2 Things That NEVER Work When Raising Money For Real Estate Investing


Raising Money for Your Real Estate DealsQuick – you need to get $25,000 for a renovation on one of your rental properties. That renovation will allow you to add another suite and increase your monthly positive cash flow by $800/month. It makes great business sense to do the work but you don’t have the cash.

Your line of credit is maxed out because you used it for a down payment and now the bank isn’t interested in lending you any more money. What do you do to raise money for real estate investing?

There are lots of options to get money for real estate investing but unless you can (or want) to tap into equity in your home with a refinance, all the options you have require that you raise some private money.

Private money is simply money from an individual (instead of a bank or credit union). It’s different than hard money. Hard money lenders finance deals for real estate investors as a business. They are more sophisticated in their investment terms and will typically seek quick repayment at high interest rates. With private money you can have more control over the terms of the loan. You can offer terms that suit your needs and offer a good return for your private lender.

The easiest way to find private money is to call your favourite mortgage broker and ask if they have any private lenders. Most mortgage brokers work with a few wealthy folks that have money to lend or they will refer you to a mortgage broker with private money connections. If you have decent credit and the property generates a solid cash flow you should be able to find money this way, but that money is expensive.

The upfront fees on those funds alone are usually 1-3% or a minimum of a $2,000 fee (whichever is greater) of your mortgage amount. On a $25,000 loan or mortgage that means up front you can start off with a $2,000 fee plus pay at least 7% interest on the loan. That’s ok if you’re in a pinch with a strong cash flowing property, but there are much better alternatives. And those alternatives are usually found by reaching out to friends and family for referrals or getting out there and meeting some other folks interested in real estate investing.

The goal is to get a face to face meeting with people.  In that face to face meeting you can look each other in the eye and determine if there’s a good fit to work together, you can assess what each person brings to the table and make sure you’re offering a deal that makes sense for both of you. In ten years and millions of dollars of other people’s money raised for our deals, we’ve only ever ONCE raised money without a face to face meeting. In that one case it was with someone we had a long standing relationship with and, quite frankly, we gave him the best deal we’ve ever given anyone because we found ourselves in a bit of a last minute bind.

Generally you have to have ONE face to face meeting to move your money raising efforts forward. But most people never get to that face to face meeting because they do one of two things that cause you to fail almost every single time. How do we know?? We messed up dozens and dozens (ok probably more like a hundred) opportunities before we figured out these deal killing mistakes. Today I am going to hand them to you on a silver platter to save you a lot of trouble and a lot of headache from banging your head against the wall wondering why things aren’t working!

2 Things that NEVER Work to Raise Money for Your Deals:

1. Email
I don’t like the telephone. Unless I am expecting a call I don’t answer the phone. My preferred mode of communication is in person, or via email or text. So to get to the in person meetings I tried REALLY hard to find a way to raise money via email. I used all my writing skills to write compelling emails. I spent hours writing people personal well thought out messages. I sent dozens of emails.

The result? I felt lousy because EVERYONE ignored me except a few really polite friends or family that would send back some very awkward email saying “thanks for thinking of me I will review this later.”

Then I started to get annoyed at how rude people were … until I realized it wasn’t them … it was ME!!

Email does NOT work. I don’t care if you have the HOTTEST deal to hit town in a decade, email is going to flop 99% of the time.

Email only is an effective tool after you’ve met with someone and they have indicated that they want to work with you. Save yourself time and embarrassment and DON’T EMAIL PEOPLE your deals and ask them to work with you. Yea – email feels easier at first because you avoid having people say no to your face but the reality is that all people will do is ignore you so it’s ineffective and a waste of time.

2. Spilling your candy in the lobby
Spilling candy in the lobbyThis was the lesson Dave learned. He LOVES to talk on the phone. He loves to catch up with his friends and family and learn what people are up to in their lives. He also gets pretty excited when somebody asks what we’re doing. So … he would get on the phone with someone he wanted to set up an in-person meeting with and when they’d say “What are you up to these days Dave?” he’d proceed to basically tell them everything about what we’re doing with our investments negating the need to get together. The problem is that you pretty much HAVE to get that face to face meeting to get the deal done.

Dave wasn’t sure what he was doing wrong so we called up our friend & private money raising expert Patrick Riddle (www.mustknowinvesting.com) and asked what we were doing wrong. He simply said “You’re spilling your candy in the lobby and there’s nothing left for the show.”

You want to give people a reason to meet with you and if you tell them everything that you’re doing on the phone then there’s no reason to meet. You have to keep the call brief and interesting. Give them a reason to meet with you and then get the date and time set up.

One of the best ways to do this is simply say “Jason I’ve been driving by your car dealership and I keep thinking that I really admire and respect what you’ve built with your business. I’m working on a few things and I would really appreciate your opinion. Have you got time next week so I can pick your brain and buy you lunch?”

Nobody ever says no to that kind of invitation and next thing you know you’re having a lunch, learning and finding money for your deals!

Of course … now you might be wondering what you say when you get to the in-person meeting but that’s a little trickier than we can cover in one little article!! Simply stated your objective is to get an understanding of whether your investment program is a good fit for their needs. If it is, confirm their interest and let them know that you will follow up when you have a specific deal that fits their criteria (or present your deal!). If it isn’t, then ask if they know anybody that might be interested.

Image Credits: Dreamstime

Published November 1st, 2011

Real Estate Investors Checklist for Working with JV Partners

“I made a list of the happiest periods in my life, and I realized that none of them involved money. I realized that building stuff and being creative and inventive made me happy.”

