fbpx

4 Ways to Get Your Money Working for You With Private Mortgages

girl pointing money floating

dreamstime_xs_18887998Walking through the airport gift shop recently, I saw the Toronto Life cover titled a Mortgage Slaves. It showed a picture of a family sitting on a couch, looking hopeless. The article discussed how tightened mortgage rules and less flexibility with CMHC meant that more people were looking to private mortgages in order to purchase their first home.

The article warned readers that many private lenders were predators and they should beware. What the article didn’t say was that, as a real estate investor, the lack of funding available at the banks creates a cool opportunity for you to help a family become home owners while you can make a steady return on your money.

The trick is understanding how to do it in a way that is fair to the home owners and gives you a return given the risk you take on.

Why is it harder to qualify for mortgages?

In the past 5-7 years CMHC rules have made it more difficult to quality for financing with shorter amortizations and tightened lending guidelines.

To add to that, thanks to mergers, there are far fewer financial institutions today than there were even 15 years ago.

What does this mean to a buyer? Fewer financing options has meant less people qualifying conventionally. Where relationships used to help people get financing in the past, clients are treated more like a number than ever before. Due to these changing circumstances in the lending industry, buyers need private mortgage options.

4 ways to help homeowners now while getting a great return.

As a savvy investor with access to funds, there are four great ways you can invest in mortgages and make a great return:

#1 – In Your RRSPs

Have you ever heard this before?  “Well, you do have some excellent options for your investment. The first option is a daily interest account, where the current rate is 0.25 percent. Is that really an excellent option? “It is very safe!” was his reply. It also won’t even keep up with inflation … my money will be shrinking every single month if I do that! It is crucial as an investor to look for better ways to grow your money, or you simply won’t have enough in retirement.

If you have done a great job regularly contributing to your RRSPs, you will have a nice sum of money in your account With RRSPs, you must use an arms length mortgage (close relatives or your own personal mortgage are not qualified investments). This also works for other registered money, like TFSAs, RRIFs, RESPs, LIRAs, and LIFs . Investing your RRSPs in mortgages is covered in detail here.

You do not need to take your registered funds out and pay taxes to take advantage of this strategy; they are simply transferred to this new investment. A trust company and a lawyer can help you set this up to ensure your investment is protected.

#2 –  Use Your Own Home Equity or Cash

Financing on a HomeSecond, non registered funds, such as equity you pull from your personal residence or non-registered investments in stocks or mutual funds, can also be used. When refinancing, the banks typically mandate that you must leave 20-25% of your equity in your home. For example, if your home valued at $400,000 has a $100,000 mortgage, the bank requires that you leave 20 percent as equity, so you can borrow up to $320,000. This means you can take out $220,000 and lend it out to someone needing a mortgage.

If you are paying 2.75 to 3% on your mortgage and you can make 6% to 12% on a first or second mortgage, this is an excellent interest rate spread and potential opportunity!  Using non registered funds is much simpler than using registered money, because it is a fairly quick process to refinance your home or withdraw money from regular investments. However you do not have access to the same tax deferral strategies or tax exemptions that you do when investing using RRSPs and other registered products.

How do you find people who need a mortgage?  One of the best sources would be the local service professionals. Mortgage brokers, lawyers, and realtors will often have clients who do not quite qualify for a mortgage (again, due to tighter lending requirements), and would happily refer you to them so they can still get the deal done.

It can also be a good idea to connect with or get a referral from someone at a local real estate investor meeting.

As an investor you need to do your research so you understand the deal, market and borrower risks. You must know your exit strategy ahead of time- if the owner defaults will you keep the home as a rental property?  Will you sell it?  What are the rules in your province for handling defaulted mortgages?  Next, what do you know about the person you are investing with?  Is their job secure?  What is their history in home ownership?  Do they have financial and character references?  Ask as many questions as you can. If you’re not sure what to ask, you can review the elements that Julie Broad recommends an investor put in a Deal Summary. Getting answers to these key questions will help you reduce the risks.

Finally, have your lawyer review all of the paperwork to ensure you are well-protected.

#3 – Purchase an Existing Mortgage

Third, you can purchase an existing mortgage, or use your money to pay out an existing mortgage. Some people may find themselves in the position of needing to refinance their home, but they no longer qualify. Maybe they want to consolidate debt and lower their monthly payments, for example.

