also has an information-rich news section.
  3. zoocasa.com offers an agent matching service and an extensive listing database for residential listings across Canada.
  4. theredpin.com specializes in home, condos and townhouses for sale in the Greater Toronto Area.

BLOGS

This is where the black hole always gets me – in the blogosphere. There are just so many great, smart people to follow that it’s hard to know where to start (or my case, where to stop). I didn’t want to reinvent the wheel by creating my own list, so instead I am including a link to a list compiled by Toronto realtor Jamie Sarner. He’s done a really thorough job of ranking the 50 best real estate blogs in Canada in 2014. It is very comprehensive and includes a good representation of blogs/websites from across the country.

  1. http://jamiesarner.com/toronto-real-estate/2015/02/top-real-estate-blogs-in-canada/

As good as Jamie’s list is, a couple of my favourite go-to sites slipped past him and were not included:

  1. RevNyou.com: I love this site for so many reasons. First of all, it has a TON of up-to-date, relevant information on a huge range of real estate issues. Whether you want to find how to find (or break up) with a joint venture partner, get started in Rent To Owns, write better rental ads, or become an area expert, RevNYou.com has it all (and everything in between, too!) by way of articles and video posts.
  2. mrhamilton.ca: The realtor behind the successful Mr. Hamilton brand, Erwin Szeto, rocks. He is crazy smart and has a great blog in which he posts regular articles about the state of the real estate market in Southern Ontario.
  3. biggerpockets.com is a social network for the real estate investing community. Here you can learn about real estate investment, get free tips & education, make deals, and grow your real estate business.
  4. therealestaterenegades.com or www.rockstarinnercircle/blog: The motto of these Oakville brothers, Tom and Nick Karadza is “Your Life. Your Terms.” They have an excellent site full of relevant articles as well as vlog posts.

REAL ESTATE NEWS

It’s always important to stay current with the most up-to-date real estate news, and these sites will help you do that. Many offer an online sign-up that will deliver daily news highlights straight to your mailbox. That’s what I do, and it makes me feel like I always have my finger on the pulse of the latest real estate news.

  1. canadianrealestatemagazine.ca
  2. repmag.ca (Real Estate Professional)
  3. renx.ca (Real Estate News Exchange)
  4. canadarealestateadvisor.ca

COOL WEBSITES FOR REAL ESTATE INVESTORS

There are zillions of cool sites, and I couldn’t possibly list them all. What I will do, though, is regularly include cool sites that I discover through my newsletters (so be sure to subscribe at Invest In Student Rentals). Here are a few great ones to start with:

  1. Need a survey for your home? No need to leave your house to get one. www.Protectyourboundaries.ca
  2. Virtual staging for your property. Yes, you read that correctly. Instead of renting expensive furniture, you can have furniture digitally added to your online photos. So, even though the house remains physically empty, the online photos show your house with its best foot forward.
  3. walkscore.com. Is an awesome, useful site which could also easily have found its home in the “due diligence” or “rent comparison” section. A home’s “walk score” gives a great indication of how walkable (read: desirable) the property is to local amenities, attractions and transit.

NETWORKING

  1. The best networking site by far in my opinion is meetup.com. On this site you can find any type of group under the sun. It doesn’t matter whether you’re looking for other real estate investors or palm readers. You can find these and any other hobby or interest group you can think of.

UP-AND-COMING REAL ESTATE INVESTING SITES TO WATCH FOR

There are lots of new sites out there, and below are some of my faves. Yes, the last site on the list is my own site, www.InvestInStudentRentals.com. Be sure to join my online community, as I will be offering regular articles and video blogs to keep my subscribers up-to-date and informed.

  1. financialnirvanamama.com
  2. leasetoownhomes.ca
  3. mikeeden.ca
  4. sasreig.com
  5. StudentRentalInvesting.com
  6. InvestInStudentRentals.com

I hope this list proves to be useful to you! My goal is to save you from being sucked in by the Internet whenever you’re seeking important and relevant information for your business.

If I’ve forgotten a site that you find particularly useful for your real estate business, please leave a comment on my website at: http://investinstudentrentals.com/contact-us/ and we’ll take a look at adding it to this list or I’ll publish it in one of my upcoming newsletters.

Gillian Irving ProfileGillian Irving likes to say she was an “accidental investor”, when buying a duplex in downtown Toronto in 2009 with little planning or preparation. Luck was on her side though, and she was able to ride the value up and refinance to get capital to keep growing. At that point, she wasn’t going rely on luck and an “H&P” (hope & pray) strategy if she wanted to leave her job and provide long-term financial security for her disabled son and three other children.  Gillian became a serious student of real estate investing and combined what she learned with her professional skills as a market research analyst to purchase 35 doors in Southern Ontario in 18 months.  Today, Gillian is a full time investor and entrepreneur, focused on student rental investing with joint venture partners. She’s also going to be opening up a fabulous Sky Zone Trampoline Park in the Toronto area in 2015.

 

Image Credit: © Piksel | Dreamstime.com - Woman Pointing At Blank Sign Photo

The Questions to Ask Yourself Before Investing in Small Towns

houses questions

Nice properties in nice areas with good cash flow were getting harder and harder to find in my home town of Ottawa. Frustrated with the lack of inventory, I decided to look deeper into my native province, Saskatchewan, thousands of kilometers away.

At the time, a particular small town in Saskatchewan was hopping with work and had the highest average rent in the province. That really got my attention.

I realized years later that booming small towns can be a good place for investment, but you really need to know your market and what you are getting into.

It was 2011. I decided to invest in the small town of Estevan, Saskatchewan, two hours outside of Regina. It had a population of 11,000 people and the average house price was in the low 200,000’s. There was so much work in Estevan that housing couldn’t keep up and people were literally turning down jobs because there was no place to rent in Estevan. I was mesmerized by the inexpensive prices and the prosperity and growth of Saskatchewan. It reminded me of how Alberta started out a decade ago.

Estevan real estate was attractive because of its low vacancy and high rental rates, supported by various energy employment sectors. At that time, a two-bedroom apartment in the low $200K range could easily fetch $1800+ per month with no property taxes for five years.

The numbers were perfect and I knew the town well enough as it was close to where I grew up. Plus I really needed a turnkey investment considering I had other properties to manage, one year old twins and a career to juggle. I decided to pull the trigger and buy a brand new two-bedroom condo. It rented out immediately.

For two years, things were great. The market value of the unit increased almost immediately after I purchased it and the cash flow was excellent. The peak rent was $2400 per month and it was property tax free for five years. Even with the cost of an occasional $600 trip to visit the town, it was worth it. It still netted close to $1000 dollars in cash flow per month after all expenses.

Then things changed.

First, crude oil dropped. At first it was slow, then it fell 50% in just six months.

All other energy sectors followed and so did the housing market in Estevan.

The party had officially ended in Estevan.

The morning after a big party the last person you want to be is the one left holding the garbage bag in charge of clean up. But, that was who I was.

If you find a booming town is catching your eye like Estevan caught mine, make sure you do it with eyes WIDE open. During the oil crash, my tenants left due to changes in employment and the unit wasn’t attracting much interest in the rental market. I managed to come out losing only two two months rent to vacancy because I changed property managers and dropped rents substantially. Thankfully even dropping the rents, it still cash flowed.

It was a tough situation and not what I thought it would be, so here’s what you need to know before you invest in a small town.

The Good, the Bad, and the questions you need to ask yourself before pulling the trigger investing in small towns.

Let’s start with the ‘Good’ about Investing in Small Towns:

  • Low entry price. Properties can be significantly cheaper than in larger cities, which makes it very enticing to any investor. This can mean greater cash flow and return on investment, a win-win situation from a financial perspective.
  • Less competition. With a small town, you might not have a lot of competition with other real estate investors in town. For example, you could be one of very few rental properties that provide rental units to executives and transient workers. Additionally, you could benefit during the purchase of the property by not having to worry about multiple bids and losing deals!
  • High rental rates. Sometimes rental rates can be much greater than the average rents in bigger cities. In a booming small town, transient workers are given a lot of incentives to work there, including generous allowances for housing costs supported with high paying salaries. This drives the rental market, with incredible rents and generous cash flow in your pocket!
  • Rental property incentives. If the housing market is hot and there is a shortage of rental units, the City may be more flexible in their regulations or building permits and possibly offer tax incentives for real estate investors. For example, in some cities, property taxes are waived for five years if you commit to holding the unit for that time frame.

Sounds great, right? Be careful. Small towns can be a pain, too. So, let’s continue on with the ‘Bad’ about investing in Small Towns:

  • Slower appreciation. Property values typically don’t grow as fast in small towns as they do in larger cities, so you need to really think long term when investing in small towns, at least five years if not more!
  • Smaller employment market. When the employment sector is hot, rental demand is high; but when the employment sector is a bust, rental demand goes. All of the transient workers leave and the town becomes stagnant, which equates to higher vacancy rates and longer hold times between tenancies. This is coupled with a decrease in property resale demand, meaning you could be stuck holding a vacant and illiquid asset. This really hurts if you need your money back and that is your only exit strategy.
  • It’s a boom and bust town. Small town real estate can be quite volatile. Oil and energy rich cities are affected significantly by the volatility in commodity prices in the financial markets. Things can go south quickly with any economic change, as shown in the drop in the oil price over the last six months.
  • Limited services. There is a general lack of services in small towns. Property managers, home inspectors, lawyers, handymen, and realtors may be sparse or non-existent. If you need an appraisal to finance a property, the bank may require someone from a nearby City (that maybe a couple of hours away) because the one person in town is on vacation. This happened to me! Same goes for property insurance, home inspection and property management firms. These conditions can make upfront purchasing costs significantly higher.

Now that the Good and the Bad are out of the way, I encourage you to use your common sense filter and simply ask yourself these questions before considering investing in a small town:

  • Can this area grow in the future – adding jobs and creating demand for housing – or will it go down in value due to declining population, economic changes, and/or loss of jobs?
  • How long can these high rental rates last? Will it last for the time frame that you are looking to hold this unit?
  • What are the main employers in this area and what is the likelihood that they will increase in size or decrease in size in the future?
  • Do you have a big enough real estate portfolio to absorb any shortfalls when the market goes bust and/or do you have a generous contingency fund for this property?
  • Do you have multiple exit strategies if the market turns sour and you have trouble renting the unit out? Can you lower the rent, provide incentives like shorter term leases, furnished options, or rent-to-own options to give you an edge in a slow rental market?
  • If you are an out-of-town investor, do you have a team backing you up to make sure that your property is managed well and you can trust to do whatever they can to market your property in a downturn?

For an investor just starting out, ask yourself these questions. In fact, to make it easier for you, avoid small town investments and only buy ones that follow Rev N You’s Properties with a Cause Model.