~ Tony Hsieh (CEO of Zappos.com)

MoneyMoney is a funny thing. It’s an object of much desire. It’s the number one marriage killer. And it doesn’t seem to matter how much money you have, you probably want more. At least you will want more unless you’ve come to realize that money is simply a tool not an end result.

I know – it’s a bit of a deep thought – especially for Wallstreet movie fans who are taught “Greed is Good!” but my point is simply that too many people believe money will make them happy instead of realizing that money can facilitate the time and space to do the things that make you happy but will not, by itself, fulfill you in anyway.

What’s this have to do with real estate investing?

Everyone has a different goal around money. And before you get out there and start talking to prospective JV partners, it’s a good idea for you to get a good understanding of what your thoughts around money are and why you’re investing in real estate (is it just for money or is for freedom or for comfort in retirement or some other purpose?).

I’ve met a lot of real estate investors in the past 24 months that are miserable. These are people who have bought 30 or more properties at a rapid pace. They achieved their cashflow goal or their goal to buy x number of properties by x date. They have, by the goals they set for themselves, achieved success. Yet, they are miserable. In speaking with some of them, I realized many failed to ask themselves a lot of these questions before they took the investing world by storm. And now they are cleaning up a mess or anxious to grow further because achieving their first goal still has them feeling empty.

It’s kind of the same thinking that was behind a comment made to me by a real estate author on a blog post I wrote. He said “if you did it the way I do it, you could be buying 4 or 5 houses a month instead of just the one per month you guys are doing.”

I disregarded the comment because more isn’t better.

More is just more.

And, in fact, more could just mean a lot more problems! A couple of guys I met at a conference earlier this year had some serious headaches because they had a different joint venture partner for each property, tenant troubles and quite a few properties that were worth 20% less than they had paid for them. More properties meant a lot more stress!

I share all this because it’s really important to think about what you’re doing and WHY.

If you’ve set a goal to buy 3 properties in the next year, make sure you understand WHY.

A clear and powerful WHY will help guide you when you make your decisions, will bring you confidence when you speak with joint venture partners and lenders, and it will enable you to align yourself with the folks with money (or with the deals) that fit perfectly with your REASONS for doing what you’re doing not just the numerical goals you’ve set for yourself.

If you have thought this through then you’ll find yourself working with the right people, creating the right deals and probably doing it with a smile on your face most of the time.

So – here’s the checklist. Here are the

7 Things to Ask Yourself Before You Work with a JV Partner on Any Deal

(and while we tend to take the viewpoint of a JV partner who is doing all the work looking for a JV partner who will bring the cash to the table – this checklist can apply no matter which side of the equation you are on.)

  1. Do you need a Joint Venture partner?If you chose to grow your portfolio slower, could you do it on your own? Sometimes when you do the math it might be better to do fewer deals but do them on your own.
  2. What value do you add to the partnership to exceed their expectation? What value do you need your partner to add to make the deal easy for you to do?
  3. What are your core values? For us, we only want to work with people who share our core values.
  4. What is your time horizon for the investment? You want to know this so you can align yourself with people who have the same or similar expectations.
  5. How actively involved do you want to be in this investment? How actively involved do you want your investor partner to be?
  6. Are you seeking anything beyond just a financial return from your investment? Is your investment partner? (sometimes our partners are looking to learn from us in addition to earning a return, sometimes we’re looking for some connections or a longer term relationship with that person).
  7. How comfortable are you with changing strategies mid-deal or using creative strategies to acquire real estate? Do you expect that same level of comfort from your investment partner? For instance, are you okay if you change from a Buy N Hold strategy to a Rent To Own strategy mid-deal? Will your JV Partner also be comfortable with the change?

After one failed partnership years ago and a snafu with a partner last year that nearly cost us two deals, we’ve really spent some time asking ourselves these questions. And after Dave meets with any new joint venture partner we review these questions for ourselves and with respect to the new prospective partner.

We know not every person with money to invest is a good fit for us.

We’ve learned over the years that it’s more work to try and put a deal together with someone that isn’t in alignment with what we’re doing and why we’re doing it than it is to just keep looking for someone that is a good fit. And the beautiful thing we’ve discovered is that when you find someone that is in perfect alignment with what you are looking for and with what you can offer you’ll have a long term partner. We just closed on deal number three in 12 months with one such partner. What she’s looking for works perfectly with what we have to offer. And she has basically committed to doing at least a deal a year with us for the foreseeable future as a result.

Published October 11th, 2010


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

What’s Your Genius?

Left Turns for SuccessOne of the most miserable times in my life was while I was completing my MBA. There was plenty of drama happening in my personal life. I was discovering that I was not at all suited to be a property manager. I was finding the job search depressing and demotivating. And, worst of all, I hated a lot of the classes I was taking. It felt like everything in my life was such a struggle. Most of the things I touched seem to turn to disaster. I was having trouble seeing through the clouds.

I did learn some pretty important lessons from that experience. But one of the lessons I learned really just clicked for me last weekend at the Engage Today event. It clicked for me when Jay Niblick, author of What’s Your Genius? stood on stage explaining the results of a massive research study he undertook. This study involved surveys of 200,000 people, a bunch of PHD researchers, and 7 years. The study was all about success and the natural talents that successful people possess.

Jay explained in detail about how much time, effort and the abundance of resources that went into this elaborate study – all in pursuit of a correlation between natural talents and success. In other words, he wanted to understand if most successful people possess great organization skills, or a talent for leadership or a gift of communication.