If they’ve recently changed jobs or started a business, they will be unable to qualify for financing under typical bank rules. The bank wants to see income history of 2 or 3 years of self-employment before they will provide a mortgage. Someone in this situation might be willing to pay a higher interest rate for access to a private mortgage. As the new mortgage holder, you can pay out the existing mortgage to the bank, and you then become the first party listed on title with the mortgage. All of the paperwork and dealing with retrieving the mortgage payout figure, getting the funds to the bank, and checking title, should be handled by a lawyer on your behalf.

As with any financing, it is important to do your due diligence. Make sure you are comfortable with the home you are mortgaging, have 2 appraisals done to make sure the value given to the property is accurate, and check references and job history. You could have a mortgage broker help you review their financial history and credit bureau, as well as look at their debt ratios. If you have any concerns or your gut instinct tells you this is not right for you, listen!  You don’t need to take advantage of every opportunity that comes your way, wait for the opportunity that provides you with a great return with the least amount of risk.

These private mortgage opportunities can come up as you networking and let people know what you are looking for. You may find yourself having to do a little education on what private financing is, so prepare to take the time to explain what type of financing you want to do, and how your friends, family and colleagues can help you find what you’re looking for. A cool example-  I had an acquaintance tell me that they were paying a high interest rate on their mortgage because they had ran into some difficulties before purchasing their home, and were forced to use a high interest rate mortgage company. I was able to find an investor that paid out that company so that the investor is the new mortgagee, reducing the interest rate charged to the homeowner by 50 percent!  The mortgage is 75 percent loan to value which the investor feels is a secure investment. In addition, it is providing a great return to the investor. Happy homeowner, happy investor!

#4 – A Vendor Take Back Mortgage

VTBs for Baby BoomersFourth, you can sell your home and hold the mortgage for the buyer. Vendor Take Back mortgages, more commonly knowns as VTB’s are explained in detail in this article: https://revnyou.com/seller-financing-vtbs/.

What this means for you is that you can become the bank holding a private mortgage when you sell your home, assuming you have equity in it.

Title still changes hands – the buyer will be the owner of record. You will just become the lender (or, one of the lenders).

How does this work?  You are secured on title as the mortgagee and have the same protection as the bank. If you own your home free and clear of debt, and are looking to downsize into a smaller home, or you’re going to rent you may not need the equity from your home to make your move. With a VTB you can put that equity to work for you, and help a new buyer. This is often the case for baby boomers, who are now empty nesters and are looking to travel and enjoy retirement instead of tending to a large yard and caring for a big family home. In this case people often take the proceeds from their sale and invest it- holding a private mortgage is simply another way to invest that same money. The added benefit is that you know your mortgaged property inside and out- thereby again mitigating risk.

Plenty of opportunity exists for investors looking for safe real estate backed investments without the hassles of having rental properties. In addition, it is satisfying knowing that you are able to help someone purchase a home that may not otherwise have been able to. If you would like to learn more about this topic, reach out. I provide online training and real estate investment coaching to new as well as experienced investors.

Candice Bakx-Friesen has been investing in real estate for nearly 15 years. She has a diversified portfolio including single family, multi-family, and commercial properties that have been financed through private and conventional means, and has used joint venture partners  as well. Contact her at candice@cbfteam.ca or connect at www.investorsmarts.ca.

 

 

1st Image Credit: © Noodles73 | Dreamstime.com

2nd Image Credit: © Ruslan Huzau | Dreamstime.com

 

 

Commercial Real Estate Investing vs Residential Real Estate Investing – a Video Series

Commercial Vs Residential

Commercial Real Estate Investing vs Residential Real Estate Investing

A Video Series

You know the saying, the grass always looks greener on the other side, right?

As you deal with another tenant turnover, surprise repair request or increasing tax and insurance costs, it’s easy to think that a five year triple net lease* is a better way to invest in real estate.

But, there are some really significant costs and risks associated with doing commercial real estate deals.

As we just closed on the biggest deal we’ve done to date (a multi-million dollar medical services building), we thought we’d put together a video series to help you decide if commercial investing is right for you, and how to handle some of the common pitfalls if you do it.

