7 Ways to Be a Mediocre Real Estate Investor

Average check box

Do you like wasting time?

Does it make you happy to spend 20, 30 or even 50 hours on something that doesn’t get you close to the results you want to get?

When I go to a bad movie, I genuinely wish there was a refund for my time spent. Even though the price of a movie ticket is insanely high these days – forget the money – give me my two hours back!

Time management and “lacking time” are the two hot topics amongst people seeking real estate coaching, so why are so many investors working so hard, spending so much time and investing tons of money being mediocre?

Usually it’s because you’re not sure what to do. In fact, you might be here wondering how to get started, or what you should do next to grow your portfolio.

If you can’t tell what’s working and what’s not or you feel a bit like you’re stumbling around in the dark then this is for you. If you are often left thinking something *might* be a good deal, but you’re not sure, or every city seems like a better place to invest than where you’re looking then you might be doing one of these things that is making you mediocre. It can feel like a big, never-ending guessing game.

7 Things Real Estate Investors Do that Make them Mediocre

1. Squirrel Chasing

Our dogs Bram & Maya will be happily focused on a nice relaxing walk until a squirrel appears in a tree. Sometimes there doesn’t even need to be a squirrel … just the thought that MAYBE there is a squirrel can distract them completely.

This is often the case with real estate investors. We have a client who was well on his way to doing a buy and hold real estate deal in a carefully selected neighbourhood of Calgary. Suddenly, he feels the market is too hot and has decided he’s going to flip houses in Edmonton or do rent to owns in Edmonton.

There is ALWAYS something that seems more interesting/easier/more profitable than what you’re working on right now, but if you always quit before you finish then you’re never going to get anywhere. My dogs never catch a squirrel because they never focus on any one creature for very long. If one of them sat patiently under a tree and waiting for it to eventually come down … well I really don’t want to think about it … but they would get what they are chasing.

2. Buying Property Because It’s “Cheap”

We had coaching clients who were at a real estate seminar where houses in Detroit were being sold. Because the houses were under $10,000 people were running to the back of the room to buy a house on their credit card. Likely they were buying houses that were scheduled to be bulldozed, down but I’ll never know. That’s an extreme example but people do something similar all over Canada when they scoop up properties in rougher areas just because they are so much less than an average house in the city.

Who is going to want to live in that house? What other costs will you incur buying a cheap house in a tough neighbourhood?

It’s only a good investment if there is a very high probability you’ll get your money back with a return. Buying in bad neighbourhoods means you’re going to have a very hard time finding good quality tenants. You’ll experience a lot more hassles, which will cost you a lot more time and money.

It might be the right way for you to invest if your personality and skills are a fit for managing these kinds of properties … but for most folks interested in making money through real estate, buying these kind of properties is a quick way for you to start hating real estate (want to really understand why – check out my book which I originally thought of calling ‘Manslaughter and a Crackhouse‘ as a tribute to our very own ‘cheap’ properties).

3. Only Shopping for Deals Online

It happens all the time … I get an email from someone who says “I can’t find ANYTHING that will cashflow in my area.” When I investigate I find out that two hours have been spent searching on MLS. Usually for good measure the person says “I even looked in other cities!”

There are deals online. About 65% of the deals we have done have been listed properties which were on MLS. The problem is that you wouldn’t know they were a deal based solely on their MLS listing in most cases. What makes a great opportunity is so much more than the house price and the limited details that you can find online.

First, the neighbourhood presents an opportunity (we focus on buying properties with a CAUSE) because it’s well positioned for gentrification, a price increase, development or some other positive influence. This is not easy to understand unless you’ve worked that city to find the pockets with potential first. Second, the layout or potential uses of a home present an opportunity. You usually have to get off your butt and look inside the homes to see this. We can eliminate houses based on their MLS listing information because we know we don’t want to buy houses with certain configurations (2 bedrooms up and 2 bedrooms down for example does not work well with our desired tenant profile) but we can’t spot a deal until we see it. Third, the situation of the seller can create a problem you can solve in exchange for a great deal. This is also something you won’t learn from the listing. If anything, great pains are made to hide divorce, layoffs, moves and other factors that can create a great deal for you so you need to be snooping around the area, talking with neighbours, looking at houses to find out this information.