At the end of the seven years, when all the results were tallied and the conclusion was in he discovered that there is absolutely no correlation between natural talents and success. None. Not a single correlation existed. Bad news for him – given that he invested so much into finding the correlation. But the bad news for him, at the time, is actually GREAT news for us.

This means that ANYBODY can succeed no matter what gifts or talents you were born with. ANYBODY CAN SUCCEED. It’s not what you’ve got that matters, it’s what you do with it.

He went on to explain that the big difference between successful people and the rest of the people was simply that successful people understood what their natural talents were and utilized them. In other words, they didn’t try to be good at things they weren’t naturally talented at. They adjusted the role they were in to suit their talents and didn’t try to adjust their talents to suit the role they were in.

Suddenly so much of my MBA misery made complete sense to me.
Math and NumbersI struggle with numbers. I do not have a natural talent when it comes to math, statistics or finance. I used to joke with people about my undergraduate degree in business, telling them that I loved Calculus, Stats and Accounting so much I took those courses twice. The reality was that I was failing them the first time so I had to go back and do them again.

I was good at any courses that revolved around communication like marketing and organizational behaviour. If the course required a report, a presentation or even just reading, learning and regurgitating I was almost always assured a B+ or better. If I had to include numbers, I had to work really hard to get a B.

So when I decided to pursue my MBA in real estate, I chose finance as a second major. I wanted to be a well rounded business person. And I know that the numbers side of the business and of real estate deals are critical.

But math doesn’t come easy to me. I scored highly in math in school and even the second time around in University because I put a ton of effort and determination into my math work. During my MBA I didn’t have the same focused determination to get through the finance classes. I just wanted to learn what I could and get through. If it weren’t for the fact that I had quite possibly the smartest math mind in our class in my group (seriously Dariusz – I would never have survived if it weren’t for you), and group work accounted for 50% of my grade, I would still be trying to finish my MBA nearly a decade later.

I wasn’t really doing myself any favours by studying finance in school, but I was smart enough to know that I just couldn’t stomach being an analyst when I graduated even though that was the best paying job opportunity available to me in real estate upon graduation.

I should have been studying writing, marketing, and communication in school. These are some things I have natural talents in. They are also things I love to do.

So sitting there listening to Jay NiblickI realized that it’s a wonderful thing that Dave and I are partners. He is marvelous with numbers. I decide in 60 seconds whether a property is a good deal or not, and then he runs the numbers to make sure I’m right. He also prepares the joint venture presentations and packages for the lenders so we’re not trying to sell our deals by saying:

I just have a good feeling about this one.

Because, maybe the odd person out there would put $50,000 down on a gut feeling I have, but most people are a little more rational than that and want to understand what their investment will give them in return … thank goodness for Dave because he takes care of that (and loves doing it too!) so I don’t have to.

Meanwhile I worry about finding tenants for the property which involves marketing and communications!

What we’re doing today is moving in the right direction towards what Jay Niblick was teaching and if you do the same you’ll find that you can do a lot more in a day with less time. Specifically what you have to do is:

Make your success dependent on your natural talents. Fix the role you are in to fit your natural talents – which is turning right (see image at the start of the article). Don’t try to fix YOU to be successful in the role (which is turning left).

You’re not broken. Fix the role, don’t try to fix yourself.

Do this, and you’ll find you’ll love what you’re doing so much more and you’ll also find the great gift of increased productivity with fewer hours.

And for crying out loud – if you’re a student trying to choose your major in University – pick something you have a talent for and develop that natural talent!! Do yourself a favour and give yourself strengths you can depend on!

And if you’re not sure what your natural talents are – it’s definitely time to find out.http://www.whatsyourgenius.com/should help you get started.

Home Inspections 101

Home InspectionsBuying a money pit is one of my greatest fears. It’s a fear I have because we’ve done it.

Looking back there were so many red flags about this triplex in Toronto that we ignored because we had a motivated seller on our hands.  We had very little money when we purchased this property but the seller pulled some strings with his bank, our realtor gave us a private loan, and we scraped up the rest of the funds we needed to do the deal.

The property held together ok for about a year but then everything began to unravel. And over time we’ve had to deal with many surprises:

  • Clay pipes that had totally disintegrated leaving only tree roots to guide the sewage and water out of the house;
  • Telephone wires that had been used as electrical wires deep within the walls … which began to catch on fire before they shorted out completely (took us $5,000 to find the problem and another $20,000 to fix it);
  • A leaky roof which is still not resolved even after having the roof redone; and
  • Shoddy bathroom renovations that had tile on top of tile and an elevated toilet done for no other reason than the person who did the work was lazy and cheap.

Unfortunately these were in addition to the things we had expected which included replacing the garage, landscaping the front and back yard and updating 2 of the 3 kitchens.

And when we tell people the stories they all smugly say “Well I guess you get all your houses inspected now don’t you?

Sorry folks but we had that house professionally inspected too!! The reality is that inspections don’t tell you what’s going on behind the walls or beneath the surface of the home. All of the problems we mentioned above were not visible to the inspector. We knew the home needed some work but NONE of those things were identifiable by the inspector. I have already written about the red flags we should have recognized that would have told us to expect more surprises but the reality is that a home inspection doesn’t tell you everything about the condition of a home.