If you’re staring longingly at that green grass on the other side of residential investing, we hope these videos help you decide what investment vehicle is right for you today.

*a triple net lease is basically where the tenant is responsible for most of the costs of operating and maintaining the property including taxes, insurance, maintenance, and property management

 

Real Estate Strategy Resources

Check out More Videos on our YouTube Channel.

7 Steps to Invest Your RRSP in Real Estate

Guy thinking

RRSP in Real Estate The banks know how to make money. Even in the low interest rate environment we’re enjoying at the moment, banks are still making money! Wouldn’t it be nice to make money like a bank?

If you have money that’s sitting in an under performing RRSP this could be a great solution for you. If you have more than $50,000 sitting there, this is a really good opportunity for you.

Mutual funds and stocks are not the only investments that are RRSP eligible.

A mortgage can be held in a self-directed RRSP (or RESP, LIRA, or RRIF) account. And, there are many real estate investors that struggle to access the capital from the banks because they don’t fit the banks really strict lending criteria, or they haven’t matched their investment strategy to their financing well, and now they need other options. So, there are plenty of potential investors that would be happy to make use of your RRSP funds AND give you a much better return than you’re making right now, backed by a cashflowing asset.

This is one of the largest untapped sources of almost guaranteed returns where you can make 5, 7, 10 or even 12% on your money, tax free, on cash you put in a self-directed RRSP.

And, unlike when your stock drops or your mutual funds do poorly, you have recourse if your borrower stops making you payments.

When holding a debt obligation in your RRSP; you have a lot more control over the risk, you have a say in the return you get, and you actually have recourse if you aren’t making the return you were promised.

There are a few rules around using RRSP funds that you should be aware of, but for now I thought I would cover the most important steps to follow to lend out your RRSP funds to a real estate investor:

1. Find a Borrower
The easiest place to find someone looking to borrow RRSP funds for an investment property is to head on out to a local real estate investors meeting. At the meeting if there is an opportunity to stand up and introduce yourself, do that and let folks know that you’re an RRSP lender looking for borrower(s).

2. Choose a Trustee like Olympia Trust. There are other trustee’s but that’s the one we’ve worked with and they are excellent.

3. Open a Self-Directed RSP Account: Can be RRSP, RESP, RRIF, LIRA, TFSA
You aren’t cashing out the funds you currently hold in that account, you are simply transferring it to you a self directed fund.

4. Fund the account with the amount you want to have in the self directed fund.

5. Complete the Due Diligence. There is a lot to cover in this but basically you want to do some research on the person who will be borrowing from you. Personally I would want to see a credit report for the borrower, a recent property appraisal and I would go and view the property. If I didn’t know the market area I would want some research and information on the market area to understand it’s economics (population growth, employment situation, vacancy rates, housing market condition).

6. Complete the Paperwork. This step isn’t as bad as it seems. The borrower, a lawyer and your trustee should be able to walk you through this.

7. Watch your wealth and retirement funds grow tax free until you need to use them.

Again, there is a lot more to RRSP lending than this. Your trustee will walk you through the steps.

The hardest part is going to be when you go to your current financial adviser and let them know you want to move your money into a self-directed account. You might find that there is some resistance to your move to self directed because commission advisers will no longer make money off your investments if you’re managing them in the self-directed account.

For now, I just wanted you to know it’s an option. It’s a heck of a lot better return than a GIC, it is backed by a cashflowing asset that you have recourse on, and once your money is in your self directed account, it’s actually fairly straightforward way to utilize those RRSP funds effectively.

If you are thinking of investing your RRSPs in real estate you may also like these articles:

 

Why You Must Create Multiple Streams of Income

2 people on top of money signs

For the first time in our 12 years of owning rental property we had eight tenant turnovers in 60 days. It’s highly unusual for us to have that many in a year, let alone in just over a month. The saying ‘when it rains, it pours’ wasn’t said because of water falling from the sky. (It was the inspiration for my Dad sharing his country music lyric wisdom about when your real estate business is stormy) And because 8 move outs wasn’t enough, these events all occurred at the exact same time as we were funding the due diligence and subsequent purchase of our first all commercial property – a smallish building that is home to a dental practice.