When you’re a focused area expert you’ll spot deals so easily it’s like a neon sign is on top of the house but if you’re just sitting at home looking online it might seem like there is nothing out there!

4. Focusing Only on the Numbers of a Deal

Of course, the reverse can be true too. People think something is a deal based on what they see online but when you get to the neighbourhood you’ll see part of the yard is crumbling into the ravine or the neighbours behind the house have more cars than a used car lot in their yard. Suddenly something that seemed like a good deal is a problem property! A mistake like this is easily made by focusing on the numbers of a deal.

Way back in our third Rev N You Newsletter ever (released in July 2006) Dave shared this little bit of wisdom about buying properties based solely on the numbers:

After a weekend at a real estate investing course that I paid dearly to attend, I was newly equipped with the mission to find properties with a Gross Rent Multiplier of 7 or less. It took me some searching but I found one with a GRM of 3.47! What a great find, or so I thought.

The numbers:

* Asking price = $150,000
* Monthly rent = $3,600
* $150,000/($3,600 x 12) = 3.47.

What a pleasant surprise when the Vendor was also willing to hold a second position on the property. So, not only was I able to secure the low GRM property, but I was also able to get a vendor take back loan.

The trick was that this property was run down, had problem tenants, and always needed a lot of work. Do you remember the crack house story I shared a few months ago that put me in court and cost me nearly $25,000 in court ordered work and fines? If you do, then you know about my GRM property of 3.47. To be fair though, it is possible to do well with a property like this. To do so, however, you have to live close to it, have thick skin, and be available 24/7 to maintain it. Or, have a phenomenal property manager that does not cost you an arm and a leg!

That was an extreme example, but the deals we’ve done with good numbers where we focus on whether we can solve a problem to get a good deal, properties that will attract our ideal tenant, and quality of area and construction, we have made a lot more money over the long term than we have when the initial buy numbers were strong. I’m certainly not suggesting you buy properties that will not cash flow from day one, but I am saying that good numbers do not mean a good deal.

5. Choosing Team Members for the Wrong Reasons

“I just don’t want to be disloyal to him” my client was saying. She had been working with the realtor who had helped her buy her house many years prior, but she was finding that he was just not the right person to help her with her investment deals. He wasn’t listening to her criteria, he didn’t understand what an investor looks for, and he was not helping her uncover the problems that could help her create a deal. She was so frustrated because she was missing deals and struggling to move forward with him on her team.

Feeling loyal to someone who is not the right fit for your team is not the only thing that will hold you back. Working with someone because they are a relative or because you want to help them out is also a down fall of many investors.

If your team is not full of people who are responsive experts, then you’re not going to be highly successful. It’s just not possible.

For most of the people on your team you want to find people who are also real estate investors, who specialize in helping real estate investors and who understand what you are trying to achieve. If you are in a smaller market and can’t find someone that specializes in real estate investments then you can potentially work with someone from a different market (our accountant, lawyer and mortgage broker are all in a different city than where we invest). We build relationships with lenders and our real estate agent locally but work with the specialists even if they are out of town. It’s more important to have an expert than to have someone local for most roles on your team (obviously I am not speaking about plumbers or real estate agents!).

6. Not Investing in Training & Coaching

After our bad experience in 2002 investing $20,000 in real estate investing training that taught us to buy high risk properties, charged us to set up two a tiered corporation (that we couldn’t even use for our deals at the time!), and even taught us some things that were illegal to do in Canada, we were pretty gun shy about more coaching and training.

We carried on buying property and fixing our messes as best we could, but we weren’t becoming experts very quickly. Our list of what not to do, however, was getting pretty long. About eight years into our careers as real estate investors, it was my parents that pushed us to get coaching. They signed me up for a Business Mentor and brought Dave and I to a huge conference in Calgary. Those were game changing moments for us. Suddenly, we realized there was a lot to learn and gain from training and coaching. We also realized that the crappy course we’d spent so much money on in 2002 was nothing like some of the high quality training available in the market. We started investing heavily in ourselves. Every year since 2009 we have spent at least $20,000 a year on coaching, training and education. There’s no other investment we’ve made that has returned us as much money, quality contacts (And friends!), and mental strength as having mentors, attending conferences and constantly learning has given us.