So why bother with a home inspector if they can’t find these problems? I am still a big fan of home inspections even if they aren’t going to tell me everything and here’s why:

  1. Home inspectors know the kind of problems to look for in specific areas. For example, the house we just purchased has an oil tank and an oil furnace. That is our first. He explained the challenges, benefits and things to watch out for with an oil tank and oil furnace.
  2. Home inspectors go through the home methodically and with a level of detail I just can’t tolerate. I was exhausted watching the home inspector test all the outlets and taps in the house we just had inspected.
  3. The inspection report gives you an excellent starting point to plan any updates and renovations you might want to do. It also can identify other professionals you might want to bring in.
    Provides a learning opportunity for you. Every time I sit with an inspector or I read an inspection report I learn something. And now when I look at potential purchases I carry that knowledge with me.
  4. The inspection report gives a lot of comfort to prospective tenant buyers when you are doing a rent to own.

There are other professionals you can hire to investigate the plumbing, electrical and furnace issues that may be lurking behind the walls. Plumbers have cameras they can send into the pipes to see what is going on. Electricians have ways to test the wiring and furnace folks have the right equipment and expertise to look inside a tank to tell you how much life it has left.

Now I’m not an inspection expert by any means but I can tell you the questions I ask an inspector. And if the inspector doesn’t know I try pretty hard to find out before I buy a house:What kind of wiring is in the home? If you have knob and tube wiring you’ll find it VERY difficult to get insurance when it’s a rental property so this is an important question.

  • Are the outlets properly grounded?
  • What is the water supply? Is it private or public? If it’s private there are a lot of other issues to sort out like the location of the well, tank size and condition. These are issues I prefer to avoid.
  • Is the piping copper or galvanized or PVC?  Galvanized pipes were used a long time ago and can cause you some grief as they corrode and have been said to leak lead into the water. Copper is probably ideal but I know PVC is cheaper and easier to work with. I am far from a plumbing expert though!
  • Is the sewage private or public? As with the water source I am not a fan of dealing with septic tanks so I prefer public sewage disposal.
  • Hot water tank type and condition?
  • Heating source and it’s condition?
  • Strength and life of the foundation?
  • Any drainage issues and/or water stains in the crawlspace/basement?
  • Roof type and number of years left?

The inspection report covers way more than these issues but these are the issues I concern myself with once I know the house has good bones. In other words, there are no signs of moisture, the foundation is good and the structure of the home is solid.

These are the issues that arose with our money pit. And to this day we have yet to solve the leaking roof problem. Everyone says it’s someone else’s issue … and all we know is that we’ve had to redo the ceiling in one of the rooms twice already and we still don’t have the source of the water identified!

But we love our money pit! It’s in such a high demand rental area that we’ve had bidding wars over our basement suite! It’s steps from a subway station, less than 10 blocks from the University of Toronto, minutes from a major hospital and it’s less than 5km to downtown Toronto. This one single property generates nearly $5,000 per month in rent!! And now that we’ve replaced nearly every major piece of the home we just have to find that darn leak and we’ll be sitting on some seriously wonderful positive cash flow each and every month from this place.

And thanks to this triplex we’ve learned what you can and cannot expect an inspector to know. And we’ve become very savvy buyers … hope you will too!

Published on March 17th, 2010

Real Estate Investing is Not Easy

Real Estate Investing is Simple but not EasyAs I watched Dave race up one of the many hills in St. John’s en route to Ryan Mansion where we were staying I wished I had our Flip camera handy. It felt like we were on our very own episode of Amazing Race: The Real Estate Investing version.

After months of research, property tours, and more research we had uncovered two real estate gems. One is a duplex and the other a single family home. Neither property was distressed but they were both very solid deals.

So… we decided to buy them both. Everything was going along just fine until we encountered a little glitch with our partner.

No problem – we’ll just find a couple of new partners. Except the people we were contacting had less than 48 hours to make their decision. When you’re asking people for $50,000 they generally want more than 48 hours to think about it… even when the deals are compelling – which they were!

We worked the phones for two solid days determined to find people to join us on these two deals. And… with only a few days to spare before we had to remove any conditions we found two new partners!

Now we had to start arranging financing.

With a family doctor on one deal and a very successful veterinarian on the other you’d think financing would be easy – but it wasn’t! In fact, we were flat out rejected by bank after bank!

We have said it before – and I will say it again:

Real estate investing is simple but it’s NOT easy.

I continue to shake my head in frustration at program after program that declares you’ll be a millionaire in minutes and that it’s “all done for you”. I do not understand how they can make such bold claims.

We still spend a lot of money educating ourselves, but we no longer run around signing up for every course on the market that promises us fast riches. We are now very careful and selective about the real estate programs and conferences that we attend. We only take courses or attend conferences that are moving us closer to our goals. And thankfully there are many fantastic real estate programs out there … you just have to look beyond late night television and pushy radio ads trying to convince you to attend a free seminar at a hotel meeting room near you.

But, let me get back to my story about our two deals … Dave was running up the hill in a race against the clock. You see, after we finally found two new partners to join with us on the deals, we then began our ‘vacation’ with the problem that these two people didn’t qualify for financing on either property! We had to extend one of the deals by 4 days and frantically set to work calling all our friends, family and colleagues once again … this time in search of financing!

Real Estate Market Research in Zimbabwe

Real Estate Market Research: Dave and Julie Aren’t Right About This!

by Monica Mutuma

I have a confession to make.  In the Real Estate Millionaire Program that I am going through, Dave and Julie constantly emphasize the need to keep asking questions – doing more market research– no matter how good a property seems to be. I have sometimes thought that this might not be necessary.I figured that maybe they just weren’t right about this.

Real Estate Market ResearchOnce one has done the numbers and satisfied oneself that the property will pay for itself and provide some income for the buyer I thought that was enough.