We always do work on the properties when tenants move out – especially if they have lived in the home for more than 2 years, which many of these folks had. Sometimes it’s as simple as a quick carpet replacement or a paint job. Other times it’s replacing windows, tackling a new furnace or a full interior paint job. Regardless, when a tenant moves out, unless it’s been only a year since we did work to the home, there’s always some money we spend to keep the property in excellent condition. Staying on top of the condition of the home ensures we attract and keep great tenants and that our property never gets run down which will ultimately costs a lot more to improve.

So it was an expensive and extremely busy August and September for us. We also had to make a few cash calls to some of our joint venture partners as a few of the homes needed work that was either a surprise or ahead of schedule so we didn’t have reserve funds to cover it. Most of our partners know that is part of the business and have no problem with the odd call for cash. One or two partners make it incredibly painful for us.

It’s the tougher side of investing in real estate. Homes need work. It’s why I’ve often argued that more homes isn’t necessarily better – it’s just more.

The whole experience reminded me that it’s probably time to emphasize the importance of multiple streams of income. We had cash available to cover these expenses but it was cash that had been earmarked for our own home and office renovations and repairs. If we hadn’t had cash available we’d have been super grateful that real estate wasn’t our only source of cash!

I’ve said this before, especially when I’ve talked about whether you want to become a full time real estate investor, but relying on buy and hold investments alone is not a good plan.

And while there are plenty of ways to make your income from real estate related activities, I would personally still recommend you create other streams outside the real estate space.

Houses Need Work When Tenants LeaveIf you’re a realtor and the market goes down – not only does your own portfolio suffer but you’ll find yourself with seriously reduced income from sales as well. If you focus on flipping as a side business, what happens if you lose money on one or the market slows down so much that your property is losing value each month instead of gaining? How do you pay for that? The same goes for Rent to Own. Besides the other reasons rent to own investing can stink, when the market goes down, your tenants panic and walk away and new tenants are hard to come by. Plus you almost always find the home needs work you hadn’t planned for because the tenant hasn’t been doing the maintenance you would have done to keep the home in great condition (while rent to own tenants are much easier to manage, many don’t wan to spend money on the home until they officially own it so you may find they don’t tell you about the problems until they are moving out and now you have quite a few expenses you hadn’t planned for). So just like flipping and being a realtor, your rent to own business income can dry up fast if the market changes direction.

I think it’s wise to consider adding non real estate related income sources to your life as well.

My coaching clients are probably reading this thinking “Julie – how can you say this when your mantra with me is FOCUS

First, let me be clear in saying I am not suggesting you start today creating 4 different streams of income. Trying to do four things at once is a recipe for getting nothing done …

My recommendation is that you start one today (and if you’re already investing in real estate – you have). Master it. Get it running smoothly – usually about 24 months – and then work on adding another stream. It could be related like a real estate license or (more ideally) it could be something unrelated but of interest.

With the first stream in place here are some other ways our clients have generated other streams of income beyond just their real estate portfolio, property management or becoming a realtor:

  • Consult back to the company they used to work for or other companies in the same industry.
  • Grow the family business or a business with their spouse that exists already but could grow with more effort.
  • Become a lender – they act as the banks for some investors and make some awesome income on some of their cash without having any real estate related hassles.
  • Start another business like contracting as a trade or some other somewhat related to real estate business that generates revenue outside of their portfolio performance but benefits from activities done to network as a real estate investor.
  • Create an online business. There are many ways to make money online. You can sell ad space, post ads where you get paid per click, become an affiliate for a product or program you like and make a commission or joint venture with other people who offer complimentary services or products to what you do and split revenue generated, or you can offer your own products and services. We’ve done that with Rev N You and the model is one that would easily translate into any information driven business. The cool part about an online business is that it can go where you go. You don’t have to be there at 9am to open the store and you don’t have to have someone to take your place if you go on vacation.

There are so many ways to make an income. This is not even close to all your options – it’s just the ones we’ve worked with our clients on in the last 36 months.

Every single one takes effort and time, but it gives you more financial stability so you can comfortably handle surprise real estate expenses or the ups and downs of the market (more precisely – so you can handle the downs). If you’re just starting out as a real estate investor, stay focused on that. Get your systems in place and your team working well. Get comfortable doing deals and raising money (if you need to). Once you’ve got 3-5 deals under your belt, and you feel they went fairly smoothly then you can look at other ways to generate a new income stream.