You likely can eventually figure everything out on your own but it will take at least twice as long and probably cost you at least double in terms of the size of your mistakes compared to learning from someone who has done what you want to do. You can get through tough times and celebrate good times on your own, but it will be so much more fulfilling and so much less painful if you have like minded people to support you along the way. Every once in awhile I meet people who have been lucky with their investments … they bought a few properties and have had few problems and made money. Most people I know, however, who have had success have invested heavily in mentor ship and training.

At a minimum you need a trusted third party who will give you sound advice to spot when you’re self justifying (You did read one member of your power team you must add, right?).

7. Quitting When the Going Gets Tough

There are going to be totally crap days. Most days if you’re following a pretty sound strategy and you’re making good choices, you’ll find that it’s a pretty straightforward business to run. You collect cheques, pay bills and watch your wealth grow. However, there will be days where the banks are being ridiculously difficult or you’ve got a tenant that calls every three days asking for something new to be fixed, added or renovated at their property and it’s driving you absolutely crazy. Every year or two you’ll have something major to deal with like a flooded property or five tenants giving notice in the same month, but if you let those things knock you down you’ll never get great. You will never get to the WHY you’ve worked so hard to create in your life.

In Brendon Burchard’s Millionaire Messenger he shared a fictitious story of a guy digging for gold. He said the guy would dig and dig in one spot for awhile but he wasn’t hitting gold so he would move to another spot and dig for awhile but not hit gold again. He did this many times before he finally quit. If only he knew that several times all he had to do was dig ONE MORE TIME and he would have hit gold he would have kept going, but you don’t know when you’re only one more step away from the gold so you need to keep going!

Real estate investing is not always easy but you can make it a lot simpler by pursuing excellence. The better you become at what you do – the more you know about your strategy, your market and the deals you’re willing to do, the simpler your business will get. And the more focused you become, the more money you will make. Happy investing!




What to Do When Your House Isn’t Selling A Guide for Real Estate Investors

What to Do When Your House Isn’t Selling

When your house isn't sellingKevin O’Leary is a money focused investor. He’s entertaining, obnoxious and single minded in his investment strategies on Shark Tank and Dragons Den. Or, at least the character he seems to play is all those things.
He acknowledged in a recent episode of Dragons Den that he considers his dollars to be soldiers. He sends them out to battle ONLY in the highest likelihood they will win and return with more soldiers. As in any battle, it’s inevitable that a few will die, but he wants to kill as few as possible. That’s murder in his mind.
Maybe he’s a little too single minded in my view but his point is clear for all investors: focus on the end when you start. What’s the likelihood that you’ll get your money back with a return at the end?
What could happen that could cause your soldiers to die at war?
As a real estate investor, one such tragedy could be a situation where you have to sell but your property is not moving. Or maybe it just won’t sell at the price you need it to sell at.
Prevention is the best remedy for this situation:

You are making an investment only if there is a reasonable probability that you will be able to make money when you sell. Buy every property with that in mind.

How to Exit Your Real Estate Deal When Selling Doesn’t Work

But, if it’s too late for prevention here are three other exit strategies to consider if selling doesn’t work for you:
1.    Rent to own
2.    Partner with someone who will take over the deal – you can structure this however you want. Some people sell off 50% of the equity to an investment partner while others might find someone to take over active management in exchange for 50% of the cash flow.
3.    Sell it unconventionally offering an investor the opportunity to do a wrap mortgage, a sandwich lease or with you carrying a VTB for a term.
The rent to own strategy is just like how it sounds, a tenant rents your property with the intention (and option) to buy the property at some point in the future (and at a pre-determined price).
To help your tenant prepare for the purchase you charge them a deposit today and a rental rate over and above the market rate with a portion of their rent building up as a rent credit. You set the sale price today that they have the option to buy the house at in a year or two.

As an exit strategy, rent to own has a few advantages including the opportunity to help someone become a home owner that might not be able to make it happen without some support right now. It also is a way to sell a property without using a realtor (saving commission) while making higher than usual cash flow each month thanks to lower maintenance costs and higher rent. The drawbacks are that you can’t exit the deal completely for a year or two (or longer depending on your term) and there is always a chance the tenant you put in the property does not buy. Here’s a quick rent to own example to show you how it works for you and your tenant. Let’s say a typical single family home (3 beds, 2 baths, 2 storeys, good neighbourhood) in your market rents for approx. $1,300 per month as a standard rental unit. In a RTO, the tenant may pay $1,700 per month and $400 of that $1,700 goes towards the purchase of the property (when and if they buy).Thus, if the renter (known as a Tenant-Buyer) elects to purchase the property after 1 year, they will have $4,800 ($400 times 12 months) towards the purchase of the property. This, coupled with an Option Fee (similar to a down payment) which the Tenant-Buyer (TB) pays to the Landlord at the beginning of the rental period, goes towards the purchase price.