Building societies here are currently not giving out mortgage loans.  They will resume once they have dealt with challenges that are currently affecting them.  I now realize that in a way this non- lending is good for me.  It has given me the opportunity, be it a forced one, to keep doing research.  Firstly, to dig deeper into the familiar areas which I started out with.  Secondly, to look further afield. I am almost convinced that if I had been able to access funding early on in the course I might have been too excited and been tempted to buy a property without doing extensive research.

Further digging in familiar areas has yielded yet another surprise.  Popular areas as I described last time (see Monica’s last article: Real Estate Investing is About Location) are preferred by residents for convenience, proximity to central business district and security.  I’d gathered this information from residents.

However, upon further research with local authorities I’ve discovered that a number of those areas have been zoned for commercial purposes.

This means that properties in the selected areas can also be used for commercial real estate purposes like offices.  A property in this zone has dual use and this is to the advantage of the buyer or the tenant.

Zoning is something to considerThere is a common trend here in Zimbabwe for companies to operate from the suburbia.  A lot of people who run small companies now also prefer to work from home.  If the property is in a commercial zone this will make it doubly attractive- it can rented out to a resident or to a business person. But one still has to consider if a future tenant will be comfortable staying in an area with increased volumes of traffic – both cars and pedestrians.

Some areas, especially to the south/ south west of our city are also zoned for commercial purposes, this time industrial.  What this means for the buyer is that as industry in that area expands, there will be encroachment of industrial activity on the residential properties.  Before buying in such areas, one has to ensure that the buying decision ties up with one’s goals; otherwise one might find themselves with a problem that might be costly.

Some areas are zoned for commercial purposes regarding restaurants.  Again one needs to ask oneself if their future tenant might one day wish to stay on a street where there’s a public place nearby.

So this time around I felt Julie and Dave had been vindicated.  There is more to property buying than meets the eye.  I now strongly feel that it is better to have enough information, negative and or positive, before making the purchase as there are implications which stretch far into the future.

I also made another major discovery with the issue of zoning with one of the areas to the east of the capital.  This area is about 20 km out of town.  It is fairly new and there is still some developments being carried out on some of the properties.  Land there was sold to buyers at fairly affordable prices and people have managed to put up some attractive homes.

That area is in the rural category and will be like that for more than thirty… yes, thirty years to come!  The implication is that properties in this kind of zone appreciate in value at a slower pace than an urban zone.  This has a direct bearing on the value which will be placed on a house if one decides to sell. To me this was mind boggling and when I discovered this I couldn’t stop wondering how many people knew this when they bought.

One resident also pointed out that despite the fairly large and beautiful properties that became available for rent in this area, potential tenants always pushed for low rentals – they argued that they would have to spend considerably more on transportation.

I know for certain that I would prefer the other areas close to town where even small properties fetch good rentals based on proximity and convenience.

It is not easy to obtain information for future plans for urban areas but from the brief pointers I have outlined above, it is worthwhile to continue digging.

Meanwhile, happy searching and (wise) buying.

Published on December 10th, 2009

The Deep Dive into Commercial Real Estate Investing

Confessions of a “wanna be” commercial real estate investor

Mom and Dads Commercial Real Estate Investing

Everyday I look at commercial real estate transactions in Vancouver, Calgary and Toronto. In the middle of my daily grind at work, I see the frantic pace of the the real estate markets, I understand how capitalization rates are calculated and what an IRR (Internal Rate of Return) is, and I know how to calculate the residual value of a piece of land. But when I started to get involved in some deals my parents were working on (like the one pictured here – their Retail/Office Building in Medicine Hat, AB), I quickly realized that I have barely scratched the surface of what is involved in a commercial real estate transaction.

The sheer number of documents involved would sink a small ship. The list of things you need to have or need to pay for in order to qualify for a mortgage is long. Only a few of the items include inspections, environmental surveys, lender commitments, and leases.

Despite the daunting nature of things involved in a purchase, I am fascinated by commercial real estate investing. I admire people who have started with little and made a lot. I am intrigued by the vision that some developers have to buy in areas that I won’t even walk through. And, most of all, the financial proposition it offers is appealing. Let’s face it, $500,000 is not buying much in terms of residential real estate now. In Vancouver $500,000 may get you a decent townhouse which you might be able to rent out for $2400/month. Once you are done paying your mortgage, strata (condo fees), maintenance and possibly a property manager, you are lucky if that investment doesn’t cost you more than $1000/month. So when you start looking at commercial real estate where you can buy a property for $1,000,000 and have it generate $10,000/month in lease revenue then the numbers start to look appealing.

But, before you list your house for sale and start shopping the commercial listings, let Dave take you through our personal pro/con list of commercial versus residential real estate investments.

The Nitty Gritty on Commercial Real Estate Deals: The grass is always greener on the other side….right?

by Dave Peniuk

Julie and I often wonder if commercial real estate investing is the way to go. My parents previously developed, owned, and managed a mobile home park along with owning a variety of residential properties. Julie’s parents have owned (and still own) a variety of commercial properties. We are often pulled towards the commercial side of things, not only because of what our parents have been involved with, but also due to our fascination with all things real estate. So, what’s better – commercial or residential investing? Below I have noted a far from exhaustive list of pro’s and cons for both types of real estate investment. One type of investment may be better suited towards your own objectives and goals.

For the sake of simplicity, we’ll consider commercial as office/retail/light industrial vs. residential which are smaller properties with less than 10 units used for the purposes of living only (not conducting business).