It’s always better to plan for a day when you might need more income streams then try to scramble when you do need it.

“A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.” ~ Mark Twain

Before You Quit Your Job – Two Things We’d Do Differently

Image Credits:
 1st Image: © Carbouval | Dreamstime.com
 2nd Image: Julie Broad

10 Simple Wealth Creation Strategies

 

Wealth CreationMy niece has become focused on becoming rich. She tells me about her friends who are from rich families. She shares her ideas of what it means to be rich, and then she quizzes me about whether this person or that family are rich.

Before I answer her, I always ask her how she defines rich. When she asks if we’re rich, I always answer the same way “Yes, we’re rich with love.”

That’s usually good for an eye rolling and a topic change. These days we then proceed to talk about Katy Perry or a dog she saw doing a cool trick.

If we do keep talking about money, I usually share one of these wealth creation strategies. Over time, I hope that these tips sink in for her. When I really understood these things and put them into practice my financial life changed for the better. Yours might too.

10 Tips of Wealth Creation Strategies

Tip #1: Money is ALWAYS an inadequate motivator.

Until you realize that though – you’ll probably spin in circles trying to “get rich” and wondering why you’re never getting there. The thing with using money as a motivator is that it works in the short term but when things get hard it’s pretty easy to say “ah forget about the money – I’m ok with what I’ve got”.

To be truly motivated to push through the inevitable challenges you need to get clear on the real reason you’re doing what you’re doing.

Freedom to create my day was so important to me that it consumed most of my thoughts. Not being free slowly began to choke me, especially when freedoms I used to enjoy in my job slowly slipped away. I had a vivid picture of what I wanted my days to look like and that picture is what compelled me to quit my job years earlier than we had planned.

That burning need for control over my time and desire to be free was my motivator.

I quit my job not because we were at the point where we were financially ready for it. I quit my job because I could no longer stand to live my life the way it was a single day longer. I was ready to kick butt, get kicked, and get back up to kick butt again to make my dream of freedom a reality.

I never considered going to find a new job – I set out to create the life I am living now. That was my motivator. Not money. For most parents, having more time to be with their children and be present for their family is a very compelling motivator. For others, it can be a more material desire at first (like a great home or a fun car or a family vacation), but it often evolves to something less tangible. It doesn’t matter what your motivator is, I just want you to know that if you’re using money or a goal like “get rich” to motivate yourself, you’re setting yourself up for failure.

Tip #2: You can be right or you can be rich, but most of the time you can’t be both.

Dave is in a year long business mentoring program and I recently had the opportunity to eat dinner with many of his fellow mentees. The woman in the group who has arguably seen the biggest improvement in her business as a result of the mentoring told me her success secret:“I just do what I am told. That’s it.”

She doesn’t waste time arguing why she has done it the way she has done it. She is open about her mistakes. She doesn’t resist the suggestions – she just follows the process and she is getting amazing results.

Most people would rather hide that they made a mistake or self-justify why they do something they way they do it so they feel better about themselves. She just admits it and learns from it. Very few people do that. Most people would rather be right. They’d rather explain why they think what they think or do what they do – even when they are paying five figures for a mentor.

Tip #3: Success and failure are not nouns.

Let go of it. You are never going to be a success, nor will you ever be a failure. You will succeed at some of the things you try just as you will likely fail at some of the things you try.

Tip #4: Return should not be measured in isolation.

Where there is a return there is a risk. You MUST look at what you have to spend in terms of time, energy, and money AND what you are risking to get the return for it to make sense. (Want more on risk? Here’s a video on how to analyze risk in real estate deals I posted a little while ago – you can check that out here).

Tip #5: The only place you can start is where you are right now.

Everyone wants to start at the front of the line but that’s not how the world works. Take the grocery store as an analogy. Do you ever struggle to pick a line at the grocery store – wanting to find the fastest one? Do you ever find yourself in the slowest line wishing you’d picked a different line? Do you ever switch lines? Most of the time when you switch lines you don’t get through the line any faster than if you’d just stayed in line. Once in awhile you do … but you’re always second guessing yourself for making the choice instead of entertaining yourself by reading the latest headlines on US Weekly. But you always get to the front of the line if you just pick one and get in, right? And sometimes another line opens up and you get to jump ahead a bit because you were already in line! The only real guarantee is that if you never get in line you never get to the front. Your life is like that too – so stop deciding which line to get in and just do it!