Here’s a quick look:

 Purchase Price for Tenant-Buyer:
 Option Fee from the TB:
 Monthly Rental Credits from the TB:
 Net Cost to TB when they Purchase:
In essence, the TB no longer has to come up with $350,000 when they buy the property, they now have to come up with only $335,200 (plus standard closing costs). And, if the Tenant-Buyer is able to obtain good financing, they may only need to put down a few more thousand to make-up the difference between the purchase price and the mortgage amount. This effectively helps the Tenant-Buyer to get into a home and start building equity right away (it’s like forced savings) instead of having to put aside $500, $600, $700 per month into a crappy (low interest) savings account. And, it allows you to exit from a property that you’re having trouble selling.
Partner with Someone
If you have a great cash flowing property and your reason for exit is simply to pull funds out of the deal, finding a partner to buy 50% of the equity in the property might be the solution.
This type of partnership can be done with Rent to Own’s, a regular Buy and Hold, on a commercial property, or even on a flip.
For this to work, both sides of the partnership have to have to bring something of value to the table. If you have a positively performing property with good future potential, you could sell half of the deal to a more passive investor and continue to run the property. That would allow you to pull your cash out.
If you are going to approach anyone about taking over 50% of your deal – whether you’re looking for expertise or money – make sure your deal has something of value in it for them.
Sell it unconventionally
There are lots of investors out there looking for a way to get into a deal without a bank or without using a lot of their funds. Usually they are willing to pay a slight premium on a property in exchange for a creative way to purchase the property. Or, at a minimum, it will help you move a property when selling isn’t an option.
Of course, like rent to owns, the creative strategies for sale do mean a delayed exit from the deal, but it can also mean more profits.
Here’s three potential ways to sell creatively:
–       WRAP MORTGAGE which is simply selling the property with existing financing in place and “wrapping” additional financing on top of it. Essentially, the buyer would pay you 1 payment which covers your existing mortgage payment and includes additional funds to go towards a VTB. The buyer does not need to come up with new financing and they can put less money down as you are including a VTB that’s wrapped together with your current financing.
–       A SANDWICH LEASE which is where you sell to an investor on a rent to own and allow them to do a rent to own of their own (that’s what creates the sandwich).
–       VTB– offering to carry financing on the deal. Not only can this help you sell faster, and at a higher price, it can also result in a higher overall return because you’ll earn interest. For example if sale price is $300,000 but there is a two year VTB (for 100% of the price) at 6% interest-only, you’re actually getting $336,000 for the property (after 2 years of mortgage VTB payments).
There are also potential tax savings if the home was not your primary residence of the whereby you can defer some of their capital gains to future years.
The lowest risk VTB for a seller to hold is in a 1st mortgage position, but the challenge with that is you pretty much have to own the place free and clear from any current debt.
The best time to plan your exit is before you even buy. Considering who will be your buyers, what concerns they will have and what kind of supply and demand you’ll be facing for that type of property in the future are pretty important considerations when planning an exit. That, coupled with having multiple exit strategies in mind, will help you to become a more savvy investor and prevent you from buying properties that could hurt your wallet rather than filling it.

5 Tips to Create Credibility as a Real Estate Investor

Create Credibility as a Real Estate investorI believe there are few things more important to your success as a real estate investor than credibility.

When it comes to raising money for your deals confidence and credibility make a dynamic almost unstoppable duo. When it comes to negotiating your deals and hiring your team, credibility makes the whole process go a little smoother.  Whenever someone has to decide whether to do business with you – in ANY capacity – credibility plays a big role in their choice.

I recently read a formula for credibility:

Expertise + Trustworthiness = Credibility

(Thank you Kevin Hogan for this!)

