real estate investing 3

8 Ways to Know if You Should Hire a Property Manager

December 11, 2012January 27, 2009 by Dave Peniuk

When you first start shopping for a property manager you might be shocked to learn what many of them charge. We certainly were!

You’ll usually pay between 5 – 10% of your monthly rental income to a property manager plus tenant placement fees which can be as much as one months rent. The price may seem astronomical at first. It certainly eats into your positive cash flow!

When you learn the cost, the desire to manage the property yourself and save money will be powerful. Saving a few hundred dollars each month may not be worth taking on the property management yourself though! Besides the fact that a professional property manager has extensive knowledge of the local laws and regulations, they also have access to the resources required to easily manage a property.

When we first bought our Toronto tri-plex, Julie was doing her MBA and thought she could handle managing the property while she was in school (Julie is shown in the picture above painting that Toronto Tri-plex – you can tell she is loving it!). We wanted to save money, and Julie had a flexible schedule with some free time so it seemed perfect.

We went to the property and met with each tenant, introduced ourselves and made sure we had the proper signed leases in place. After that, we both figured Julie would only have to deal with minor issues as long as the property was occupied.

We were wrong! The tenant on the main floor proved to be high maintenance and called weekly about different things she wanted fixed. And then, two months into owning the property, the frequency of calls from the tenant on the main floor began to increase dramatically. She was upset because as the weather got colder, the tenant beneath her was smoking in the unit and she could smell it. Her son had asthma and this was impacting him.

Julie contacted the tenants in the basement and explained that their lease stated that there was to be no smoking in the unit and that we’d received complaints. They were polite to Julie. However, they didn’t like getting scolded and – according to the main floor tenant – started taunting her teenage son when he would come home from school. They called him a tattle tale and made him feel threatened.

It’s a long story. It dragged out for weeks, but the issues escalated. Soon the two tenants were at war and Julie was receiving 20–25 calls a day. The police were called to the scene twice by the tenants on the main floor. It was a disaster.

And as luck would have it, this was happening during Julie’s final exams! Julie was pretty close to breaking down and couldn’t just tell the tenants to wait a week until her tests were done–she had to deal with it!

Julie pretty much lost it. She’s really a no nonsense kind of person and she hated dealing with other people’s problems. Failing an exam would mean she’d have to repeat a course and that could mean an extension of her degree–which would be time consuming and expensive.

She was fit to be fried. And looking back, it should have been obvious to both of us that Julie was not well suited for the job. She is organized, efficient and focused. Sounds perfect for property management doesn’t it? Well, not exactly. Anything that throws her off what she is working on at the present moment is an annoyance for her. She also doesn’t like talking on the phone. She’d prefer never to pick up the phone at all if she could avoid it. She likes people and she likes problem solving, but she doesn’t really tolerate people who are lazy or rude. Really, she has a lot of traits that make her well suited to HIRE a property manager!

To tell if you could handle the pressures and challenges of property management you’ll want to do a little bit of a self assessment. We’ve created 8 simple questions to ask yourself to see if you think you could handle property management.

Are you a reasonably tolerant person? Be honest with yourself.
Do you have any knowledge and experience with doing minor maintenance and repairs?
Are you able to sell and negotiate? You will have to sell the unit to renters, you’ll have to sell the idea of paying rent on time, and you will have to have the problem solving and negotiation skills of a salesperson in order to handle some of the issues that will arise.
Can you visit the property on a regular basis? You should stop by at least monthly so make sure it’s convenient and possible to do so. Plus, if you do get a 3am call that requires you get there right away, are you going to be able to?
Are you comfortable and capable of keeping good records? We’re a little weak at this ourselves, and we likely miss out on tax write offs because of it. It also takes us several days to prepare our books to send to our accountants each year because we aren’t as organized with our unmanaged properties as we should be.
Are you able to diffuse angry individuals and ease any tensions between them? How do you handle difficult people? When dealing with a difficult person do you get angry and frustrated yourself?
Imagine the busiest possible day, and then imagine having to handle a call from one of your tenants about a frozen pipe or a broken door lock. Are you going to be able to handle that situation?
Do you have someone that can be your back up if you take a vacation or go out of town? If there’s an emergency at your property, your tenants need to be able to get in touch with someone that can make decisions about the property.

If you answer “no” or “I don’t know” to three or more of these questions then you should seriously consider hiring help. Property management is a job that requires expertise, skills and resources. It’s possible to do it part time while working a full time job, but there will be days where it’s not easy.

These questions are not exhaustive. There are other things to consider when you make the decision whether to hire a professional or not, but spending a bit of time honestly answering these questions will really help you figure out if you want to be your own property manager. You may find the cost of a professional is worth every penny.