If you are an experienced investor, it is important that you go into any investment with your eyes wide open. Investing in small towns can be attractive for cash flow, but as quick as that comes, it can go! Just be ready, and have your contingency plans in place.
Tracy Ma is a mother of twins, mentor, engineer, and real estate investor in Ottawa, Ontario. Connect with her at her website www.financialnirvanamama.com where she shares free tools, videos and articles on managing your real estate portfolio. Her mission is to empower women on investing to reach their financial nirvana.

How to Analyze Your Real Estate Deal (& Why You’re the Only One that Can)

Kid with magnifying glass

I can’t analyze your deal for you.

It’s not even because it takes a ton of time to do properly (which it does, by the way!). It’s also not because you sent me absolutely no information that is useful in the analysis (although, that is often the case).

I can tell you if the numbers make sense. I can ask you if you’ve considered a few potential risks. But, ultimately there is only one person who can really figure out if the deal is good for you or not … and that is you.

Here’s an example of an email I received this week with personal details omitted:

“Hi Julie, I am 1/2-way through your wonderful book! You have such an earthy, non-slick, trustworthy personality. I have a question: We are just about to sign a commitment letter with a bank on our first investment/property in one city. We live in another. We paid $573,000 for a 3 units with 25% down. $2900/month rental income. Are we crazy?”

When you just look at the numbers on this deal, it’s not that great. These folks are likely hiring property management as they don’t live in the same city, so that will reduce their net income as well. Before you even consider maintenance, which will definitely be costly as it’s almost 100 years old, it will likely not cashflow much at all.

Does that make her crazy? Should she look for a better deal?

I have no idea. It could be the perfect deal for her or it could be a terrible idea.

To help her figure it out, I would need to know more about her goals, resources and risk tolerance. For example:

  • Why she is investing in real estate in the first place. What does she need this deal to do for her and her family?
  • Why she chose that city. If it’s because, in the future, they plan to retire or send their kids to University there, this might be perfect. If it’s because they go there on a regular basis for other reasons then it’s not a bad idea. If she chose that city because it was more profitable than the city she lives in currently, I probably would have picked a different location.
  • What resources does she have to work with? My guess is that this property is not a legal 3 unit property. At best it is probably is legally allowed 2 units. Is she financially able to handle the risks that come with an illegal suite? If it won’t kill them financially to handle this issue or maybe she has connections to a contractor who can help make it legal for a lower cost, then this might not be a big issue.
  • What other options were considered and why were they eliminated?

Then, once I had that information, we’d have to dive into all the property expenses, expected maintenance, and, of course rent and income. Even with that information I still couldn’t tell you for sure that it’s a good deal because I would need to know all about the area, the comparable deals that have been done lately, the layout of the property, the target tenant type and what options exist for different exit strategies from the property.

It’s a lot to cover … and if you haven’t already read More than Cashflow, I highly recommend you start there. It’s the absolute best real estate investing education you can get for less than $20!

But over the last six years we’ve covered a lot to help you in our Rev N You with Real Estate newsletters to help you choose where to invest and how to analyze your real estate deal. There are a lot of things to consider and I just want you to make the best decision possible for you. Below we’ve highlighted some of the most read articles on choosing a market and analyzing your real estate deal to help you.

There’s a lot more to cover but that should keep you busy for the rest of the summer and fall. :) Happy analyzing. And remember, you are only doing a good deal if it moves you closer to the ideal day or ideal life you want to live. Numbers are only a small part of what you need to consider before you buy a new investment property.

What Market Should I Invest In?

One of the biggest reasons people lose money on renovation projects, especially flips has almost nothing to do with the actual renovation process at all. It has everything to do with the selection of property and it’s location. Here’s what you need to know about the price you’re paying and the cost of the renovations you’re about to do:  The Neighbourhood Price Ceiling and Why It’s Critical to Understand.

One of the biggest stumbling blocks for real estate investors (new and experienced) is where to invest. What market will be the ideal location for the next investment property purchase? Read this post to learn exactly How to Choose a Great Real Estate Investment Market.

Think location doesn’t matter in real estate investing? Location impacts the rents you can get, the tenants you attract, and the problems you can encounter. It also impacts the appreciation of your property and the opportunities you may have in the future. Real Estate Investing Is Still About Location, Location, Location.

A couple of days ago my Twitter feed was alive with talk of several real estate related subjects that caught my attention: Confirmation of Canada’s Housing Bubble. It doesn’t matter where we are in the cycle, that headline pops up so do you really know what the Driving Factors Behind the Real Estate Market?

Oh glorious summer! It has arrived early or at least a taste of it has arrived early. I’m getting out to enjoy it as much as I can. But I’m still finding time to keep an eye out for properties that fit our model. In fact, I looked at one yesterday and we’re running the numbers to see if we want to make an offer. How do I know if I want to make an offer? Here is a  Simple Model for Buying Rental Properties.

We get the short end of the data stick in Canada when it comes to residential real estate information. I’ve spent many hours drooling over the information you can gather on Zillow, Trulia and other US real estate sites. But things are improving for Canadians and here’s a few new resources you might like to check out: Shopping for a New Construction Home? Market Research Just Got a Little Easier.

How To Analyze Your Real Estate Deal:

There’s a lot involved in evaluating properties for their cashflow potential and a simple rule of thumb only gives you a way to eliminate bad deals quickly, but here’s one little rule of thumb we use. Learn how to  Evaluate Properties in 60 Seconds or Less.

You need a lot more than a computer to analyze real estate deals. Read how: How to Analyze Real Estate Deals

If you think real estate is risky or you’re worried about certain risks and how those will impact your investment, then it’s time to understand just How to Analyze Risks in  Real Estate Deals.

 

Shopping for a New Construction Home? Market Research Just Got a Little Easier

Market Research WomanWe get the short end of the data stick in Canada when it comes to residential real estate information. I’ve spent many hours drooling over the information you can gather on Zillow, Trulia and other US real estate sites. And, with the recent announcement out of Seattle of Flipt, the options just got even cooler in the US. Flipt intends to use an algorithm to predict the best places to buy based on their future value. It’s a very cool idea. Not knowing the Seattle market very well I can’t judge whether it’s working well but I like the concept.

But asking for a website in Canada to predict future values when you can’t even figure out what all the listings are, and what has sold for what price without a realtor, is asking a lot. Even when you do have access to the same data that a realtor does, you still don’t have a full picture of the market because it doesn’t include private sales or new homes that don’t get listed on MLS.

We still don’t have options as robust as the US folks, but there are some resources popping up in Canada you might want to know about. One of them is a new Market Snapshot from BuzzBuzzHome, intended to help homebuyers track real estate market trends specific to new construction. As a real estate investor becoming an area expert (you are doing this right?!), this is absolutely data you’ll want. We wander into all the sales offices in the areas we buy in and collect the data ourselves … but if all we had to do was run a quick report that would save time and we’d be able to look at the trends much easier. That’s what this is all about! And if you’re in an area where there’s a lot of new construction activity, I think you’re really going to appreciate this.

Here’s what it looks like if you check out downtown Victoria, BC.

Market SnapshotYou can see median list price and size broken down by different unit types and well as the distribution of available units across all unit types.

As North America’s largest listing of new construction homes, BuzzBuzzHome collects a vast amount of data about housing markets across Canada and the United States. Market Snapshot allows users to create on-demand market reports for neighbourhoods and cities. Users can see important information like the average price per square foot in cities and neighbourhoods, the median list price and unit size for new condos, townhomes and houses, and a detailed breakdown of the unit mix within many geographical areas.

In the Greater Toronto Area this type of data has been available through RealNet Canada for years but only through a subscription service or, again, through your realtor who, had to subscribe.  I worked there for five years (2003 – 2008) and know the enormous amount of work that went into quality data collection each and every month. It was excellent information but expensive to collect … and therefore not something you would see for free.  Times are changing though and you’re starting to see some of this great information at your fingertips for no cost!

Real Estate Market Research

 

 

This report shows you data on units currently under construction and estimated completions in Toronto’s Entertainment District. You can easily navigate from the Listings section to Market Snapshot’s various tabs to get a more information on the neighbourhood.

Matthew Slutsky, the co-founder of BuzzBuzzHome said that: “The aim is to mine our database of over 11,000 new construction communities to give home buyers a better understanding how the type of home they’re searching for fits into the market they want to buy in.”

Market Snapshot is unique, Slutsky says, because no other company collects information that is this detailed and makes it freely available to homebuyers, investors, brokers and market researchers alike.

“BuzzBuzzHome’s mission is to help new homebuyers and investors make the best purchasing decisions and making this wealth of data available free for anyone to access furthers this goal.”

Market Snapshot is available for every neighbourhood in Vancouver, Calgary, Toronto and Montreal. You’ll also find information for the cities of Victoria, Burnaby, Surrey, Kelowna, Nanaimo and many other smaller towns and suburban areas where new homes are being built.

Nothing replaces getting your own boots on the ground to do your market research, but the more information you can collect from home the easier it will be to spend your time on the ground looking for WHY a house sold for more or less and what makes one area more desirable than another.

Go ahead … type in your city or neighbourhood and check it out: http://buzzbuzzhome.com/

Simple Model for Buying Rental Properties

Oh glorious summer! It has arrived early or at least a taste of it has arrived early. I’m getting out to enjoy it as much as I can. But I’m still finding time to keep an eye out for properties that fit our model. In fact, I looked at one yesterday and we’re running the numbers to see if we want to make an offer.

But do you know what makes a great potential rental property? It is certainly not a sign on the listing that says “Investor Alert”, nor is it’s income only.

Our model for buying rental properties is to only buy ones with a CAUSE.

But what does that mean? Dave’s going to explain it to you:

Knowing exactly what you’re looking for when you pick an area and choose a property is key. You may want to target students or seniors so your criteria will be different – but getting clear on your model and focusing will make every deal you do better, more profitable and probably easier too!

By the way, if you liked this video you’ll love these posts:

>> How to Double Your Money in Real Estate (and the Properties with a CAUSE Model in action)

>> Four Ways to Check Reality Before Buying a Rental Property

>> How to Find Great Real Estate Deals

Real Estate Investing Costs You’ve Never Considered

It was a Saturday night. We were at a local pizza place with a handful of our real estate investing coaching clients after a long day in the field looking at properties, discussing office systems and evaluating neighbourhoods. We were laughing, telling stories and bonding. It was a good time, but one of our clients was missing.Hidden Costs of Real Estate Investing

He invests in the area and a tenant had called about a leaky shower. After the tour, he rushed over to the property, skipping dinner, to fix the leak.

In his mind, he was saving the cost of calling a handyman and since he was in town for the training anyway, he thought it was the perfect opportunity to get the job done.

All he saw was the money he was saving. But there were a lot of costs to his decision. He missed out on a lot of fun and informative conversation. He didn’t get a chance to bond with all of us in a relaxed setting. He also had to eat the few pieces of cold pizza that were left when he finally arrived.