Tip #6: Master energy management not time management.

I know so many people who say time is their biggest obstacle to achieving their goals. Yet those same people can tell you all the latest on celebrities, tv shows and movies because they’ve collapsed in front of the tv for four hours at the end of each night. Guaranteed, they are making many of the time sucking mistakes that are so common.

I’ve realized that time is not their issue – nor is it mine. It’s energy. I now structure my eating, exercising and work schedule as much as possible around using energy and then renewing energy. There’s too much to cover in this short section but have the energy to achieve the big goals in your life is as simple things like getting more sleep, drinking more water, taking short walks, and cutting out sugar. Those measures can add several hours of focused energy to your day. And what you can do in two goal focused hours is pretty astounding. I would argue that you can do more in two hours like that with high energy than most people do in an 8 – 10 hour work day.

Tip #7: The pursuit of perfection will paralyze you.

When you seek perfection you’ll freeze up and not be able to move forward. Focus instead on what is “good enough” and what you can do TODAY to move forward. We love the saying “sloppy success is better than perfect mediocrity” which we heard first from Alex Mandossian. Keep moving forward – it’s not about perfection, it’s about progress.

Tip #8: Every day is a good day unless you choose for it not to be.

This lesson is from my Grandma Broad. She always tells me that if it’s not a good day it’s my own fault. I used to find that a little annoying because if a teacher gave me a bad grade or my brother hit me I figured it was not my fault things went badly. I have come to realize that everything in my life comes down to choices. Often a decision I made caused something to happen to me – so I had control over it in the first place. Or, even if it wasn’t my decision, I have a choice as to whether I let it ruin my day or not. I am not a bottle of happiness every moment of every day but when I am grouchy I do know that I am choosing to be that way and being happy is as simple as choosing to be happy.

Tip #9: Create different problems for yourself.

One of my biggest pet peeves is people who always complain about the same problem. I have a hard time understanding why they haven’t done something about it. They probably like having that problem secretly … they must! I have lots of problems too! I prefer to consider them challenges – but still. I have things that aren’t going well too. And every time I solve one problem I seem to create a new one … but that is ok for me as long as I am not dwelling on the same problem day in and day out.

Tip #10: Create more happy moments.

Make a list of the happiest moments in your life. You’ll realize that none of them (or very few of them) involved money. Usually they involved achieving something challenging for yourself, a great moment with friends or family, or an incredible experience of some kind. One of my happiest days in recent years was when I was with Dave in the Saskatchewan Pavilion of the 2010 Winter Olympics watching the Canada vs US mens hockey gold medal match. It was such an incredible experience. We didn’t know anybody else in the pavilion yet we all felt like friends. And when Canada won in overtime it was an explosion of joy heard all over Canada. I never felt more Canadian pride and joy before that moment. It was easily one of the happiest days of my life. That experience cost us less than $50.

Wealth is important but it’s not everything. Don’t get too hung up on it. Give yourself some room to just enjoy life. Figure out what moments made you really happy and strive to recreate those moments more often. When you stop focusing on money and focus more on happiness, somehow more money just seems to flow your way anyway.

It’s not that hard to make money. It really isn’t. Keeping it, growing it, and using it to it’s fullest potential to create a life you love is the more difficult part. These 10 things are all realizations, tips or strategies that have made a big impact on my life in the last two years in particular. Since leaving my job I’ve experienced bigger challenges in my life than I ever faced before (and I didn’t steer clear of challenges before … it’s just that independence is a whole different animal!), and bigger moments of job and achievement. It’s been a wild roller coaster ride of glee, fear, and excitement and every day the ride gets more and more rewarding. I wish the same for you.