Is Now a Good Time to Buy Real Estate

December 11, 2012December 22, 2008 by Julie Broad

The 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

How to Start Real Estate Investing with No Money

December 11, 2012December 8, 2008 by Dave Peniuk

You probably won’t like what I have to say this week. But, the brutal reality is that you can’t spend everything you make and expect to get rich. Period. If you are slipping further and further into debt each month and you think real estate investing is going to save you, I have bad news for you. It won’t.

I know… those guys on late night television introduced you to people who got out of debt and quit their jobs just 60 days after taking their real estate investing course. Let me tell you first hand that if those testimonials on t.v. are even real, those people are the exception, not the rule.

You can, and we believe you WILL, create massive amounts of wealth through real estate investing. Set your goals, find properties that meet those goals with plenty of good research and then hold onto them for at least five years…preferably longer. It works… look at the richest people in your city. Of those that are self-made, I bet at least 25% of them did it through real estate. We always go through the richest people in Canada, and Power List for Vancouver, and this number holds up.

The trick is to learn what you’re doing, and then accelerate your investments after you have built a base of knowledge and equity. It’s not the only way to make millions in real estate…but it’s the way that requires less money, has the least amount of risk, and induces the least amount of panic attacks.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

“Are you a saver or a spender? As I see it, the wealth seeking world is divided into two camps. In one, you have the wealth accumulators: men and women who are cautious about spending but eager to save and invest. The other camp is populated with spenders: men and women who are obsessed with things. They spend all their spare money, and often much more than that, buying things that say “rich” but actually impoverish them. To become wealthy, first you need to build a small nest egg by spending less than you earn. Simple, huh? But not if you don’t have the self-discipline to do it.”
Michael Masterson, Automatic Wealth

We started out with $16,000. Thankfully Julie was a saver. When she graduated from University and started working as a sales rep she continued to live like a student. And, she put every extra penny she had into paying down her student loan. When that was paid off, she proceeded to save the extra money. Her plan was to go back to school for her MBA so she wanted to have as much cash in the bank as possible to pay for school.

When we met, I had a property with my Mom that we’d purchased years before, but didn’t have much else. After years and years of being a student, I wanted to enjoy the money I was making. I drove a nice new financed Volkswagen and enjoyed my nights out in Victoria. I didn’t spend money excessively, but I was carrying credit card debt and didn’t have savings. Julie shared her visions of “retirement at 35” with me, and I got excited.

It didn’t happen overnight, but it only took a few months to change my situation. I quickly paid off my credit card debt, and started putting a few hundread dollars away each month in savings. And, we started shopping for our first investment property.

Our first investment was a lot easier to do thanks to Julie’s school savings. But, you don’t need money to buy your first property.

I will get into the details in a bit, but as far as we’re concerned, there are only 3 ways you should consider coming up with a down payment on a property, but the good news is that only one of them requires that you have money saved:

1. Your own savings (cash out stocks, GIC’s, and even retirement savings in some cases)

2. Equity in your home

3. A partner with cash.

Here’s the hard reality that you won’t like to hear though. Finding a partner will be next to impossible if your own finances are ugly. If you have no experience investing in real estate, you are deep in debt and you are trying to get rich on my money, what exactly is in it for me, as your potential partner? It just sounds risky to me.

But, if you come to me and say “Dave, I have found this property that I think is a great investment. I don’t have any money because when I graduated from University two years ago, I had $30,000 in student loans. I only have $5,000 left to pay off, but I really want to get started real estate investing and I think this deal will be great,” I will be more interested in working with you.

See what I am saying? This person has no money, but they have the right mindset about money. They are in debt for a good reason AND have been diligent about debt repayment.

You HAVE to get control over your finances before you buy a real estate property. Even if you have nothing for a down payment. You need to change your lifestyle so you are living beneath your means. From now until the end of January track every single penny you spend. Then see how that compares to the money you made in the same time frame. If you spend more than you make, you need to make changes!

Oh – I hear it already – but, Dave, it’s Christmas! I have to get the Wii Fit for my wife, and the kids will hate me forever if they don’t each get an IPhone. Well, if you’ve saved up for those gifts, great! Go for it! But, if you are going to go into debt for those gifts then you are a SPENDER, not a SAVER and you’re obviously not serious enough about growing your wealth and becoming a rich real estate investor.