So how can you create credibility no matter what your level of real estate investing experience? I have a lot of ideas and suggestions on this subject, and will be expanding on each of these at our upcoming Joint Venture Presentation Workshops, but here are 5 simple ones you can begin to apply and use now:

1.Practice What You’ll Say:become a clear and concise communicator. You must know your subject matter (your deals, your market area and your strategy). You must be able to communicate this without stumbling on your words or following a written script. Have a few key stories, words of wisdom and tidbits about what you do that you can deliver quickly and clearly to anyone interested in learning more about the business of real estate investing that you’re in.

2.Back Up Your Statements:Credibility is quickly established when you can show that you’ve done research and you’re staying on top of what is important to you as a real estate investor. For example, instead of saying “the city is growing and the rent rates are increasing” say “According to research conducted by Ipsos Reid, there are 50,000 new people moving here every year. And CHMC just put out their annual rental rate survey and rents in this area have gone up 8% year over year.”

3.Smile: I’ve talked about this before but experts in persuasion like Kevin Hogan and Robert Cialdini all suggest that you need to be likable to be credible. If people don’t like you it will be much harder for them to see you as credible. I think one of the easiest ways to be liked is to smile and be friendly.

4.Shine the Best Possible Light on Yourself: In other words, find a way to present the expertise, education and experience you have in the most positive way. I could say that I am a real estate blogger, but anyone could be a blogger. Instead I say I am an award winning blogger (because I have in fact won several blogging contests). Instead of saying you own two properties you could say you’ve been investing for four years (assuming of course you bought them in about 4 years ago). Find a true and authentic way to take what you’ve got and present it very positively.

5.Borrow Credibility: When we did our first rent to own a lot of prospective tenants asked us how many we’d done. We simply said “we’re working with two guys who’ve been involved in hundreds of rent to own deals.” That was true, Nick and Tom Karadza had been involved in a lot of rent to own deals and they were coaching us through our first. If they pressed we would tell them it was our first but most just wanted to be sure we weren’t making this whole thing up. We weren’t going to lie but also wanted to provide assurance that we knew what we were doing. If you’re working with a coach – borrow the credibility and experience of the coach.

Remember being credible is nothing more than being believable. It’s an important part of being persuasive and being a person people want to do business with but it’s not nearly as complicated as we make it out to be.

Become a market area expert and be trustworthy. Neither one requires you own a certain number properties before you become credible nor does it mean you need an MBA or masters in anything. Build your expertise and be trustworthy. Credibility will follow.

And if you’re wondering what to do to build your expertise, here’s a few resources that might help:

Market Research Checklist:

Questions to Ask Before You Buy a Condo:

Housing Boom? Housing Slump? Housing Recovery?

Published October 14, 2011

Screening Joint Venture Partners

Joint Venture Partners

This week a woman other than my wife, Mom or sister told me she loved me.

I had just called our partner to let her know that everything is lining up nicely for our tenants to buy the home that my partner and I own. I told her that when they do that she will have earned about 18% on her investment in 13 months.

She exclaimed “Dave, I love you!” And when I asked her if she had any plans for the money she quickly said, “Let’s do it again.”

She’s obviously happy with the results and with the partnership. And that is because she chose her partners carefully. In her case, she focused on the people she was investing with not the deal. She didn’t do much due diligence on either of the deals she has done with us (and we doubt she’ll do much on the next one we’re doing together either), but she did do her due diligence on us. She told us right from the start that she was giving us her money because she trusted us, felt confident in our expertise and liked our rent to own program. And for her, a return was important, but it was just as important that she not have to do anything at all to earn that return. She wasn’t interested in throwing her money into a mutual fund and hoping for the best but she’s a busy business owner and triathlete and she doesn’t want to worry about her investments (nor about tenants and toilets!).

And, honestly, the most important thing you can do is find good, experienced and trustworthy people to invest with. I, personally, suggest that you check into every deal you’re investing in as well, but at the end of the day it’s the people you have to trust and believe in because they are the ones that will make the decisions that will either make or break the investment.

Where to Find Joint Venture Partners

These days the easiest way to find prospective joint venture partners is to do a search online. Most of the folks running an investment business like we do have a website or blog dedicated to explaining the types of deals they do and providing some sort of education and information. You could do a search for real estate investment opportunities and your area to find someone local.

But, personally, I think the best way to find someone to invest with is to drop into a couple of your local real estate investing club meetings and ask your friends and family if they know of anybody successfully investing in real estate.

