For the Love of Money with Real Estate

If you’ve been reading our newsletters you know about the manslaughter case, our crack house and you know we have had many problem tenants. You probably wonder why we love real estate investing and keep doing it? Well, if we stopped today, and did nothing else relating to real estate, in 20 years we would have over $2,000,000 in assets (in 2006 dollars) and almost $8,000 per month in income coming in after expenses. After only an average investment of 4 hours per week over the last five years that thought makes us giddy.

It’s also the same thought that makes us want to share our stories. Our investments have not all been good ones, and it has not been easy, but much of our pain could have been reduced just by knowing more about the pitfalls and traps. We want to help you, and others, succeed while avoiding some of the mistakes we made.

On One Condition: Putting in an offer

You have found your potential purchase, and you did the analysis. You think that this is a good buy and it meets your goals (remember those?). You are ready to put in an offer to get a little closer to the deal… so, now what?

Our caveat: Our methodology does not apply to the hot market conditions that areas like High Park, the Danforth or downtown Vancouver have seen in the last couple of years. We avoid bidding wars and always put at least one condition on our offers in case we need to back out.

Determine your price:

In the evaluation of your property we discussed last month, you should have reached a conclusion of what you feel you can pay for this property based on it’s income and your goals. You also should have an understanding of where it is relative to the market. Now you have to solidify that, and get ready to pick a price. You can:

* Ask your realtor what he/she thinks you could get it for and ask for recent sales in the area that compare to that property,
* Review MLS.ca and see what other properties are listed for on that street or in that area,
* Know the maximum you can pay for it based on your goals, your financing options and the rent and expenses of the property.

On One Condition!

Get a few extra days to think and research your investment, while ensuring you’ve got the deal if you want it. You do this by putting in an offer with conditions in it. We always do this so we have a way out in case our financing doesn’t work out well, the inspection turns up big problems or we find a better opportunity.

To give yourself a few extra days of thinking room, while ensuring you have the property if you want it, put in an offer “subject to” financing or an inspection. This will usually give you 5 – 10 extra days (identify in the offer that they are business days) to get everything in order. A deposit of $1,000 should hold the property in the meantime. If you decide to walk away in that 5 – 10 day timeframe then you get your money back, and the property goes back on the market.

We often find there is significant pressure to put down a larger deposit. Agents will say that this shows you are serious. A larger amount down can be challenging if you are doing a deal like we often do that requires, for example, refinancing one property to get the downpayment for the second, getting a Vendor Take Back mortgage to help reduce the required down payment, or if you are pulling your down payment out of RRSP’s or somewhere else.

We have found that a way to work with this request is to say you will pay a $1,000 deposit conditional upon acceptance of the offer by the vendor. Then, pay an additional $5,000 deposit or more, upon the removal of conditions. Once the conditions are removed, the deal is very hard to walk away from and you have had another week or two to pull together a little bit extra money to solidify the deal.

It’s important to remember that putting in an offer shouldn’t be stressful as long as you have a condition that allows you to back out. The more important consideration is whether your offered price works within your goals. Now, get out there and start making some offers! Practice makes perfect!

Published August 15, 2006

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