Residential Real Estate Investing – Pro’s

  • Simpler, easier to understand (we all have to live somewhere);
  • If it’s a quality property (especially single family home) that’s moderately priced, it will have a larger market of willing buyers
  • Generally, don’t require a large down payment to own;
  • Lots of tax-write-offs (It’s Taxing)

Residential Real Estate Investing – Con’s

  • The Residential Tenancy Act, formerly the Tenant Protection Act in Ontario – the title says it all;
  • It takes months to evict problem or non-paying tenants;
  • Little recourse to obtain non-payment of rent;
  • Generally speaking, positive cashflow is not the norm when it comes to single family residential properties;
  • Cannot charge landlord expenses back to tenants including management, taxes, insurance, etc.;
  • 1 year leases are the norm – thus not as stable/secure.

Commercial Real Estate Investing – Pro’s

  • Can have Triple Net Rent – tenants pay rent plus landlord expenses (tax, insurance, management, etc.);
  • Long-term leases (3-5 years) are common;
  • No rent increase restrictions;
  • Non-paying tenant, in many cases, can be locked out swiftly;
  • Less emphasis is placed on person to qualify for financing. More weight is placed on the building quality, tenants, and leases (revenue from the leases).

Commercial Real Estate Investing – Con’s

  • Generally require a larger % towards down payment (25-35% of the purchase price down is fairly standard);
  • If financing a commercial property, there are many hoops to jump through, and with that, many associated costs;
  • Not dissimilar to residential properties, if a unit becomes available, you may need to spend considerable dollars renovating it to suit your new tenant – just to a larger scale than with residential (in some cases);
  • Often takes much longer to fill a commercial unit than a residential (may take months vs. only weeks);
  • Vacancy rates are traditionally higher for commercial properties.

Unfortunately, the above lists have probably just left you with more questions and not enough answers. I know that’s what it does to me when I consider them!

However, every investment vehicle has it’s good points and bad points. This goes for stocks, bonds, and real estate. The thing to do is figure out what vehicles suit your objectives, do your research, and you’ll be well prepared to make the most of it and put the Rev N You with Real Estate!

5 Steps to Rent Out Your Property

Money is tight, and you’ve got to rent out your vacant basement unit. You live above the unit and you need the rent money to make the mortgage payment. What do you do? Rent it out to the only person who is willing to move in right away. And you allow yourself to justify why that person won’t let you speak to their current landlord or why the collection agency is after them.

What could go wrong? This lovely tenant could be unstable and pull a knife on her roommate. Yes – it happened to us at 3am on a Wednesday night about 4 years ago. We had to call the police and have them separate the two tenants. The victim moved out the next morning and we were left with the knife wielding tenant who then stopped paying rent but refused to move out. It took us three months to evict her. We had to live above her the whole time. Once we FINALLY got her family to come to town and move her out (we were still a few weeks away from legally being able to throw out her stuff and change the locks), we had to send a collection agency after her for the rent money. We never received a dime.

As you can imagine we’ve taken great pains to find good tenants ever since. Here’s the overall process:

  • Step 1: Prepare the unit for showing
  • Step 2: Get your paperwork in order
  • Step 3: Research the market rents and place your ad
  • Step 4: Show your space
  • Step 5: Choose your new tenant.

Step 1: Prepare the unit for showing

The better it looks the more likely you’ll find a good tenant for the space. Make it easy for someone to visualize themselves living happily in that space.

Some suggestions to prepare the unit:

  • Fill any holes and put a fresh coat of paint over the walls.
  • Check all of the doors, locks, plug ins, appliances and light bulbs to ensure they are in working order.
  • While you are doing this, create a checklist to use when the tenant moves in or out. Include all of the rooms, doors, windows, drapes/blinds/shutters, plugs and light switches, shelving, appliances etc.). When your tenant moves in you both need to sign off on this sheet – it’s required by law in B.C. If you’re not sure how to start this sheet check out docstoc for examples.
  • Air the unit out before showing it – open up the doors and windows to let fresh clean air in.

Step 2: Get your paperwork in order

To attract a good tenant, you will need to be a professional landlord and have the right paperwork on hand. Contact your local residential housing branch of your government or go online and do a search for landlord forms to find the following:

  • Tenant application forms
  • Rental/Lease Agreement forms
  • Eviction notices or other forms you might need later – sometimes you have to order the forms so it’s better to just have them on hand.

Each provincial government has different requirements and rules for what must and what can be in each of the above documents so be careful what you download. Ensure you’ve got documents that are legal in the same province as your rental unit.

Step 3: Research the rent rates and place your ad

Make sure the Price is Right!

See also: How to Determine the Rent Rate You Should Charge for Your Rental Property

Research like units online to make sure you’re not asking too much for your unit. We check Rentometer for a ballpark range and then research in detail on Craigslist and Viewit to understand what the competition has their units priced at.

Make Sure the Price is RightDon’t get too greedy– it’s better to price just below the market. You will rent your unit faster, have a larger tenant base to pick from, and you will have a better chance of retaining a tenant for a longer period of time. When you find yourself thinking “but I could make $50/month more easily!”, counter that thought with “but it will cost me even more if this unit goes vacant for a month or if I have to re-paint or fix up this unit in 12 months when the current tenant leaves in search of a better deal”. I’m not saying leave a stack of money on the table, I am just saying, that it’s better to be slightly below market and have a great tenant in there quickly then to get a few more dollars every month.