Once you find a few different people meet with each of them. You’re investing as much in the person as you are in a specific deal so you want to make sure the person you’re investing your money with checks out.

What to Ask Your Prospective Partner (& yourself!)

  • Does this investment fit my goals? In the case of our partner, the most important thing to her was to get a good return without having to do any work once the papers were signed. We offered that solution for her so it was a perfect fit. If you want to learn about real estate along the way you might want to find a partner that is willing and able to teach you as well as invest your money. If you really want to be hands on with your deals then you will be looking for somebody that will work with a hands on partner and perhaps give you a greater share of the deal in exchange for your efforts. You have to know what is most important for you – and then check whether this prospective partner and the deals they are doing will fit with your goals.
  • What is your track record? Past performance doesn’t always indicate future success but how this question is answered can tell you a lot about someone. We’ve earned one of our partners over 700% return on his investment in six years. We also earned the same partner 110% on another investment in five years. When I am speaking with joint venture partners I rarely mention either of these examples because I don’t want to set expectations that high when much of that return was thanks to a rapidly increasing market. Sure – I did the research to know those areas were poised for growth but I had no idea they would sky rocket in value! Instead I will tell prospective joint venture partners that I have never earned a partner less than 15% per year. I will tell them that there are no guarantees in anything, let alone real estate but because of x, y and z I feel pretty comfortable suggesting a 15% – 20% return on most of the investments we do is very likely. Listen carefully to how someone answers this question. If they tell you about their best deals and don’t mention the worst, dig into the bad deals they’ve done to get a sense of how they have learned from their past experiences. And to get a sense of how honest and upfront they are. Look for a decision making process and an ability to take responsibility for the bad deals. That’s far more important than finding someone who made a 700% return on someone’s money one time.
  • What is your credit like? Can I get a copy of your credit report? We’ve said this repeatedly at Rev N You – if you can’t manage your own finances then how can a partner trust you to manage theirs. So if you’re someone looking to turn your money over to someone else I think you have every right to understand how your prospective partner is managing their own money. We no longer qualify for bank financing but it has nothing to do with our credit scores. Both Julie and I have excellent credit scores and would proudly show any partner our credit report if they asked – but nobody ever has. But personally I would never trust someone else with my money if they can’t even manage their own. Nobody loves MY MONEY as much as I do so if somebody else isn’t loving their own money how can I feel comfortable they will give mine the attention and care it deserves?
  • Do you have references? Ask to speak with one or two of the people they’ve partnered with before. If they’ve never partnered with anyone you could speak to present or past coworkers. I believe a good indication of how someone will handle themselves in their investments is how they handle themselves at work. If they were good decision makers and got along well with others at the office then there is a very good chance they will get along well and make good decisions on your deals.

What to Find Out About the Deal

Joint Venture Partners Screening Process

The majority of our partners get high level details about the deal(s) we are investing their money in, but most of them never go out to see the property. As their partner, I am fine with that, but as your investing coach I highly recommend you ALWAYS go and check out the deal yourself. It’s not about second guessing the expertise and experience of the person you’re working with, it’s about covering your butt. Remember – nobody is going to love your money as much as you do – so make sure that what you’re investing in is exactly what you think it is.

Look at the property to identify work that might be required in the near future. Walk the neighbourhood to make sure it’s a good market to invest in (does it meet the Market Research Checklist items?). And ask any questions you might want to know about how the property will be filled with tenants (who is doing that, how do they screen tenants, what do they look for in tenants).

Finally – determine if there are alternate exit strategies for the property.

Right now we’re focused on rent to own deals but all of the deals we’re doing will be at least neutral cashflow even as a regular rental if it comes to that, and many of them can be sold at a break even point as well (because we bought them under market value and have done a bit of work to increase the value). So we have other ways out of the property if, for whatever reason, our original strategy for the place doesn’t work. Make sure there are options for your deals too.

Other Details to Consider

We’re creating an entire program on partnering for profits because there are so many items to consider when you’re doing joint ventures but in addition to everything above here are few things I think MUST be in place on every joint venture agreement:

  • A written joint venture agreement prepared by a reputable and real estate specializing lawyer,
  • An agreement as to how long (approximately) everyone commits to be in this deal – with the understanding that things do change and some sort of clause in the agreement explaining how an unplanned exit from the partnership is to be handled,
  • Clear expectations of roles and responsibilities for the partnership,
  • How often and what will be communicated – because everyone’s idea of good communication is different.