So, in answer to the questions about money and down payments, like these ones:

“Should I approach other investors for partnering when I have no money for startup? I feel like I will be swallowed by sharks even though they all seem nice enough. I have seen several nice properties (4 plex on up) but I need to make the big leap to action.” –a reader from Portland, ME
“Now that my credit is “good”, coupled with the changing real estate landscape, how much upfront capital is needed?” –a reader from Matthews, NC
“I hear a lot about using credit card, home equity line, owner financing for down payment. What is a realistic timeline to see a positive r.o.i. to reimburse funds?” –a reader from Cleveland, OH
“How can I do deals like Robert Allen – no money down, cash back on closing” –a reader from Hamilton, ON.

the general answer I have is for you to track your spending, and make sure you spend less than you make, each and every month. Then, use the excess to pay down your debt or save for your real estate investments.

In our real estate investing newsletter I answered each of these questions specifically, but to keep this simple let me just say that:

PLEASE PLEASE PLEASE DO NOT USE YOUR CREDIT CARD TO FINANCE YOUR REAL ESTATE INVESTMENTS!! Just the other day Julie reminded me of one of the first things we did at a “Get Rich Quick” real estate course we took in Toronto many years ago. During our break the real estate guru told us to call our credit card company and get our credit card limit raised and a percentage knocked off the interest rate!

The room was buzzing with excitement after the break. Everyone proudly told stories of getting credit of $5,000, $10,000 and even $20,000 added to the limits on their cards! And some even excitedly reported that they now would only be paying 18% interest instead of 21%.

What if something goes wrong with your investment and you end up paying that 18% interest on that $20,000 for years to come? Do you want me to do the math on that?

As for the other methods our newsletter readers asked us about…using home equity and vendor take back financing, it really depends on your goals and where you are right now in your life. If you’re 65 and getting ready to retire, I am not sure I would use the equity in your home. But if you are under 50, and have $200,000 equity in your home, I would definitely consider a $50,000 home equity loan for a down payment on a real estate investment – assuming you can cover the extra payments if something goes wrong with your investment.

On a good deal, your rental income should pay for the monthly payment increase that the additional $50,000 home equity loan will cost you, along with all of the other expenses on the rental property. In this case, I think that it’s a great source of money to use for a down payment on your first property.

As for owner financing. I love using owner financing. We’ve used it several times when we don’t quite have enough for 25% down and the bank won’t lend us any more than 75% on the property. Sellers are often happy to oblige with a loan for the difference. It’s secured against the property, it gives them a nice guaranteed rate of return each month, and it’s cash in their pocket each month. If your property will cover these extra payments and the vendor is willing to do it, then this is your best option. BUT – if I have no down payment at all, and can only get 75% financing from a bank, I wouldn’t use this method to finance the rest.

We’ve bought properties for no money down. We’ve learned the hard way that no money down does not mean it won’t cost you!

No money down real estate investing is VERY different than buying a property without using any of your own money for a down payment.

Let me explain… no money down is where you borrow 100% of the cost of the property. It’s incredibly risky because if the value decreases even by 5%, you will find yourself owing more money on the property than it’s worth. And if anything goes wrong you will find yourself pinched to pay for it. There are a lot of foreclosures happening all around North America for this very reason!!!

It’s also extremely difficult to find a property that will cashflow with 100% financing. And you still need money.Typically you can expect to need about 2-3% of your purchase price to cover the other expenses. It’s not a lot, but you have to pay a property inspector, a lawyer, property purchase tax and a few other disbursements depending on where you are buying.

No money down deals are not only MUCH riskier because you have no equity in the property, they are also pretty darn hard to find because they rarely cash flow.

If you have no money for a down payment on your real estate investment, then, in the following order, this is what I suggest:

1.Get control over your finances. Pay down your debt and start saving. You don’t need cash, but there probably aren’t many people that will partner with you if you are terrible with your money.

2.Look to your home. If you own a home, and have some years left before you were planning on retiring and a reasonable amount of equity in your home (over 25%), consider using a portion of the equity in your home to get started.

3. No money and you are currently a renter or don’t have enough equity in your home? Find a great property…one where the rent will cover the costs with as little as 10% down. Get an accepted offer and then find a partner that has the money to invest in the property with you. Be prepared to sell yourself AND the property.

We’ve bought several properties when we’ve had very little money ourselves. The no money down deals blew up in our face. Those were hard lessons learned. But, the deals we did with a partner, where we did all of the work finding and purchasing the property, and now oversee the property, have been a great success. Having money for a down payment allows us to buy better properties in better areas, gives us equity in the property from the start, and helps reduce the monthly mortgage costs so the property is more likely to cash flow from day one. The deal we typically make with partners: Our partner puts down the money for the down payment, but we jointly own the property 50-50. If we have to make major repairs, and the property can’t cover it, we split the cost evenly. When we sell, our partner will get his down payment out first, then we split the rest of the proceeds.