It’s probably not surprising to find out that he feels a lot of stress from his real estate portfolio. I’m not judging this guy – not at all. I can identify what is happening because I’ve been doing things like this for decades. We still do. But here’s the thing – I am now very conscious of the choice to spend time to save money and what it really costs to do that.

I’ve realized something kind of shocking recently:

I can’t think of a decision I have made driven by money that has brought me much happiness or created better relationships.

As real estate investors, most of us are highly driven by money. Real estate education is totally financially focused. Success is measured by profit.

It’s not that money is a bad thing. Listen, we all need cash. The problem is the power we give to money and the price we pay for doing that. And this price is one that very few investors ever think about. 

When you take the power away from money, every decision in your business gets easier. You’ll gain confidence. You’ll choose better deals for you, you’ll find partners that are a great fit and even fun, you’ll work with tenants that take care of the home and stay for a long time, and you’ll find money comes to you for your deals instead of you chasing it! It all happens when money is no longer in charge of your choices.

Very few investors stop and look at their real estate business from the point of view of what will take the least amount of time, create the least amount of stress, or what will be the most fun to do. Most investors analyze the numbers, chase money from city to city, and focus solely on profit to drive investment decisions. The result? Investors get stuck or stressed or both!

Let’s look at five areas of real estate investing costs you’ve likely not considered:

1. Who to Invest With:

It’s so easy to get hung up on needing money for your deals that you don’t think about the emotional costs that you could pay when you invest with the wrong person.

We have one partner who asked dozens of nit picky questions in the beginning when he was evaluating the investment. We had a feeling he would be challenging but chose to ignore that feeling because he had the financial capacity to do multiple deals with us and he was friends with a group of successful business owners with cash for investments as well. Today, the mere mention of his name in our office fills us with stress. Even after several years of earning him a double digit return on his investment, he questions everything we do, right down the model of dishwasher we selected when the old one needed replacing. He’s never grateful for the work we do and it always feels like he is disappointed. It feels horrible. If he was our only partner we’d have zero confidence and damaged self esteem.

Ignoring potential issues gets even worse when it’s with a close friend or a family member. It also changes the relationship (Read More on That: The High Cost of Raising Money from Friends and Family). Friends and family are the most expensive place to raise money – it’s just that it’s an emotional price you’ll pay – not a financial one.

Today, we turn friends and family away and instead ask them for referrals. We also look for a fit. If someone isn’t going to be fun to work with, appreciate our value and be interested in a long term hold, then we’re moving on to a new conversation. Interestingly, ever since we started turning people away we’ve had people coming to us. Finding money has never been so easy.

2. What deals to invest in:

Where to InvestWhen you don’t have much money to invest, the choice of what deals you’ll do tends to be based on the resources you have. My husband Dave and I have done this many times in our twelve years of investing together. We’ve bought properties in areas where I felt unsafe parking my car, because we could do a deal with no money down. We’ve bought properties that didn’t have a foundation and were barely standing on their own just because a seller would give us a VTB. The reality is that those deals may not cost money at the start but they usually cost you cash before too long – sometimes a lot of cash. But, again, the price is far greater than just dollars and cents. Owning properties in rough neighbourhoods does not offer you much peace of mind. It also means you’ll get the most unsettling of calls (drug deals, tenant fights, and noise issues to name a few). You also could find yourself with a property in such a state of disrepair the fire department ends up being called in resulting in a long list of fire code violations that are very costly to repair (or you could end up in court pleading guilty to fire code violations as happened to us).

Instead of worrying about how you can do a deal without any money or banks, find deals you’re happy owning and raise the money you need to make it happen. Or, don’t invest while you save up. Either way you’ll be much happier than if you just do the only deals you think you can do when you’re lacking the resources to start.

3. Where to Invest:

Everyone talks about investing in a city with great economic fundamentals. It sounds great, but do you really want to travel to find properties, set up a team, oversee your business, and grow your portfolio? Are you REALLY excited about hanging out in Edmonton, Hamilton, St. John’s or wherever that newest hot spot is? (Watch the video on this: How to Choose Your Investment Market – Two Things Nobody Considers)

I’m not suggesting you invest in a town that is shrinking or where everyone is unemployed, but when you choose your market, realize economic fundamentals aren’t as important as making sure it’s a fit with your life.

4. Why You’re Investing:

Are you trying to create a full time job or are you creating a business to build wealth and give you freedom?

We wanted freedom yet we were so focused on making money that we bought properties in bad areas, that attracted hard to deal with tenants, and were spread out all over Ontario and BC.

Being driven by the numbers not only led us to do the wrong deals, it also led us to take the wrong tenants. When you’re driven by an ROI (return on investment) you will feel a tremendous amount of anxiety over a vacant property. One time we were about to have a vacancy and we were so worried about cash that we took the only tenant that applied even though there were a few red flags. Within a month she had pulled a knife on her roommate and had stopped paying rent. It took us three months to evict her – we lost out on three months rent, court filing fees and unit clean up costs all because we rushed to avoid a month of vacancy.

Today, our business is set up to support us, NOT the other way around. We focus on what our ideal day looks like and weigh each investment decision against whether it supports us or not. That means we do fewer deals than we have the capacity to do, we stick to a proven model, and we are very picky about our tenants even if it means losing a month of income. Ultimately, it’s a business and it has to be profitable but the most important thing to us is whether it’s supporting the life we want to live.

5. When to Spend Your Time or Spend Your Money:

Spend Time or Money in Real EstateYou can save time or you can save money. Usually you can’t save both. You can hire a property manager and save time, but it costs you money. They won’t love your property like you will. You have to pay them to oversee it, and they will charge you for handling issues like renovation and tenant placement. You can find an investor to fund your deal so you can grow your portfolio but you will have to spend a lot of time finding them, building a relationship and overseeing the deal. Another person adds complexity. You can potentially make some cash by buying, renovating and flipping a property but you can also expect to spend a ton of time and energy to make that happen. You have to choose what is important to you and be ok with it. In order to do that, you need to be aware that the costs extend far beyond a spreadsheet.

Our client chose spending time over money but he was also feeling frazzled and frustrated. He made a choice but didn’t realize the price he still paid. You need to take a hard look at what you really are willing to spend and be comfortable with it, or try a different investment strategy. Real estate investing isn’t for everyone!

Doing high quality deals with great people makes real estate investing fun. But it’s really easy to get side tracked from that, thinking you have to do more deals to make more money. If you’re too hung up on money then you’ll lose site of what real estate investing can do for your life and the importance of your relationships in your life – not the deals.

And the funny part is that when you change your focus – your business changes.

 

Other Articles You Might Enjoy:

>> The Neighbourhood Price Ceiling

>> The Passive Income Myth

>> The Time Management Secret Nobody Else is Talking About

 

Image 1 Credit: © Ambro10 | Dreamstime.com
 Image 2 Credit: Julie Broad
 Image 3 Credit: © Vasilii Shestakov | Dreamstime.com

 

 

How to Choose Your Real Estate Investment Market: Two Factors Nobody Talks About

Choosing a Real Estate Investment MarketOne of the biggest stumbling blocks for real estate investors (new and experienced) is where to invest. What market will be the ideal location for the next investment property purchase?

At one point in our business we owned property in six different cities across Canada. We had property in Ontario and in BC. It sounded cool to say that we owned property in so many different cities, but the reality was less than impressive as we were forced to rely on our teams very heavily. Traveling to solve problems or hire new team members was expensive and time consuming.

Real estate was supposed to create freedom and wealth for us, not cost us a fortune, stress us out and suck up all our time.

That’s why picking your market is a CRITICAL step in the process of becoming a real estate investor. But, because I am coming at this from a perspective of doing real estate deals that make sense for the life you want to live not just financial sense, this video contains two factors nobody else really talks about when it comes to choosing your real estate investment market.

I’m not suggesting you invest in towns that are shrinking nor am I saying that you have to find a $1.2 million dollar Vancouver house that will cashflow (it’s kind of hard to do that…). I am just giving you a few additional factors to think about that are more important than economic fundamentals when it comes to thinking about YOU, your family, and your goals as you build your real estate investment empire.

You might also be interested in these real estate investing articles:

>> How to Find a Great Real Estate Investment Deals

>> How to Double Your Money with Real Estate every Year

>>Housing Bubble? Housing Slump? Housing Recovery? How to Tell

 

Knowing When to Walk Away from a Real Estate Investment Deal

We’ve been struggling to put a real estate investment deal together lately. When we returned from Mexico we hit the market hard – looking at 20 or so properties in just a few weeks. We made quite a few offers but didn’t get very far with very many of them at all.

running away

In fact, we’ve actually found ourselves faced with some downright stubborn sellers and ridiculously bad real estate agents. Here are just a few examples of the road blocks we’ve hit recently:

  • The sellers agent who had his Mom call our agent about our low ball offer,
  • The seller where we’re $5,000 apart from doing a deal. The $5,000 makes a difference to us but we wanted to do the deal so we offered to split it with them. The seller refused and has recently informed his agent that he expects to get a much better price in the spring market,
  • The sellers who have moved out of their home and refused to even counter our offer – which was within 5% of their ask price.

We really like the home where the agents Mommy called our agent so we actually sent our agent back in with a new offer that was nearly $10k higher but required them to finish most of the incomplete work in the home. They want full price. Period. Everyone was more civil about it this time around but we still didn’t get anywhere.

We’re going to pull up some stats to verify this, but there are a lot of people out there looking but not buying. Right after Christmas the market picked up big time – and homes were getting shown several times a day. I will be interested to see what the January stats show but my feeling is that there haven’t been that many sales. Most listings we’ve been watching are either on the market still or went off market – they didn’t sell. Despite a lack of sales, the pick up in activity with more people viewing homes seems to have sellers holding on to the belief that their home is going to fetch a bigger price.
So – we finally get a seller to come to an agreement on a house that is in one of our target areas. It’s not our top choice area but it’s one that works for us and would be a good one to put into our rent to own program. Yeah!! An accepted offer …
As much as I liked the home and felt it would show fairly well with minimal amount of work on our part, the home did have one red flag for me right from the start and that was a lot of evidence of DO IT YOURSELF work. That’s a red flag for us because you never know how many different things someone tried to do themselves. Laminate flooring poorly installed is one thing – electrical and plumbing work badly done is another.
So we sat down with the inspector fully expecting some issues requiring a little work here and there. Instead of little issues here and there though – he found the home to be in pretty good condition – with one big exception.
Inside the attic he found mold and mildew on the north-facing side of the roof. It wasn’t horrible but it was definitely there. Additionally he found a major leak in the garage – which we had expected because it was disclosed to us by the sellers – but the extent of the leak was worse than we had expected.
We asked for our subject removal period to be extended and requested access so we can have the issue assessed by a restoration company and our roofer.
Long story short, the sellers took immediate action and got a restoration company in there the next day to begin repairs. The issue was immediately addressed. We were impressed at their swift action.  And we were pleased when we spoke with the restoration company because they felt they had identified the likely cause of the issue and had fixed it (insulation in the soffits). All was going well until we asked for a piece of paper/guarantee/warranty on the work they’d done. The work had been done “off the books” because the seller was a buddy. In other words – the seller saved some money but now we had nothing to show the work had been done (nor could the company “guarantee” the work because it was off the books). The risks we’d be taking on with this property were starting to pile up but we wanted to make the deal work so we:
  • asked if the seller would pay the extra few thousand dollars to put the work on the books so we could get our warranty – they refused,
  • asked if there was ANYTHING the restoration could give us besides their word that would verify the work had been done properly but there was nothing they could offer,
  • researched the reputation of the restoration company – they were highly respected,
  • asked our inspector to go back in and look at the work that was done (he used to be an insurance adjuster so he has some expertise) and give us something to say the work appeared to be done as stated.