If you want to invest in real estate and want to get your money working for you while you learn, finding someone with experience to partner with might be the perfect solution. However, you have to make sure you’re getting what you need from the partnership. Joint venture partnerships work best when everyone brings something to the table. Whether you’re bringing money, expertise or some other important resource to the table, it’s important to understand what you want from the deal and what the other person is going to provide. And do your due diligence. Because nobody loves your money like you do!!

Published August 11th, 2010

First image credit: ©Viorel Sima |Dreamstime.com

7 Habits of Highly Effective Real Estate Investors

Recently my friend Mike wrote me and said “I reread the 7 Habits of Highly Effective People over the weekend. It won’t be the last time I read that book this year”. It’s pretty rare he comments on a book so I pulled it out and gave it another viewing. My 1989 copy is so old the pages are yellowing and the text is faded. I guess you could say it was like buried treasure in my book shelf.

As I flipped through it and soaked in some of the long forgotten golden nuggets the book contains, I pondered what the seven habits of a highly effective real estate investor would be. It occurs to me that none of the habits of a real estate investor are particularly extraordinary. In other words – anyone could be a highly effective real estate investor if they wanted to be. Of course, this is only my opinion, and without scientific study. But check out my thoughts and feel free to send me yours.

Habit One: Know Your Goals
If you do not change direction, you may end up where you are heading.” – Lao Tzu

Most of the real estate investors I know set out with a goal. One of my MBA alumni started off simply by selling his home to buy two lots side by side and built an 8 unit townhouse complex. He has turned that project into a company that sells and builds hundreds of homes in Toronto every year. Some goals are simple, but lead to big things. Other goals are big and have to be broken down into simpler shorter term goals.

Your goal does not have to be big (although I like to start with my five year goal and make smaller goals for each year to help me get to my five year goal). But I think that if you do not have any idea of what you want to achieve then your first step is going to be difficult to determine. And, you can’t just say I want to be rich. A goal by my definition has to be as specific as possible, measurable and with a time frame.

Habit Two: Make Your Money when you Buy
Price is what you pay. Value is what you get.” – Warren Buffett

It’s very risky to pay over market value for a property in the hopes that the rent will go up, the area will improve, and/or the property’s value will increase. This is an entire article unto itself, but essentially you want to buy a desirable property below market value, in an area with a lot of potential for future growth. Really, it’s not unlike beginning with the end in mind. Envision yourself trying to sell that property and what, if any, problems you may encounter when you try to sell (e.g., is it such a unique property you’ll have a limited buyer pool or is it in a “challenged” location that may never improve, which will severely impact your ability to sell). If there is something that concerns you when you’re buying it, then unless you can easily fix that problem, it’s something that will likely concern the next purchaser.

Habit Three: Hire Help
Unless you want to buy yourself a job when you buy a property, hire a property manager. Unless you are an accountant, hire one to help you with taxes and bookkeeping for your properties. And, in most cases, we also recommend you hire a real estate agent. Just take some time to find one that will work with you to achieve your goals.

I always tell Dave that we should only be doing the things that are the highest and best use of our time or the things we really enjoy. We should hire someone else to do everything else. Of course, when I say this I am also advocating we hire someone to paint or clean our own house. These are both things that I loathe doing and feel someone else can do better and for less cost than my time is worth. Dave takes a different stance on things – why pay someone else to do what we can do for free. But, as we find ourselves with less and less time he is starting to realize he can’t do everything and there are professionals out there that can do the job better and faster than he can. So, even “do-it-myself” Dave is finally paying the experts to do what they do best so he can focus on what he does best!

Habit Four: Use Just the Right Amount of Leverage
A bank is a place that will lend you money if you can prove that you don’t need it.” – Bob Hope

Every single money-making real estate investor that I have met has made money in real estate, in a big part, due to the ability to use leverage. Even the richest people will eventually run out of cash if they keep buying property. Leverage allows you to use a small portion of your own money to buy a property. The less money you put in the higher your potential return on investment. In really simple terms, if you put in $10,000 on a $100,000 property and earn $5,000 in a year your return on investment is 50%. If you had paid cash for that $100,000 property your return would only be 5%. Too much leverage equates to too much risk though, so find a balance. If you buy a $100,000 property and only put in $2,000 of your own money and the market value of that property drops to $90,000 you now owe more on that property than it’s worth.