Published December 8th, 2008

Getting Started in Real Estate Investing

April 24, 2020December 1, 2008 by Julie Broad

Self made millionaire at age 30, and semi-retired at age 31. It sounds pretty good doesn’t it? And since it is all thanks to real estate investing, why don’t I say it more often? Well, for two reasons. One, it makes me uncomfortable to tell everyone that my husband Dave and I are millionaires. I know many people that have made more in less time, and I don’t want to sound like I’m bragging. Two, sometimes I don’t have enough cash to buy a sandwich. I feel silly telling people I am worth over $1 million, but then brown bagging my lunch because I don’t have enough money to buy it.

But, I changed my mind this week. While recruiting a couple of copywriters to work on some projects for me, I received feedback from one that basically said “I went through your website and blog. Your articles are informative, interesting and full of great advice, but you haven’t spent any time painting a picture of what it’s like to be a real estate investor. Why would anyone WANT to learn what you’re teaching? What’s the benefit?” Then, Dave went through each and every reader survey from last month’s survey (there were nearly 150!) and pulled out common themes and key questions. And, the number 1 issue holding our Rev N You readers back from real estate investing is fear and an insecurity about where to start.

As I was walking the dog this morning, I was thinking about fear and about what the copywriter said. I thought of one of my favourite quotes:

“Obstacles are those frightful things you see when you take your eyes off your goal”. (Henry Ford).

It occurred to me that we spend so much time explaining the pitfalls and the mechanical processes behind investing in real estate that we often neglect to paint the picture of what life will be like once you put aside your fear and start investing, and build your wealth. So, I promise that we will continue to tell you the horror stories of what can go wrong so you know what to avoid, but I also promise that we will spend more time helping you overcome your fear with visions of freedom, financial security for you and your family, and comfort in retirement (at whatever age!).

How can I start real estate investing in my spare time?

The recurring theme in response to our query “What’s your single most important question about real estate investing?” was fear and insecurity about how to start. We received about a dozen different versions of this question, here’s a few:

“It seems complicated and risky to me – question is how to make it less risky/scary?” –reader from Burlington, ON

“How do I start? How do I feel good about that initial decision?” –reader from North Vancouver, BC

“How do I get started in real estate investing?” –reader from Chicago, IL

“How do I get started?” –reader from Esperance, NY.

Oversimplified, real estate investing for us happens in five steps:

Set your investment goals
Find and research a market to invest in
Evaluate properties
Buy it
Make money from it.

When we’ve deviated from these steps, we’ve made mistakes. When we skipped the goal setting phase, we ended up with no money down deals that could have bankrupted us. When we skipped out on market research we ended up with a condo in an area of Toronto that grew by over 2,000 units of THE SAME SIZE condo in the five years after we bought it, and when we’ve been careless in our selection of property managers or tenants (in the make money from it phase) we’ve suffered the consequences with court fines and tenants that don’t pay rent.

Our real estate investing life has the plot of a great made for t.v. movie. But, don’t let that scare you! 90% of the drama we’ve experienced in our real estate investing career was COMPLETELY PREVENTABLE. A little more time spent on each step and we would only have a couple of good stories to tell…not dozens!

Dave hates it when I say that. He cringes when I write about some of the mistakes we’ve made, saying “It makes me (or us) look stupid when you tell people we did that!” Maybe it seems obvious what was going to go wrong after the fact, but to us, just starting out, some things just seemed like little short cuts or were not obvious errors at the time.

So, in response to all the readers who ask how to start and how to feel good about that first step… my answer is SET YOUR GOALS. We set goals for our health and our wealth. Just like losing weight…it’s too easy to say “I want to lose weight” and then do nothing go to. It’s also too easy to say “I am going to be rich” and then wallow in your sorrow when it just doesn’t happen. You will never get there just thinking those thoughts… You need to be specific about what you want, and then take action.

And with real estate it’s critical to know where you want to go before you start. In order to figure out what type of property you are looking for you will need to know what exactly you can put in (in terms of time, effort and money) and what you want to get from real estate investing.

Ask yourself some questions:

Is it more important to you to find a property that doesn’t cost you much money or one that doesn’t cost you much time?
Are you expecting to do a lot of work on the property yourself or do you prefer to not be involved much at all?
Are you interested in investing for the long term or the short term?
What is your risk tolerance?
Do you want real estate to be your primary source of income after a certain period of time?
How much money can you (or do you want to) dedicate to real estate investments versus other investments?
What’s your current credit score?
What’s your current financial situation?