It wasn’t an ideal situation by any means but after doing the above we assessed our risks. There was no mention of the “m” word any where the bank would see it, our insurance doesn’t cover mold anyway so they don’t care about preexisting conditions, which left our main risk with the tenant buyers (when we would do the rent to own) asking to see an inspection and getting freaked out over the initial report.  We figured that issue could be mitigated by getting a new inspection report completed by a different inspector if required.

We checked with our joint venture partner to make sure he was comfortable with the situation and with what we’d done and we carried on to address the issue of the leaky roof.
Our roofer took forever to get to the house and when he did he had nothing good to say. He made comments like “In my 40 years I’ve never seen a chimney like that” and “You can fix this but then you’ll have to put new siding on the house” and “I could put my fist through the hole”.
None of these things were good, and just like in baseball this house had three strikes and was now out. 
By this point we’d invested 20 or so hours into this property, and we’d invested over $500 in the due diligence but there’s a good chance that house is a lemon so we walked.
It wasn’t easy to walk from the deal but we have owned lemons before and we know how quickly you can lose money on a bad house. So today we wanted to share the story with you and give you a little list of red flags we watch for. As you learned in this story, one or even two red flags if the issues are minor or understandable are not enough to make us walk but as soon as a third red flag comes up – no matter what it is – we’re out.
Red Flags to Watch For:
  • Signs of do it yourself work (poorly installed flooring, disorganized wiring in panel boxes, faucets that don’t work right, leaks under sinks, finishings are just not quite right),
  • Evidence that the owners cut costs wherever they could (the sellers in this case would rather save a few thousand dollars on the restoration work than get it done properly with the right documentation),
  • Sellers that are anxious to sell but the reason is not clear to you,
  • Evidence thatthe owners are hiding issues with the home:
    • New paint in odd areas … it’s often used to cover up rotting wood. It’s also used to cover up water damage.
    • Shelves and rugs placed over top of holes or other issues. Be curious – look under rugs and behind shelf units and pictures.
  • Work done without a permit– we don’t get hung up on people that finish off a basement without a permit unless they put in a bathroom or add a kitchen. Work that is done without a permit can cause you issues if you ever want to do work with a permit but otherwise there’s no need for that to be a deal breaker. But the real red flag is the fact that anything involving electrical or plumbing work has either been done by the owners, a handyman or someone willing to do work without the right permits. We have a team of exceptional guys and they don’t do work without a permit. So if someone has done work on their home that would have required electrical or plumbing work then you have to wonder who did it because the good ones aren’t likely to do the work without a permit.

There are lots of things to look for in a home but these are just a few of the issues we’ve learned the hard way over the years. And since we painfully had to decide to walk from this home recently we thought we’d share the store and our lessons with you.

Hope is NOT a Real Estate Investment Strategy

Sitting across the table from our friend and real estate investing partner of nearly a decade I nearly choked on the won ton I was eating when he said “I’m going to buy a property in California to use as a vacation property and hope it goes up in value.”

This guy is smart and it won’t be his first property. He’s bought several with us, a couple on his own and at least one with his relatives. And he’s been successful with his investments – especially the ones he made with us. ;)

So I was absolutely shocked when he told me that hope was in fact his strategy for his next investment. And not to worry, I gave him a good lecture over lunch about why it wasn’t the way to go about making a real estate purchase.

I told him: HOPE IS NOT A STRATEGY.

Real Estate Investing Strategy Not Hope

Yes, I think properties in many markets in the US are undervalued. And I definitely believe there are opportunities for the smart buyer to make some big profits in real estate in just about every market if they buy in good areas and can hold on for at least 5 years.

The last I heard the place he was trying to buy sounded gorgeous, undervalued and likely to rebound quickly. And for him, I think this property is more of a lifestyle choice than an investment – he wants a fun vacation home and a place he can potentially retire to.

I think our friend is going to do ok in the long term with his purchase in California. As long as he can afford to hold onto that property for awhile, his hopes and dreams of making a great profit on that property are pretty darn likely to come true. And I know he’ll have a lot of fun owning it in the meantime. And as long as he remembers that this purchase is a lifestyle choice, and with that choice will come greater costs, then that’s okay. But it should never be considered just an investment – especially based on hope!

And most of us can’t afford to use HOPE as a strategy.

Buying undervalued properties and waiting for them to rebound in price, or appreciate to new highs is a scary and high risk strategy. I think it was in the book Rich Dad Poor Dad where the question was asked “How many houses can you afford to buy if they are all costing you $100 per month?”.

The answer for some is probably quite a few … as long as you have your job!

But we have structured our entire lives around creating freedom. And freedom for us means that we don’t want to buy investments that enslave us to our jobs or put us in dire need to make money. We want our investments to free us not trap us.

For that reason alone we’re not VALUE investors. We’re CASHFLOW investors.

Buying properties in anticipation of value increases is how so many people got burned in the past 5 years. They bought properties with little regard for their cashflow … believing that the value increase would happen so swiftly their monthly revenue losses would be more than made up for. And besides, losing money every month is ok because it’s a tax write off, right?!

I can’t tell you how many times I have heard that piece of flawed logic. And you know why it’s flawed? Because your mortgage principal pay down expense each month … the biggest expense you have as a real estate investor … is NOT A TAX WRITE OFF. Only the interest you pay on that mortgage is. So… sadly … even though you are paying $300 a month out of your pocket to subsidize that property filled with hope … the government actually thinks you’re making money so you’ll get to pay tax on the income you generated even if it never hit your own jeans!!

Sucks doesn’t it?! So wouldn’t it be better to actually BE making money from that property while you ‘hope’ it goes up in value?

That way, if something happens and the market shifts downwards, you are still making money from that property and you can afford to hang onto it for years and years to come. And you’ll be making money from it even if it’s worth less because you have positive cash flow AND your mortgage is being paid down by your tenant therefore building your wealth.

For that reason we don’t buy properties with the anticipation that the value will increase. We buy properties that:

  • Are in areas that will attract agood pool of quality tenants,
  • Put money in our pockets each and every month,
  • Have more than one exit strategy,
  • Are in market areas that have really strong fundamentals for growth and stability,
  • Primarily have risks we can control.

This is more work. It takes market research, it takes patience and it takes a lot of effort to find the properties that will actually generate a positive cash flow. But it’s also the only strategy we’d advise any real estate investor use.

If you’re not sure how to figure out if a property will generate a positive cashflow here’s a few resources and tools you can use:

Published on April 12th, 2010

Image Credit ©Gerald Bernard |Dreamstime.com 

Real Estate Investing – Warren Buffett Style

Stock investing has some fundamental principles that are similar to real estate investing. Research is critical. Bad management can ruin a business just like it can ruin a property. And, the best money is made in the long term 99% of the time.

And when you think of successful stock investing I don’t think there’s a person in North America that wouldn’t immediately think of Warren Buffett. So it shouldn’t surprise you that Buffett strategy and Buffett investing fundamentals are just as applicable to real estate as they are to stock investing. Take my favourite seven quotes as examples and lessons for you:

  1. “No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month just by getting nine women pregnant.”Warren Buffet QuotesIt’s the same thing with wealth creation. You can make money fairly quickly in real estate, but cash is not the same thing as wealth.Real wealth creation in real estate does take some time. It doesn’t take a lifetime but it’s not overnight. And when you’re just starting out it takes time to even make cash.I know there are so many programs that promise quick cash, but it just doesn’t happen that way. Take our recent direct mail campaign. We sent out 4,000 letters and we’ve yet to close on one deal from them. We’re working on a few deals now … but it’s taken time.

    Somebody sending 500 letters would likely face the same time frame. In other words, a massive effort today doesn’t make it happen that much faster… just like getting 9 women pregnant doesn’t produce a baby in a month. But a massive effort today could produce 9 babies in 9 months.

    It will probably be 6 months before our time, effort and money invested in the process so far pays us anything. And we really won’t feel the benefits for up to a year, but that is ok because we know it takes time. But when you’re starting out you have to be prepared for that. Yes you can make $50,000 in one month but it just won’t be your first month.

  2. “The smartest side to take in a bidding war is the losing side.”

When the price is going higher and higher you are losing your return. That is why you don’t want to win in a bidding war. Usually when bidding wars end the winner has overpaid. The winner is the last fool standing. Nobody gets rich paying too much for an asset.

You’re much better off, as a real estate investor, to find the assets that aren’t as desirable today and find a way to create value and make them desirable. This makes more sense than buying the hot products at hot prices and hoping they continue to be the hottest ones.

  • “The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”You don’t need an MBA to invest in real estate. I have an MBA in real estate and finance … and if anything it made real estate investing more difficult for me for awhile. MBA school teaches you to assess risk in every possible way. It also teaches you how to analyze all the variables in every single situation.You absolutely must consider the risks in a deal. And in fact, I shot a little video a few months ago showing you a simple tool to use to assess risk quicklyAnd you do need to analyze your options, but there comes a point where too much risk analysis paralyzes you and you really can become afraid of your own shadow ruining your deal. The best thing you can do is focus on each deal …focus on making sure the economic fundamentals of an area are strong and the property is in demand. And then factor in the biggest risks you can’t control to make sure you’re compensated for any real risks you’re taking… and then roll with what comes your way.

    Keep it simple. And then you’ll keep moving forward!

  • “A public opinion poll is no substitute for thought.”public opions are like sheepIn fact, I would go so far as to suggest that if you do use public opinion for anything at all you use it to judge where the herd is going so you can go the opposite direction.Typically the best real estate deals are found when nobody is buying and the media can’t stop talking about the housing crisis and the poor economic situation of the housing market. And typically when there is talk of everybody and their dog buying real estate for investments that is the time to sell your property or take a vacation while the rest of the world shops for property.No matter what – do your own market research. The confidence and clarity that comes with doing your own research is invaluable even if you do end up heading the same direction as the herd at least you will understand why you did, and be able to recognize and make adjustments if the climate changes.
  • “I don’t try to jump over seven-foot bars; I look around for one-foot bars that I can step over.”


Many new real estate investors think they have to find properties for 60% of their market value to be successful. Deals like that do come around, but they aren’t that common (at least they certainly aren’t that common in the areas in Canada where we invest!).