Habit Five: Find Good Partners
Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.” – Mark Twain

I love the success stories where someone with nothing but big dreams and a lot of initiative ties up one or more properties with contracts. They had little to no money, so while they had the properties under contract, they went out and found people who did. I am not going to name names here, but maybe one day I will introduce our readers to at least one of the three guys I personally know of with a story like this. But the bottom line is that it’s tough to make your millions in real estate if you aren’t willing to partner with others. Your partner might be a family member, a friend, a colleague, a company or someone you haven’t met yet. Dave has partnered with friends, family, and myself to help us build a nice real estate portfolio in only a few short years.

Habit Six: Be persistent
Genius is one percent inspiration and ninety-nine percent perspiration.” -Thomas Edison

The other characteristic of the three guys I’ve mentioned above, and every other investor I have ever met is being persistent. You will hear “no” a lot. Get ready to face the objections and find creative solutions. In our experience we’ve been turned down by:

  • Potential partners not wanting to get involved in a deal we’ve invited them into,
  • The banks – on just about every deal we had trouble getting financing and had to deal with multiple lending issues,
  • Family – sometimes we try the bank of parents and we almost always get rejected but we still try because the interest rates are so favourable,
  • Insurance companies – so few companies want to deal with out of province landlords and it seems like we’ve been turned down by nearly every company in Ontario where some of our properties are located (we’re in B.C.),
  • Property Managers – sometimes the company you want to work for you doesn’t want to manage the property you own.

And even though we have been turned down by all of the above at one time or another, we keep pushing ahead to reach our goals. Don’t let the “naysayers” stop you.

Habit Seven: Research – Always be learning
I am always ready to learn although I do not always like being taught.” -Winston Churchill

The best investors are the ones that ask a lot of questions, keep their eyes open for new opportunities and do a lot of research. Many get right into the details of a city. They go to the municipal offices and pull the official plan. They get zoning details and applications. They talk to the city councilors about plans, they attend city council meetings and know everything that is happening in an area. Besides the above, many of the really successful investors will always be learning about:

  • Local transportation plans,
  • New economic forces that will impact their investment area,
  • Changes to political leaders that will impact the real estate values (if you don’t believe this is a critical one ask just about any investor in Toronto that owned land around the legislated Greenbelt),
  • House values,
  • Land values,
  • Listings to sales ratios for an area (shows sales pace and amount of supply in a market),
  • Latest demographic and economic trends for an area, and more.

Not every good investor I know possesses every one of these habits. And I know there are habits that many good investors have that I haven’t covered. But as I thought about the most effective and successful investors that I have met or read about, I realized that almost all of them did possess each of the above habits. And, that anyone could really do what they did if they set out to establish these habits and practices in their real estate investing.


If you’re like me, now you’re trying to remember Stephen Covey’s 7 Habits. Just in case you can’t remember Covey’s seven habits, here is a very brief summary to refresh your memory:

  1. Be Proactive: There are things we can control and things we cannot. Focus positively on the things you can control and worry less about the things you can’t.
  2. Begin with the End in Mind: Envision your funeral – what do you want people to say about you. Now, think about what you have to do to be that person. From there, develop a personal mission statement that encompasses your values and your vision of yourself.
  3. Put First Things First: Focus on the important tasks. Don’t spend time on not important and not urgent tasks; try to delegate urgent but not important tasks.
  4. Think win/win: It’s not your way or my way, it’s a better way. There is plenty out there for everybody – the abundance mentality versus the scarcity mentality.
  5. Seek first to understand, then to be understood: Seeking to understand takes consideration but seeking to be understood takes courage.
  6. Synergize : Finding that solution that is likely different than any other solution pursued because you’ve understood and been understood and you’ve sought out win/win scenarios. It’s the old saying of one plus one equals three.
  7. Sharpen the Saw: Practice in a balanced way. Covey talks about the four dimensions of renewal which are essentially physical well being, mental well being, emotional health, and spiritual strength. Maintaining balance in these areas keeps your saw sharp and ready to act and work on the other habits.

Published on June 18, 2008

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

Item added to cart.
0 items - $0.00