Without a clear understanding of what you want to achieve, it’s very difficult to get started. It’s also very scary! So get clear on what you want to do, take some baby steps and soon you’ll feel confident and ready.

If you’re new to goal setting, here’s the simple steps we use:

Start by listing everything you want to accomplish in your lifetime. We do this without judgment. We list everything from learning to play the drums, being fluent in Spanish to owning enough real estate to generate $25,000/month in net income each month. No judgement…just list it all.
Review your long list, and find the ones that are most important to you to focus on in the next few years. We highlight them, and then proceed to break them down into the smaller steps that we need to take to move ourselves towards each of those goals in the next 3 years, in the next year and in the next month.
Write it down, share it with someone that supports you (they will act as a push when you lose site of your goals or need a check in).
Do something EVERY DAY that moves you towards one of your goals. For a new real estate investor this should be research related – learning everything you can about the market you want to invest in, tracking property values and rental rates, and becoming very comfortable with what is happening in one, two or even three markets you are thinking of investing in. This prepares you to spot opportunities and be confident when the time is right to move. The key to this is to commit yourself to spending at least 30 minutes per day moving towards your goal. NO EXCUSES! You can find 30 minutes on a lunch break, by waking up a little earlier or just by turning the T.V. off after dinner and working.

The act of writing your goals down is an important step – because you’re taking action. Each step you take, however small, moves you closer to your goal. But ACTION really is the key to success.

“When you take action -particularly bold action- the atoms in your brain vibrate at enormously high rates of speed, which often results in amazing and otherwise unexplainable “coincidences” happening in your life. I believe that the genius that erupts from action…produces a “telepathy” that brings a person in contact with the people, things, and circumstances he needs to accomplish his objectives.”

–Action! Nothing Happens until Something Moves, RobertRinger

Published December 1, 2008

Is Now a Good Time to Buy Real Estate?

December 11, 2012October 18, 2008 by Karysa

PART 5 of the Rev N You with Real Estate Series on the Mortgage Market in Canada

Recorded October 18th, 2008: 4 minutes 29 seconds

Listings are climbing, sales have dropped and it’s difficult to get a mortgage. It really feels like now is NOT a good time to buy real estate. But as Cindy Faulkner of Meridian Coastal Mortgages explains to Dave Peniuk (of Rev N You), now IS a good time to buy. There are deals out there, and there will continue to be some good deals for at least the next six months.

Thanks for stopping by and getting the facts on what is happening in the market today! This is the fifth 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!

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 .

Sweating the Small Stuff in Real Estate Investing

December 13, 2012November 16, 2006 by Julie Broad

“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

For the Love of Money with Real Estate

December 13, 2012August 15, 2006 by Julie Broad

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

Is Making Money in Real Estate Right for You

December 13, 2012April 17, 2006 by Julie Broad

Home auctions in Calgary, overnight line-ups for condos in Vancouver, and bidding wars in Toronto – it seems everyone is after real estate these days!

Real estate investing is a great way to make money, but it is not without the pitfalls. In five short years and eleven purchases we have dealt with a property manager on trial for murder, tenants with knives, fire code inspections going all wrong and so much more.

It hasn’t been easy money for us, but we really didn’t know what we were in for when we started. Knowing what your goals are, your risk tolerance and what the pitfalls can be will help you prepare for the adventures in real estate investment.

You might have noticed the large number of wealthy Canadians in the Canadian Business Top 100 that made their money through real estate development or investment, and you likely have wondered if it is right for you (especially if your RRSP’s have been doing poorly!).

Real Estate over the long term, has always been a sound way to build wealth. But, it is not for everyone. Take our short quiz to find out if you are ready to invest in a rental property, or if it just might be too much to handle right now:

Do you enjoy looking at houses (either online, on walks, in magazines or newspapers, on drives, or in real estate office windows)?
Do you have any spare time during the work day to handle the odd real estate issue?
Do you have a strong and supportive relationship with your partner/spouse (if applicable)?
Do you have extra money at the end of the month after all expenses are paid?
Do you know anything about mortgages, tenant and landlord legislation, or home repairs?

If you answered no to all of the abovequestions, then real estate may not be the place for you to invest in right now. If you answered yes to more than two of the above, then real estate may be a good option for you to grow your wealth.

Over the coming months we will share stories of how we were fined thousands of dollars, how we evicted a tenant, how one of our property manager’s stole money from us, and the strain these situations have put on our relationship, financial resources and time. In those stories we will also tell you where we have made money, and continue to succeed, as we want to share the things that have worked as much as those that have not.

Published April 17, 2006