Quite frankly, if you wait for deals like that you could be sitting around trying to be a real estate investor for years. Instead, focus on finding a good area to invest in and then find a good solid property that will be easy to attract tenants to. Over time you will find that you make a lot of money from cash flow, mortgage pay down and property appreciation from that one simple deal. And if you keep doing that… finding one foot bars to step over instead of waiting until you find a seven foot bar you can leap over, you’ll build your wealth steadily and successfully over time.

  • “It’s easier to stay out of trouble than it is to get out of trouble.”Oh Warren I wish I didn’t know how true it was. It only takes a dozen or so hours to buy a property where the property manager you hire turns it into a crackhouse and gets you fined for fire code violations amongst other hassles but it can take you years to sell or fix that problem.Sound like a lesson we wish we didn’t learn the hard way?You’re right.

    Spend a day or two doing solid due diligence on every single property BEFORE you buy. Those hours could save you years of stress, thousands and thousands of dollars and even making the news as a the absentee landlord being fined in local crackhouse!

  • “I made my first investment at age eleven. I was wasting my life up until then.”
    Warren Buffet Quotes I was wasting my life up until thenTime is passing by – whether you’re investing or not. And given that it takes time to build your wealth there is only one thing you should be doing right now… focusing on how you’re going to make yourself wealthier tomorrow by doing something today.

Warren Buffett may not be a real estate investor but he is one of the smartest investors in the world. And his message to me is quite simple … focus, be consistent, follow simple rules, find one good deal at a time and take small steps every day. These are some of the simple things that have brought him enormous success in the stock market and I believe if you follow them they will also bring you enormous success in the real estate market too.

Published on January 20th, 2010

Evaluate Properties in 60 Seconds or Less

Evaluate PropertiesI have to give credit to Julie for this little tip. This is her creation. Somewhere along the line she just started doing this to simplify and speed up the process of evaluating properties for their cashflow potential. As she confessed last month, she doesn’t like numbers and math to evaluate properties. And, this technique is one simple calculation that tells her to continue looking at a property or to move on. While I spend hours pouring over spreadsheets and killing the battery on my calculator to assess the cashflow of a property, Julie can make her decision whether to investigate a property further in 60 seconds.

Julie calls it the 1% Rule

All you need are two numbers: the price of the property and the rental income you will get each month.  If the monthly income is 1% of the purchase price then you are pretty much guaranteed a property that will cashflow.

For example, if you have a property that costs $300,000 and it gets $3,000 per month in rent, Julie’s simple calculation tells her that it is a property she’d like to learn more about. The numbers are looking really good.

If you have a property that costs $300,000 and the rent is $2,100 per month, it’s hitting .7%. She’d probably still look into this property, but she’d do it knowing that the money will be tight. Anything lower than than .7% is going to be really hard to make cashflow without either a big downpayment, lower purchase price or higher rent.

The 1% Rule in Action – Making Sure Properties in a Specific Area have the potential of producing positive cashflow:

We’re looking at areas in Canada and the U.S. where we will record our upcoming video series. In the video series we’re going to follow our real estate investing process from start to finish to buy a property. One of the places I have been researching is Austin, Texas.

Let me show you how I’m using Julie’s 1% Rule in the evaluation of properties in Austin:

I did a search on Realtor.com, and I found 10 single family homes in the St. Edwards area, ranging in Asking Price from $289,900 to $299,900 (because I limited my search to a max. of $300,000).

Multiply .01 (1%) by $290,000 and you get $2,900. If you can get around $2,900 rent (per month) in that area on a house that costs approx. $290,000, then you can be very comfortable that you will have a strong positive cashflowing property.

You can even drop the 1% to 0.8%, and you will still likely have a positive cashflow property. Why not just use 0.8%, you ask? 1% is just a rule of thumb. Basically anything over .7% is worth looking into further. But, you can decide the exact number you’re looking for based on your objectives, the strength of the area, the size of the down payment you have and the cost of financing you can obtain.

If you can put down 25%, you can decrease the 1% rule to 0.8% or possibly even 0.7%. However, if you can only put down 10% and the bank is going to charge you 7% interest rate, you will want to achieve closer to the 1% rule.

Let’s look at the 1% Rule decreased to .8%. Let’s say you have a 25% down payment for this example:

If you have 25% to put down and are going to use the 0.8% rule, that would be .008 x $290,000 = $2,320.

You want to have approximately 35% of your rental income available for expenses (management, insurance, property taxes, maintenance, etc.). So, if you can achieve $2,320 in monthly rent, subtract 35% for expenses, and that leaves you with $1,508 ($2,320 x .65) available for your mortgage costs.

$1,508 in a monthly mortgage payment at 5.5% interest rate, with a 30 year amortization can afford a $267,420 mortgage. In other words with a big down payment and the low interest rates available in today’s market, the .8% rule will work.
If you bought the $290,000 home with only 10% down, this would leave you needing only a $261,000 mortgage ($290,000 x .90 = $261,000) yet the $1,508 monthly payment can actually pay for $267,420!

But, Julie complains that she can’t do the math in her head on .8%, so she sticks with 1% and just knows that a little bit lower than that will still work.

It’s just a simple rule of thumb for quick and easy assessments. Once you’ve found properties that have potential for cashflowing, you still have a lot of work to do to make sure the property is a good one to buy. At least using this trick you can feel comfortable that you will be spending the time learning more about a property that has good potential.

Published January 13th, 2009

 

Is Now a Good Time to Buy Real Estate

Is Now a Good Time to Buy Real EstateThe biggest question we get asked by our friends and people we meet at networking events is: “Do you think now is a good time to buy real estate?”. It’s actually a question that makes us feel a bit awkward. Do people expect that we have a crystal ball? Or, worse, do they expect us to know something they don’t? The truth of the matter is that we don’t have a crystal ball, and we probably know about as much as you do about what the real estate market will do. So, we always feel a little weird answering this question. But, then again, we do have an answer and it’s almost ALWAYS the same answer.

“Yes – now is a good time to buy real estate. NOW is ALWAYS a good time to buy real estate if you find a good deal and plan to hold onto it for the long term”.

A good deal today is as good as a great deal tomorrow because your tenants will start paying the mortgage down (and mortgages pay off quicker as time passes by), and you will start growing your equity immediately. You also may never find that GREAT, or perfect deal, so you shouldn’t wait.

Ask any veteran real estate investor what their biggest real estate investing regret is, and we bet that person will tell you either about a property they didn’t buy or about a property they sold too soon. Rarely will they tell you a story of a property they did buy, and regretted.

That is NOT to say you can’t lose money in real estate. Nor is it to say that real estate is generically always a good investment. We’ve certainly demonstrated that you can lose money when you don’t set your objectives or do enough research. But, we do firmly believe that a good property purchased in an area with strong fundamentals that meets your real estate investing objectives is pretty darn close to a guaranteed way to make you very wealthy.

What I am about to say is a pretty big confession.It’s not a secret; my friends and family know this about me. But, it’s definitely a confession.

I have an MBA in real estate and finance (from the Schulich School of Business in Toronto). I also did an undergraduate degree in business at the University of Calgary/Mount Royal College. That’s not the confession part – I am proud of completing both of those programs. The confession is that I struggled through any course with numbers. I took Calculus and Stats twice in my undergrad… I prefer to tell people that I liked them so much I took them twice, but the reality is that I was failing the first time around.

In my MBA, I made myself take a handful of finance courses because that is an area I knew I was weak in. I hated them. I kicked butt in the personal finance course I took because I love budgets, and I love planning and problem solving. But the other finance courses were not so pretty. I wasn’t good at financial modeling. The only reason I even got C’s and B’s in those courses was because I had gifted and brilliant friends and 50% of my grade was from group work. The exams weren’t pretty – even though they were open book.

Why I am telling you this? Because, I don’t like things that are complicated. And, what I figured out during that whole self-torturing period was that there are so many variables in those financial models that one assumption gone wrong throws it all off.

Analysis is important, but often using simple tools and techniques will do the trick. That is why I love real estate! Sure, you can do a big discounted cash flow to figure out what a property is worth or what it will be worth, but it’s just another model with assumptions and variables that could all change in a flash.

In residential real estate investing, thankfully, simple analysis and basic numbers are really all you need. The simple addition of expenses (mortgage, taxes, insurance and maintenance) subtracted from the total rent gives you a lot of information.If that number is positive, and it’s in an area with strong economic fundamentals, including job and population growth, you’ve got a bit more due diligence to do, but you can feel comfortable that you’ve potentially found a great investment.

It doesn’t matter what the rest of the world says about buying real estate. It doesn’t matter if the market is at the bottom yet or not. If the property will carry it’s costs, and the location it’s in assures you of a strong demand from a big pool of renters, then you’ve quite likely found a good deal. The only thing you have to do is hold onto it for at least five years…preferably longer.

I read something about Warren Buffet a few months ago. He’d been buying up stocks like crazy and somebody asked if he believed stocks were at the bottom and he basically said he had no idea but that he was buying undervalued stocks and that he planned to hold onto them for a long time. If they go down a bit more before they go back up, it’s ok because he knows he bought them at a discounted price.

I think that the same goes for real estate.If you are buying property to hold it for the long term, you only buy properties that meet your objectives, and you only own neutral or positive cash flow real estate, then the exact timing of your purchase really doesn’t matter.

Now, I could start talking about the fact that we’re experiencing the lowest interest rates we’ve seen in the last 50 years, that sales are slow, and sellers are motivated as further reasons to get out there and start shopping for real estate, but hopefully I’ve made my point without getting into all of that!

If you want to read more, I had an article published in a blog last week on the same subject called What Every Real Estate Investor Should Know about Timing the Market. Please click on over to Must Know Investing and check it out.

Published December 22nd, 2008

Five Ways to Know that You’ve Found a Great Investment Property

Great Investment Property ChecklistAfter our reviewing the responses to our October newsletter reader survey (thanks for participating!!), we found that next to financing your real estate investment, the next most important thing you want to know about is how to find (or know you’ve found) a great investment property. So, I’m going to take you through what I call the 5 Ah Ha’s of finding a good investment property. I call them Ah Ha’s because you will go “Ah Ha!” when you find a property with each of these features!

Ah Ha 1: It meets your objectives
Making decisions based on your real estate investing objectives is the foundation of our strategy, so it makes sense that the first AH HA is that the property meets your objectives.

For example, if your objective is to make $200 per month in positive cashflow you need to go out and find a property that will produce the money! Usually, it’s easier to obtain positive cashflow from a multi-unit property. It could be a house with a basement suite (2 tenants – 2 rents), a duplex, a tri-plex, or a small apartment building with 4 or more units. One of the easiest and quickest ways to determine if it will cashflow is using the Gross Rent Multiplier or GRM.

To Calculate the GRM
Asking/Purchase price = $150,000
Monthly rent = $1,100
$150,000/($1,100 x 12) = 11.36 (GRM).