Get the word out! We’ve found tenants through all of these methods:

  • Word of mouth– we email all of our friends and let them know we’ve got space for rent. As a result, we have rented several units out to friends over the years. We also let our good tenants know about other units that are available and sometimes they move into the units and we keep them as tenants for longer, or they have friends they can recommend to us.
  • Advertise online! We love the viewit.ca and craigslist combination in Toronto. Viewit.ca takes pictures of your rentals. You can place a free ad in Craigslist with a link to the Viewit.ca ad so your prospective tenants can see the unit.
  • Craigslist on its own is also very effective and it’s free!
  • Put a sign up on your lawn or in the window of the unit with a phone number. Viewit gives you a sign to put up which is another benefit of advertising with them.
  • Local Newspapers can be a fairly inexpensive way to advertise. Ask the classifieds agent what is the best day to advertise a rental unit on to get the most eyeballs seeing your ad. We don’t advertise in the paper anymore as we find online to be very effective, but in some areas your target renters may be best reached by the paper.
  • University Housing Boards: We haven’t done this for awhile, but we have a tri-plex near the University of Toronto, and we used to advertise there. These days every university student seems to use Craigslist.

Step 4: Showing your space

The most efficient way to show your space is to have an open house. Pick a time to show the space for a two hour period one evening or during the weekend. Then have a back up time. When a tenant calls about seeing the unit, tell them that you will have a showing for all interested tenants at time slot one, and if it’s still available, there will be a second showing at the second selected time.

Prepare for the showing by having the unit as clean and fresh smelling as possible. Be dressed in business casual attire with tenant application forms on hand when you greet the prospective tenants.

You could show your unit to one tenant at a time. This is a great way to get to know the applicant a bit more, but it is very time consuming and inefficient, especially if you don’t live nearby. An open house environment creates an air of demand which helps get applications completed much quicker. When a prospective tenant sees the other interested parties, if they want your unit, they will act quickly to try and get it. Encourage the prospective tenants to complete the application before they leave. Then you will have the application in hand and can make notes on the application about who they were and what your initial impressions of them were. Alternatively, ask them to drop off the application the next day (especially if you’ve already received other applications – you can tell them you plan to make your decision in the next few days).

Step 5: I choo choo choose you! Choose your new tenant.

  1. Review the Application: Look for gaps where a place of residence is not indicated, or look for conflicting information. If you liked them but there are gaps or issues with their application, ask them about it. If you start to hear things like “well my previous landlord didn’t like me because of….”, or “there is a credit agency after me because of…” then it’s not a great start. Some reasons make complete sense, others are just elaborate stories. If you can’t be sure what the case is, keep looking. Or you could end up with a tenant that pulls a knife on another tenant like we did!
  2. Run a Credit Check:Once you’ve found one or two that you like and that has a good application, run a credit check. This is a critical piece. Many veteran landlords say they just trust their gut. Well, I trust my gut, and then verify it!
  3. Reference Checks: Call the reference and ask them simple questions like “how long have you known the applicant?”, “What’s your relationship with them?”, and “Would you rent to them?”. This is also a good gut check, but keep in mind that a current landlord might be anxious to get rid of the tenant so they might not tell you the truth.
  4. Final Gut Check: So they have decent credit, nothing came up on their application that makes you uncomfortable, and the references had nothing negative to say. What’s your gut telling you? Do you get a good feeling about them? Do they seem honest? Do you think they will be too messy? Or too picky? If you are happy with the gut check then you are ready to choose your new tenant.

For more on selecting your tenants – check out our tenant screening checklist.

WaitWAIT! What if there is a tie? What if you can’t choose between two tenants? I go back to the prospective tenants with some additional questions to break the tie:

  • How long do you plan to stay?
  • What will you be doing for the next couple of years: work, school? what type of work or school?
  • What do you like about my place versus others that you have looked at?
  • Why are they moving out of their current place of residence?
  • Will you sign a one year lease?
  • Do you like to have people over on a regular basis?

After hearing the answers to these questions, you’ll usually find yourself leaning towards one tenant. Once you’ve selected your new tenant, have them complete rental agreement and collect the first months rent. Depending on what province your unit is in, you will also collect a security deposit or last months rent at this time.

Once you have a signed agreement with rent cheques in the bank, you will need to let your other prospective tenants know that the unit is rented. If a prospective tenant asks why they didn’t get it never tell them it was because of age, race, gender, or because they have or don’t have children. No matter what your reason was for choosing one tenant over another, you cannot be discriminating about the choice. It’s probably safest to say ” the other tenant had a very strong application”.

Published July 2008

You Might Also Be Interested in Reading:

>> Troubleshooting Your Vacant Rental

>> 5 Steps to Hiring Your Property Manager

>> How to Live for Cheap(er) – Renting Out a Unit in Your Home

>> Tenants Who Break Their Lease & Other Tenant Issues

>> Tenant Move Out Inspections & the 5 Things Tenants Never Remember to Clean

Renting to Tenants – Preventing Tenant Turnover

Three months into owning two beautiful loft units at the Toy Factory Lofts in Toronto, we already were renting one of the units out for a second time. Despite being in one of Toronto’s most desirable neighbourhood for the under 40 downtown worker, and being awarded the highest rating and positive compliments from condo reviewer Christopher Hume, the building is still a construction zone. And it can be very tough renting to tenants when they have to deal with the developer’s workers fixing deficiencies and intruding on their space on a regular basis.

Preconstruction Property In an attempt to prevent tenant turnover, we made some concessions when renting to tenants. We offered rental concessions for the first six months to one tenant, and a lower first month rate to a second tenant.

But, for one unit, it wasn’t enough to prevent tenant turnover. After only 6 weeks the renter left, complaining of dust, noise, and deficiencies. We took special care renting to the the next tenant in the hopes that the next tenant would stay for much longer. One of the things we did differently was we wrote the Tenancy Agreement to ensure the tenant did not have an opportunity to plead ignorance to the construction issues and use that as an excuse to break the lease.