Speaking generally, a property with a GRM of approximately 10 or less will likely produce neutral or possibly positive cashflow. And this is just a “quick and dirty” way to determine if a property will cashflow (you can read more here). You can search through realtor.com or realtor.ca to find potential properties and some will include current rents. These rents you can apply to the GRM formula above to quickly check where the GRM sits. If it’s well above 15, you will not be positively cashflowing. If the listing does not show rents, you will need to do some additional research to find out the approximate rents for properties/units of that size, type, and location. Use rentometer, viewit, or craigslist to do some comparative research (these can all be found in our Resources page).

Ah Ha 2: It’s in a Growing market
Ok – so the property meets your objective. The next thing to check is that the market is growing. We’ve talked about this a bit before, but searching the local papers for news about new jobs entering the market (either a new company moving in, lots of new construction or corporate expansions), learning of new plans for infrastructure (public transit lines or major roadways being added) as well as getting some sense of population shifts are all good things to do to make sure you’re investing in a growing market.

Government websites are also a pretty good source of information about the area (although the data is usually a year or two old). Check municipal and city websites along with provincial or state websites and look for census information including population, household income, number of children, number of schools, number of households, average person per household, etc. The information you really want to see is the direction these numbers are trending in. Is the area growing or shrinking or fairly stable? If the trending shows it’s growing, you’ve likely found another Ah Ha!!

Ah Ha 3: The area is improving or recently improved
Your objectives will be very relevant to whether you find a good area or one in transition. If you want a no mess, no fuss type of property you are likely looking for an established area. But if you want to chase some potential appreciation or can’t afford the established areas yet, you might be looking for a neighbourhood that is still having some “growing pains”.

No matter what your objective, we wouldn’t advise buying in the crappy area if it has no signs of hope. Bad areas attract difficult tenants and your property will likely go down in value and be impossible to sell later on. Instead, seek an area that is improving (have no idea where to look? Julie likes to follow the new Starbucks locations). In these new Starbucks locations, you will often see plenty of signs of improvement… people renovating homes, cleaning up yards, government investment in roads and parks and developers buying land are just a few.

Another word of caution, just because the area appears to be improving, does not guarantee that you will make money buying a property there. However, if you’ve done your research on the economy, vacancy rates, population changes and negotiate well, you will likely have an AH HA property.

Ah Ha 4: You find a professional Property Manager that is willing to manage your prospective building
Owning an investment property does not mean you HAVE to have a property manager. In fact, we don’t always hire one. But the properties where we have professional property management in place are less stressful and much less time consuming for us. A good property manager will cost you around 10% of your gross rent and even up to 1 full month’s rent to place a tenant in your property, but unless you want to buy yourself a part time job when you buy your property, a good property manager is worth every penny.

The key to this AH HA is to locate a property manager BEFORE you buy the investment property. Even if you decide you want to save some cash and just manage it yourself, it would be wise to speak with a few PM’s to find out if they would manage your property, determine what their fees are, and what their fees pay for! Why do you look for a PM even if you are going to manage it yourself? Well, if down the road you accumulate too many to manage or you can’t take the stress of managing it anymore or you start to enjoy your time down in Mexico for 2 months per year and don’t want to have to always answer your tenants phone calls… you will want to know that you can hire a reputable property manager to take over for you!

Don’t assume there will be one waiting when you are looking! The best way to find out about Property Managers is to ask around. Speak to realtors, lawyers, accountants in the area you want to invest in, and ask for their recommendations. You can also search in the Yellow Pages or online. The key is to do reference checks by speaking with other individuals who are working with the prospective manager. Want to learn what to watch out for? Check out our article on Five Ways to Protect Yourself from a Bad Property Manager.

Ah Ha 5: The vacancy rate in the area is dropping and/or is sub 5%
Our last Ah Ha is really geared towards the long-term holder of real estate. This type of investor buys with the intention of renting the property out for a fairly long period of time. Having a low or dropping vacancy rate is very important to help keep your place rented (high demand, low supply), and it also will help your cashflow and improve your bank financing.

Sure, you can buy a cashflowing property with a GRM of 5.5, but what if it’s in an area with a vacancy rate of 25%? We have had some Rev N You readers ask about investing in places like Prince Rupert or Kitimat, BC or Windsor, Ontario. Well, a quick look at CMHC’s reports and you’ll see that the vacancy rates are 14.3%, 23.2%, and 13.2%, respectively in those areas. As a long-term investor, you have to try to discern whether those vacancy rates will continue to be that high or will they drop in the not too distant future? If you don’t see a drop in the vacancy rates coming very soon, then I would stay away from that area (at least until the rate drops well below 10%). At the end of the day, you want to hold properties where the demand for rental units is strong. You’ll experience less vacancy and better rent rates.

PublishedNovember 7, 2008

Financing for Americans buying in Canada and for Canadians buying in the U.S.

PART 4 of the Rev N You with Real Estate Series on the Mortgage Market in Canada

Recorded October 18th, 2008: 4 minutes 09 seconds

The winter in Canada is cold…and it makes many Canadians want to head to the South for the winter. But it also attracts Americans to Canada in search of great skiing. So, if you are a Canadian wanting to buy a property in the U.S., what are your financing options? How can you get the best mortgage rates? And if you are an American wanting to buy in Canada, what are your options for financing that investment in Canada?

Listen as Dave Peniuk (of Rev N You) asks Cindy Faulkner of Meridian Coastal Mortgages about the financing options available for Canadians and Americans.

Thanks for stopping by and getting the facts on what is happening in the market today! This is the fourth in a series of five podcasts on the mortgage market in Canada. We’ve got some big plans for more experts to join us on Rev N You, so make sure you’re signed up for our Rev N You with Real Estate newsletter to be certain you don’t miss any of the important market updates!

CoastalMortgageslogo 

ABOUT CINDY FAULKNER

Cindy Faulkner owns and runs Meridian Coastal Mortgages. An active real estate investor, with 17 years of experience in the residential real estate market, Cindy and her team are our first call when it comes to financing for our properties. They are always happy to chat about scenarios or discuss the market, so give them a call at            604-588-4466      .

The Three Most Destructive Emotions In Real Estate

And, the only thing you need to do to avoid letting them rule your investments

Emotions in Real Estate Investing

I confess that when I am standing around at Starbucks waiting for my Americano I always take a look at the headlines in the paper. And lately, I find myself feeling jolts of fear and hope as I read the headlines about the Canadian housing market. Last week alone Canada’s housing market was recovering, set to plunge dramatically, and ready for a soft landing. Check it out:

  • UBC Expert Says Urban Home Values Set To Plunge” – cbc.ca September 9, 2008

  • Resale Listings Surge While Sales Slump” – Globe and Mail, September 3, 2008

  • Ontario Leads Rebound in Home Construction” – Financial Post, September 9, 2008

  • Toronto’s Luxury Condos a Bargain Compared to Other World Cities” – Toronto Star, September 8, 2008

  • Housing Starts Dive 60%” – Calgary Herald, September 10, 2008

  • August Housing Starts Better than Expected” – cbc.ca, September 11, 2008

  • Central Okanagan Sees Big Dip in Housing Sales” – Globe and Mail, September 11, 2008

  • Soft Landing Predicted for Real Estate” – Montreal Gazette, September 10, 2008.

Each of those headlines instill either a sense of fear that the market is crashing and it’s going to be ugly, or hope that the market is going to be o.k. and we won’t suffer at all. But my emotional reactions to those headlines last less time that it takes for the Starbucks Barista to ask me if I want the extra shot in my coffee… you see, I know the objective of each paper is to sell more papers. And, the bigger the feelings of hope, fear or greed they can inspire the more papers they will sell.

FEAR:

The feeling of Fear may cause an investor to panic and sell everything or, it can cause them to freeze in fear of taking any action at all terrified it will be the wrong thing to do. Either way, you’re not doing the right thing. If you do nothing then you aren’t moving towards your goals, and if you panic then you will be following the herd of people using the headlines to make their decisions. And you want to buy when THOSE PEOPLE are selling, and sell when they are buying!

HOPE:

Hope often leads to making decisions without all the details. Your friend buys a stock and says the price is going to rocket to the sky, and you buy it with the hope that they are right. You read an article in the paper that says that King West in Toronto is going to be THE Hot Spot to live in next year, so you buy a condo there hoping that the article’s prediction comes true. Ever heard the saying “hope is not a strategy”?

GREED:

When the market is going up, investors will overextend themselves only seeing the money they will make not the risk they are taking. They will make hasty decisions for fear of missing out on the next big gold rush of an investment. The market’s been going up and up, and they think they have to get in at any cost and want to make the money that everyone else seems to be making. The next thing you know, the market cycle starts heading downwards and everything flies apart.

So, you can now recognize the three destructive emotions for a real estate investor. But what can you do to help keep them from controlling your decisions? It’s simple… you only need to do one little thing!!

Set your real estate investing goals and evaluate everything you do against those goals.

I know we say this in almost every article and newsletter, but it’s because when we didn’t have a plan, we made some bad decisions. We don’t want that to happen to a single one of our readers, so we will constantly remind you to make a plan, put it in writing and review every decision you make with your plan!

One of my favourite quotes comes from Alice in Wonderland:

“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat
“I don’t much care where…” said Alice
“Then it doesn’t matter which way you go” said the Cat

-Lewis Carroll, Alice in Wonderland

You will avoid making decisions based on fear, greed and hope if you know where you want to go. You will look at the potential real estate purchase or sale, check it against your goals and your plan, and make your decision based on whether it moves you closer or further away from your goals.

And if you do that, you can ignore the media! It doesn’t matter if everyone else is terrified, hopeful or filled with greed. You have a plan and are working towards that plan. You will look for specific deals with criteria from your plan, and if something meets your criteria you will buy or sell, no matter what the headline says is happening.

 Published on September 20, 2008

5 Questions to Ask Before You Buy a House

by: Guest Author: Michael Acord, The Real  Estate Maestro

Real Estate MaestroAs you stroll around your neighborhood or look for property investments online, you’ll find a lot of properties that have potential. An initial review will tweak your interest (maybe it’s the price, the location or it’s just in an area you really want to buy in), but you’ll need to dig a little deeper to find out if there is a real opportunity behind this potential. The cheapest way to do this is to pick up the phone, and call the vendor (or the listing agent – but you will probably find this method works best with For Sale By Owner Listings) and ask these 5 questions before you buy that house.

The purpose of the phone call is to extract information. What kind? As much information as you can get. I tell every student the same thing that was taught to me, real estate is a puzzle. Your job is to extract the information (the puzzle pieces) and put the puzzle together. Where do you start?

It’s not about lot size, bedrooms or baths; you start with what I call the 5 key questions.

1. Price,
2. Reason for the sale,
3. Any major renovations needed,
4. How long have you lived there,
5. What is owed (mortgage balance)?

What is your Price?
“Hi. I’m calling on the home for sale (include the address as some people may have several properties listed). What is the asking price? How did you arrive at that price?” This answer will tell you the level of the seller’s sophistication. If they paid for an appraisal or interviewed agents, you may have some data that you can use in figuring out your purchase price. If uncle Vince, the tire guy, gave them the price and he knows nothing about real estate then you may assume their sophistication level is low.

Reason for the sale?
This is the window question. The answer to this question will tell you how all of the other questions will be answered. The purpose of this question is to determine the motivation of the seller. If they are motivated, they will have no problem answering all of the other questions. And you really want someone who is motivated because they will be willing to negotiate on the terms of the deal. If they are indifferent to the sale of their property you aren’t going to get a very good deal. Not motivated sellers may respond with something more vague like “We are thinking of downsizing as we’re getting close to retiring”, or “We wanted to see what we could get for our place”. If they are not motivated, turn off your “take it personally button”. Their response to your other questions will likely be more abrupt and less helpful if they aren’t motivated. For example, when you ask what is owed, the unmotivated seller may say “that’s none of your business”. I like to ask this question early in the call because it’s an indicator on how the rest of the call will go. If they are rude at this point, I will bid them well and call my next seller. Time and circumstance have a way of leveling the playing field. A seller who was rude today may have to eat a lot of humble pie 6 months down the road when the property has not sold. That’s why you should always follow up on every lead you find.

Any major renovations needed?
I am trying to get a list of all of the repair items that might be required. From this list I can determine my repair costs before I go out to look at the house. I also call this a negotiation question. If you discover more repairs than were disclosed in your initial conversation, I suggest you use those as a negotiating tool when it comes to your offering price. I calculate my offer price using the information the vendor gave me in the call, but when I do my property inspection, if I find more repairs are required I will ride that lack of disclosure until I get a nice price reduction.

How long have you lived there?
Your goal with this question is to lead into asking how much equity the seller has in the property. A lot of equity means you have a lot of options available to buy the property. For example, the seller may be willing to hold a mortgage or hold a second mortgage on the property if they have a lot of equity in the property. A little bit of equity or no equity means you have fewer financing options that involve the seller. Be warned though, asking how much is owed can cause some uncomfortable tension between you and the seller. I prefer to just ask what is owed, that will tell me a lot about their motivation. But if you are not comfortable asking that so directly, you could ask “how long have you lived there?” If the seller’s response is many years, you can ask a follow up question such as “so you probably have a lot of equity is that correct?” This is a back door approach to getting the seller to talk about what the mortgage balance is.

What is owed?
If you’re comfortable asking it, do it. The length of time someone has lived in a house can be helpful for guessing how much is owed, but many people used their homes as ATM’s in recent years and have borrowed against their homes. This means, if you haven’t asked this question, you really don’t know forsure if they have much equity in the property. From the basis of these five questions you will start to develop your purchase strategies which will lead to writing your offer.

It gets easier – so commit to calling one seller every day 6 days a week. Voice mail doesn’t count – you have to speak with the sellers. Even if you have no intention of buying that property, it provides a good basis for research, it will build your funnel of potential deals and get you comfortable talking the talk.

Michael Acord the Real Estate Maestro is an active investor, national real estate instructor and licensed real estate agent. He is one of the developers of Real Estate Coaching and Mentoring for the Professional Education Institute. He has just finished a new book “Cash Cows Come Home” and you can get your free copy at MyCowMakesMoney.com

Published September 15, 2008

Six Year Housing Boom is Officially Over

It was the Financial Post’s recent headline that announced the “official” end to the crazy hot real estate market in Canada. The declaration was made a few weeks ago because the listings to sales ratio across Canada hit a nine year high and the year-over-year pricing increase was at it’s smallest gain in over six years. I guess it’s time to stop investing in real estate and move our money into stocks, bonds and GIC’s. The run is over. Nobody would buy real estate now, would they?Real Estate Market in Canada

Well, we would (and we will). We don’t buy real estate for the short term. We aren’t into flipping properties nor are we really trying to make a quick buck (not that we wouldn’t like to – we’ve just learned that slow and steady is much less stressful and much more achievable). We mostly buy and hold; only selling when we need to make adjustments to our portfolio or because we desperately need some cash.

If we find a property where the numbers make sense, that is in an area with a promising future and it’s a property type that meets our investment goals then we will buy it. If the value does go down over the next few years, that is ok because somebody else will be paying off our mortgage with their rent money and we’re not planning to sell it for at least 5 to 8 years (or longer), and by then we will be in a new real estate cycle.

Remember the media is always going to sell the extremes – things with the real estate market in Canada are almost never as bad or as good as the media makes it out to be. Even during the boom when prices were rising in double digits everywhere according to the media we still sold a property at a loss in Toronto after holding it for five years.

And while we’re on the subject, in a changing market you may find the services of a real estate agent even more valuable, as they will have up to the minute news on the market activity, be better able to negotiate with realtors representing sellers that still have the “sellers market” mentality, and can spot opportunities you might have missed because you aren’t in the streets everyday like they are.

Although we like owning real estate during a “boom”, we also don’t mind the “bust” because there are even more opportunities to buy! Start saving those nickels because the buyers market is around the corner!

Published May 1, 2008


May 3, 2008

On the subject of the media’s portrayal of real estate conditions, Rob Chipman, a Vancouver-based real estate agent and blogger, recently discussed a recent artcile in the Vancouver Sun where he was quoted. Simply stated Rob isn’t buying into the media hype that’s either trying to convince readers the Vancouver market is still hot, or that we’re doomed. He evaluates investment properties one by one with metrics, and recognizes that real estate does not always go up. You need to have goals, criteria for investment and make smart choices whether the market is going up or down. He also indicates that newspapers are not the place to get real estate market information. It’s a blog worth checking if you want to put your finger on the Vancouver real estate market pulse.

10 Real Estate Words Every Investor Should Know

Real Estate Words to KnowThis article was almost about our latest purchase. Last weekend was filled with excitement as we almost purchased a tri-plex in Vancouver. It all happened so quickly: In the afternoon Dave received an email telling us the property was about to be listed on MLS. When we called, they were having a showing at 4pm that day. He took a look, ran some numbers, and we decided to put in an offer. After dinner we signed the contract, and before we went to sleep that night, we had an accepted offer. It was a sleepless night for both of us as we wrestled with the good aspects and challenges of this deal. We were both excited about the prospect of owning a good income property so close to two skytrain lines, and in a great rental area. The numbers were pretty good. But, we hadn’t done any research yet, and we weren’t sure we wanted to buy another residential property. As we started to line everything up to complete the due diligence a few red flags went up (for example, we were pushed to strike the inspection condition from our deal; we did it but said we would still do an inspection. We later found out there was another higher offer that had the inspection clause in the deal and that was why they had accepted ours). As the red flags went up and we started to walk away the seller was suddenly making concessions. Things really started to smell fishy.

So, we walked away from the deal. And, we both feel good about it because we listened to our gut. We’re realigning ourselves to our goals and have a plan of action for the next twelve months. But we also feel good because we tried. Don’t be afraid to stick your neck out and try. Putting in an offer on a property, as long as you put it in subject to financing or an inspection, still gives you time to complete due diligence and determine if it’s the right decision. And you can do it comfortably because you have the property tied up. Sometimes all of the lights will be green and you’ll fly through the process and get a great new property. Other times you’ll find some yellow lights, and you may wish to proceed with caution. Or, you may find a red light and stop there. With every offer you learn something. And while we didn’t acquire a property this month, we did gain a renewed focus on our goals and finances.

So instead today, we’re going to help you be prepared for your next deal by giving you some legal terms that are good to know.

10 Words to Know: Real Estate Investing Lingo

by Julie Broad

It’s fun to tell you all of the stories about our wins and losses in the real estate game, but sometimes we just have to give you good, solid practical information that you must know as a real estate investor (or even a home owner). So, I will keep it short and simple and give youten real estate words to know.

Types of Interest in Land

1.FREEHOLD: Owning a freehold property means you have the right to use the land for an indefinite period of time and, subject to any bylaws or restrictive covenants, may do what you wish with that land.

2.LEASEHOLD INTEREST: Owning a leasehold on a piece of land gives you the right to use the land for a certain period of time. The owner of the leasehold may sell the land, but the new land owner will be subject to the terms and conditions of the original lease.

Owning Property
3.JOINT TENANCY: Typically how you would own the home you live in with your spouse, as it has the right of survivorship which means if one of the owners dies the other immediately is given the other person’s share of the home. Interest is undivided but equal in this ownership type.

4.TENANTS IN COMMON: This is how we own most of our properties together as it allows us to specify the percentage amount of ownership, and it does not carry the automatic right of survivorship. For investment properties this makes a lot of sense because you may not want your partners to automatically get your share of the property if you pass away. For example, Dave and a partner M.M. have bought properties together as Tenants in Common. If Dave passed away, he’d likely want his share to pass on to me or his family, not necessarily to M.M.

If you are putting in unequal amounts of money into the investment you may want the ownership percentages to reflect this. For example, early on in our relationship, we bought property where Dave did 100% of the work on the deal and put up most of the money. We own this property together as Tenants in Common with him owning 60% of the property and me owning 40%. At tax time, he claims 60% of the income and expenses and I claim 40%.

Terms you will see in a Purchase and Sale Agreement
5 & 6.FIXTURES vs CHATTELS: If an item is built in or attached to the property in a permanent way, then it is considered a fixture and will be transferred with the property unless it’s otherwise stated in the purchase and sale agreement. A chattel, on the other hand, is something that is movable like a fridge or a washer and dryer. These are assumed to not be included unless otherwise stated in the agreement.

7. & 8.CONDITIONS and WARRANTIES: A condition is a fundamental part of the contract. We always make our contracts for purchase and sale subject to at least one condition for at least 5 business days. In the tri-plex we almost bought, we struck out the subject to inspection condition but had the deal subject to us being able to obtain satisfactory financing. A breach of a condition within the set time period stated in the contract allows you to get out of the contract. We were able to walk away from the contract without losing any money during that 5 day conditional period because of the financing clause. A warranty, on the other hand, is a promise but it is not fundamental to the contract. In a breach of warranty you may sue for damages but it does not allow you to neglect your contractual obligations. A warranty may apply to something like condominium fees. A seller may warrant that his/her fees are $300 a month. You may find out they are actually $400. This is not a fundamental breach of contract, but you could seek damages as it will cost you $100 more per month.

9.CONSIDERATION: In contractual terms consideration refers to something of value. When you buy a property, the price you pay is the consideration. This is not always a dollar amount, as it could be another property or a promise of value.

10.DAMAGES: Damages refer to financial losses that have arisen from failure to complete the deal as stated in the contract. You have to prove you have suffered financially as a result of the other parties actions, and then you can sue for those damages. For example, you could sue for the $100/month difference in condo fees if you could prove you’ve suffered financially by the sellers misrepresentation of the condo fees.