Some lessons for renting to tenants in new construction units (a big thanks to Lindsay Widsten, our Nanaimo-based Property Manager for suggesting some of these):

  • Ensure your prospective tenant visits the unit and building at least 2 times to experience the “construction zone”;
  • In your Tenancy Agreement note “the tenant is aware that the rental unit may be impacted by various construction issues including: noise, dust, and workers tending to deficiencies”;
  • Also note in your Agreement that the tenant agrees that they cannot break the Tenancy Agreement under grounds that they were unaware of such potential issues;
  • Clearly explain to your prospective tenant that there will be some challenges with the building and possibly their unit over the upcoming months; and
  • If necessary, make a deal with your tenant that you will reimburse them X dollars at the end of their lease to compensate them for no late rent payments and living thru the construction zone. Ideally don’t reduce their monthly rent, rather, reward them after a full lease term has been served.

The Tenancy Agreement is not something we’ve talked about much because it’s different in each province. Make sure you know the landlord tenant law in your province before you rent out your basement or buy a rental property. There are standard forms for tenancy agreements but they may not cover every situation (like renting out a new construction condo). Some things we have included in agreements for various reasons:

  • No-smoking policy,
  • No dogs or no cats,
  • No assignment or subletting of the unit without our prior and written consent,
  • No change of tenants without our prior and written consent (very important with student roommates – but that is a big story for another day),
  • Tenant’s obligations for things like snow removal, lawn care or other maintenance and care
  • Penalty for late payment of rent or penalty for cheques that bounce.

 PublishedJune 4, 2008

We were robbed by our Property Manager

girl pointing at robber

Reasons to find the best property manager money can buy

We were taken for a ride by a property manager we had in Toronto. His services were cheap (5% of the rent and no charge for new tenants except advertising costs). Well, cheap, if you don’t count the fact that he was stealing rent money from us!

Before hiring him to manage our tri-plex in Toronto, I researched him a bit and learned that he was a Mom & Pop-type shop, but I didn’t check references or dig much deeper than that. His scam? He collected $950/month from our tenants but only told us we were getting $890!

The extra $60 was likely hitting his back pocket. We are sure he was taking a cut from our other two units as well. However, we were never able to prove that. The only reason we caught onto his scam was because we moved into the house and the tenants started paying us the rent instead of him. Imagine our surprise when the cheque was for $950, and we were expecting $890!

Looking back, we could have easily protected ourselves. Now, we want to help you prevent it. Investigate your property manager before hiring him/her (as per article 2 above). After hiring the property manager, we suggest you do the following:

  • When ads are placed for your unit(s), get copies of the ads. Also, ask where the ads are being placed and check for the ads yourself (looking back, I had noticed an ad for our unit for $50 more than we had agreed to rent it for. I wrote him to change it, and he said he would, but now I think it was a red flag that I should have recognized).
  • Ask for copies of the signed leases.
  • Ask for proof of expenses incurred (always get receipts, but for larger repairs or purchases get pictures or visit the property yourself).

This may not save you completely, but had we been able to get copies of the leases or asked to see the ads, our property manager would have had a harder time stealing from us. We are getting ready to hire a new property manager for our Toronto property, and we can assure you that we won’t be just grabbing the cheapest man on the block, and we definitely will be keeping a much closer eye on the rent and the expenses.

Getting your hands dirty

by Dave Peniuk & Julie Broad

Are you ready to clean, make repairs, place ads in the paper, screen tenants and handle emergencies? If you aren’t, then we hope you have hired a competent property manager for your new investment property. If you decided to save the cash, then you should be prepared to do any (and all) of the following:

  • Clean the property of clutter and maintain the outdoor areas of the property while occupied. This includes snow removal in the winter and lawn maintenance in the summer. When vacant, you will likely have to get in there and clean it yourself (or hire someone) to make it more presentable.
  • Repairs and maintenance (from small things like changing a lightbulb or unclogging a toilet to bigger things like painting or electrical work).
  • Determine the market value of rent in order to advertise the units (check comparable houses/units in the area by checking online or local listings).
  • Determine best places to advertise and place the ads for your rental units (front lawn, local university, paper, online, etc.).
  • Show the property, take applications and screen potential tenants.
  • Collect rent, and deal with problem tenants (giving notices, working with the local government tenancy office, evicting).

There is a lot of work involved in managing a property. Often, the work involved (and any problems) are unexpected and happen at inconvenient times.

The Investor’s Saviour: A Good Property Manager

by Dave Peniuk

A good, reputable, hands on property manager really is what makes property investing enjoyable. We haven’t been so lucky with all of our property managers, but thankfully, in Nanaimo we have one. Lindsay Widsten is one of those property managers that makes investing almost painless. He keeps our tenants happy, provides us with monthly statements, only contacts us when necessary and has earned our trust completely. In fact, he is so good, that we often forget we even have the four properties in Nanaimo!

Before you choose your property manager, it’s a good idea to take some precautionary steps, including:

1. Check the Better Business Bureau;
2. Contact associations like ROMSBC, GTAA etc. and ask for a recommendation, or if they know the property manager you are considering;
3. Ask if s/he is licensed, and with who (get details);
4. Ask for 2 or 3 references from your property manager and give them a call;
5. Drive by a couple of the properties currently managed by the property manager;
6. Ask friends and family for recommendations.

Do your homework. Hiring the wrong property manager can cause you a lot of grief. But hiring a good one, can save you time, money, and stress!

Published December 17, 2006

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