There’s a fantastic CANADIAN resource for all things real estate by Douglas Grey, which I used to check some of my definitions above. It’s called: Making Money in Real Estate: The Canadian Guide to Profitable Investment in Residential Property, Revised Edition. He covers everything including insurance, tax, legal information and provides additional resources. It’s a solid book to have in your library as a Canadian real estate investor.

Published March 25, 2008

Identifying Emerging Real Estate Markets

 

By Learning to Identify Emerging Markets

“Many investors make the mistake of investing in hot areas. These are the places you read about in popular magazines. Everyone is talking about them because they’ve performed great for several years”. – David Lindahl

While soaking up the sun on the beaches of Ambergris Caye in Belize this month, I picked up “Emerging Real Estate Markets: How to Find and Profit from Up-and-Coming Areas” by David Lindahl. I have to admit that I struggled a bit with his attitude (especially towards “burnt out landlords”), but if you are interested in Apartment investing, it’s a really good read.

Lessons in the Market Cycle and Investing in Emerging Markets from David Lindahl

Even in times where most markets are crashing, you’ll find a market that is just about to explode. Maybe that market is on the other side of the country, or maybe it’s just a small neighbourhood within the city you live in, but either way there are opportunities out there. You just have to find them.

Lindahl splits the market cycle into four phases:

  • Buyer’s Market Phase 1: A market that is oversupplied with properties
  • Buyer’s Market Phase 2: The market starts to absorb the oversupply, vacant units become occupied and abandoned properties get purchased.
  • Seller’s Market Phase 1: Demand has reached it’s highest point. There are plenty of investors that want to buy what you are selling.
  • Seller’s Market Phase 2: Job growth slows, properties take longer to sell, and the market is slowly getting oversupplied by new developments.

The ideal situation is to get in during Buyer’s Market Phase 1 with very little money of your own. Enjoy cash flow from that property as you ride into Phase 2, and then the early stages of Seller’s Market Phase 1. Then you sell, and find a new market that is in Buyer’s Market Phase 1. Simple concept – so how does he suggest you find the next emerging market?

Well, an emerging real estate market is one that has people moving into it, rather than packing up and moving out. It’s also an area where there is job creation. An interesting point he makes repeatedly in his book is that an emerging market has great leaders. “It takes aggressive and thoughtful leaders to analyze a city and determine what needs to be done. They then need to have the courage and strength to implement their vision in order to help the city achieve greatness” p.26. Learn about the leaders in a city, review the Master Plan, and check out the local news to find out what companies are coming to town.

Published February 25, 2008

House Prices: Too Expensive?

Rev N You Man

We skipped May – we really weren’t sure what to write about. When we began the newsletter 14 months ago we anticipated that by now we would have purchased at least one more property, probably two. We felt like we had only old stories to tell. We want to share the juicy lessons from the past, but we also wanted to be current and relevant.

The reality is that life has gotten in our way a bit. With Dave venturing into the world of mortgage brokering, Julie traveling at least a week of every month for her day job, and wedding plans commencing, it just doesn’t seem like there is enough time to properly dedicate to a purchase decision. And then, there is the fact that finding a property that makes financial sense is very hard right now (house prices are so much higher than a few years ago!). Does buying real estate make any sense right now?

Dave often likes to remind everyone that Canada’s house prices are still cheap relative to much of the rest of the developed world. And even though we haven’t expanded our real estate portfolio in the last 14 months we have not stopped learning so there are still lessons to share.

If you think a house in Toronto is expensive, Try Shopping for a House in Moscow

by Julie Broad
Moscow is the most unaffordable place to live in the world with London coming in a close second in the recent survey by Mercer Human Resource Consulting. The survey considered costs on everything from a loaf of bread and a litre of milk to the cost of a movie ticket to assess the living costs. So, when you think things are getting expensive in Toronto (ranked 82nd), Vancouver (ranked 89th) or Calgary (ranked 92nd) remember it could be much worse.

Canadians, and even Americans should be holding tight to their homes as we look internationally at the 2007 Demographia survey on international housing affordability. A home in Canada is one-half as expensive relative to incomes as in Australia, where housing is the most expensive (with New Zealand, Ireland and the U.K. following close behind).

Looking for the larger affordable housing markets in Canada, relative to income? Look no further than:

* Regina, Saskatchewan
* Quebec City, Quebec
* Winnipeg, Manitoba
* Saskatoon, Saskatchewan
* Ottawa, Ontario
* London, Ontario
* Oshawa, Ontario.

On the opposite end of affordable housing, Canada has two cities in the world’s 25 most unaffordable cities – Victoria and Vancouver, BC. And maybe I am biased, but I think the climate and scenic beauty of these two cities justifies their existence on the high end of the scale. It’s no accident that these two cities are up there with those in California, Hawaii, and Sydney, London, and Perth. They are places that people from all over the world desire to call home. I know that Winnipeg and Saskatoon have their own beauty as cities, but you have to have thick skin to get through the winter. As far as we are concerned, you can’t beat mountains, ocean and temperate climate while living in this great country we call home.

So, given the fact that some cities (e.g., Vancouver and Victoria) are getting too expensive to buy and hold revenue properties, how does this help the real estate investor? Read on and hopefully we’ll shed some light.

Where, what, and how to buy a house in a heated market

by Dave Peniuk

Where to buy? Right now may not be the best time to buy in markets that are (or have been) extremely hot such as Vancouver or Victoria. As Julie mentioned above, these markets have seen double digit growth in the last few years, as have many other markets in Canada (Edmonton, Saskatoon, Toronto etc.). As with the stock market, it is not always advisable to buy high. That being said, markets that have a lot going for them, (Oil and gas in Alberta, Economic Center of Canada in Toronto, Temperate Climate and scenic beauty on BC’s coast), may not give you huge returns, but they’re pretty safe bets over the long run because people will want to live there (for jobs and/or for lifestyle reasons).

So, where do you buy revenue properties? Well, you can look to the cities Julie mentioned above. Most of them are solid cities with good employment opportunities, have been growing, and are much more affordable than in Alberta or BC. But, if you are looking to those areas, or any area that you do not live, make sure you find a fantastic property manager in advance! They can advise you as to rental rates, good areas and also help rent out your new investment for a smoother transition. Also research the fundamentals of that city. There are good reasons why many cities remain affordable, and sometimes that reason may also be a reason not to invest in that city.

What to buy? As we have discussed previously, what you buy is really based on your objectives. Do you want cashflow? Do you want appreciation? Do you want a property that is fairly easy to unload (sell) if times get tough? Personally, I have been looking at middle income duplex’s and homes with nice basement suites in middle income areas. Why? Because nicer properties attract “generally” better tenants, will bring you higher rent, give you less headaches, and be easier to sell. Of course, nicer properties cost more too. This brings us to how to buy in a heated market.

How to buy? With Canada’s increasing housing costs, the government (and lenders too) have introduced programs and legislation to make purchases still possible for many buyers who may not have been able to afford a property even a few years ago.

1. The government passed legislation for only 20% down payment for conventional (uninsured) mortgages;
2. A third mortgage insurer has come to Canada, providing more competition;
3. Some lenders have introduced up to 90% loan-to-value financing for rental properties;
4. Some lenders are allowing up to 80% rental income to help qualify buyers;
5. Amortization can now be stretched to 35, and in some cases, 40 years.

Many of these new programs may help purchasers buy property, either owner-occupied and/or rental properties, but there are still techniques that may help you purchase in this market. For instance, using joint ventures, partnerships, and financing a little more than necessary to offset negative cashflow for the first few years may help you purchase that rental property that you couldn’t afford to buy (or carry) otherwise.

Sweating the Small Stuff in Real Estate Investing

Australia Real Estate Lesson

“Currently there’s a tremendous shortage of properties for sale, incredible demand, and the prospect of fabulous economic conditions for the next 25 years if you subscribe to the long wave boom theory.” Sounds like Northern Alberta doesn’t it? It’s actually an article from Australian Property Investor Magazine referring to the boom in Perth. Perth has seen such an incredible boom that house prices have increased upwards of 30% in the first half of 2006, and a total of 147% since 2000! In real estate investing, that is like beautiful music is to the ears.

Much of the boom is mineral and resource driven (still sounding familiar?). However, experts say that cashflow positive properties no longer exist within Perth. They say the capital gains and cashflow opportunities are going to be in outlying communities where infrastruture is improving.

We have Australia on the brain after two weeks down under, but we thought the parallels between the Canadian and Australian markets and ideas for investment we read about would be fascinating to share. So, this month we’ve highlighted Australian thoughts on achieving financial freedom as a property investor.

Do sweat the small stuff when real estate investing – it’s in the details

A man walks into a condo sales office and buys four units within a condo building. It sounds like a joke without a punchline, but there was a punch for this Irish investor buying in Sydney. One of the units doubled in value by closing time, two units had a small increase, and the fourth actually decreased in value. As I sell my condo in North York (Toronto), and sniff and sob over the lowly 6% appreciation it’s had over 5 years, I can relate to the Irishman and the punch in the story.

What happened? Didn’t Toronto have a big boom in the last five years? Not everyone has profited from that boom, as I can now say with first hand experience (after 45 days on the market, I finally have an accepted offer but it’s $9,000 less than asking and a paultry sum more than I paid for it five years ago).

The Irish investor explained that the unit that doubled in value was ground floor, with a lovely courtyard, a great view and sunshine in the evening. The two that had marginal increases were on higher floors of the building and street-facing, while the unit that didn’t increase was above the entrance to the building. His lesson was that it was not just the location or quality of the building, it was the details of each unit that mattered a lot in the resale.

My condo story is similar. It’s in a rock solid 6-year old building right across from a subway stop. It’s minutes from the 401 highway and located conveniently by all the essential amenities including grocery stores, restaurants, gyms, community centres, and schools. So what went wrong? Well, here are the major issues:

* The area has ballooned with over 2,000 new units in the past 5 years;
* Most of those units are similar in size to mine;
* My unit is 1 of only 2 units in the building without a balcony; and
* My unit is above the main lobby entrance.

Virtually all of the prospective buyers noted they wanted a balcony and would prefer to wait for a unit with one. We lived in this condo for several years and did not miss the balcony – especially because BBQ’s were not allowed on balconies. It’s a quiet, warm and welcoming unit. However, until you live there, you wouldn’t realize this. Similar units in the building have sold for up to $15,000 more – but they have a balcony and are not above the entrance.

How can you learn from my mistake?

1. Trust your instincts – if there is something that makes you hesitate when buying the unit (and you can’t fix it), don’t buy it!

2. Watch for details like:

* Lack of sunlight;
* Close to elevators and entrances;
* Limited or no views;
* Lack of street parking; and/or
* Many new developments in the area that are similar to the one you are looking at.

If you find that a unit has some or all of these details, you may miss out on some great potential capital growth if you buy it!

Published: November 16, 2006

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