If You Liked This Wealth Creation Article You Just Might Love These Others:

>> 7 Time Sucking Mistakes that Aren’t Getting You the Results You Want

>> 4 Steps for Overcoming Fear as a Real Estate Investor

>> Real Estate Investing Costs You’ve Never Considered

My Secret Weapon for Real Estate Investing Success

Real Estate Investing Success

We are just about to lift conditions on a beautiful 4 bedroom 2 bathroom home sitting on a quarter acre lot in Nanaimo. The home has nice high end finishings throughout including heated floors in the main bathroom and kitchen, beautiful hardwood floors and crown mouldings. It’s lovely. It’s so nice, in fact, that our home inspector said “You paid WHAT for this place??”

He was shocked at the price we purchased this home!

In the past we were able to find deals that cash flowed. We even picked up properties for under market value. But I would not say that we were identifying and negotiating deals that were significantly under their market value like this one. And the reason we’re able to find smoking deals like this one is because of my new secret success weapon. It’s a weapon we’ve deployed in the last 18 months and it’s resulted in an enormous change in our business.

The weapon is so deceptively simply I hesitate to even share it with you …

The weapon is focus! Or as our 12 Months to $1 Million club members hear us prattle on about week after week, it’s about BEING AN AREA EXPERT.

It’s not about chasing deals all over the countryside –it’s about finding an area that has good market fundamentals and that you can spend time and energy getting to know fairly easily.

When we share this with people at club meetings, in group coaching calls or even with friends they exclaim how much work that is. And I am certainly not going to try and convince you that it’s not work because it is. It takes a few hours invested weekly over at least three or four months before you can really begin to call yourself an area expert. It takes market watching, researching the sales stats, open house visiting, viewings, conversations and drive by’s. And most of all it takes some patience.

Here’s the thing that I think most people are missing though … and that is the fact that the deals you’ll find in Arizona, Florida or the East Coast of Canada might be cheaper and have slightly better cash flow than the deals you’ll find closer to home … but the question I ask you is: WILL YOU FIND THE BEST DEALS?

I can say with 100% confidence we’re finding deals that fit perfectly within our investment plan – they deliver us monthly cash flow, our partners 15% – 20% annual ROI on their money, and they build our wealth. I can also say that we are finding the absolute best deals in our market area given the strategies we use.

Are there other deals? Yes. Are the deals we find the only deals? Heck no!

But when we can buy a large home in great condition, on a large lot, and have real estate professionals telling us how impressed they are with our purchases (and the prices we get them for!), we know our secret weapon has been launched and is hitting it’s target.

So –what can you do  to launch your own secret weapon? Ditch the deal chasing … settle into shopping in an area nearby where there are jobs, schools, transportation options, recreational amenities and more people moving in than are moving out. With that selected, get even more specific and:

  1. Pick a property type. For example, we focus on homes that are a minimum of 3 bedroom and 2 bathroom. We do not deal in ranchers unless they are over 1500 square feet. Homes must have a usable back yard. Ideally not older than 1970 although we will make exceptions for homes in great condition. Depending on where you want to invest you may want to focus on condos, townhouses or smaller homes. The safest property type to go with are homes that fall into the starter homes category. Every area has a home type that is considered a starter family home – find that home type and price range and focus on it. There is always a market for starter homes – in good times and bad. They are the most liquid homes in any area.
  2. Pick a smaller area or two within your city of focus. This is the game changer. It’s pretty difficult to become an expert in an entire city very quickly. Different pockets of a city attract different people for different reasons. With different features, amenities and home owners you find the price points are different. Thus, to truly be able to spot a smoking deal you have to be intimate with a smaller area. You want to spend time focused on a pocket or two of a city that amounts to about 12 – 20 blocks max. That is it. It seems like you’re limiting yourself but really you are simplifying. When you cut out the clutter you can spot the really good deals and act quickly before everyone else wakes up to the price point (which is what happened to this home we’re about to get firm on … Julie saw the price drop and said it’s time to move on that one. Sure enough we saw it, put in our offer, and all of a sudden it’s getting shown like crazy but we had moved quickly to lock it up before anyone else did).
  3. Spend time getting to know the properties that fit your criteria in your sub market. We probably went overboard as we physically viewed nearly 100 properties in the last six months. Online we probably looked at 5x’s that number. But we know the market very well now. There are very few real estate agents that know the market as well as we do now. And that is how we can spot deals that are on MLS and worth $40,000 more than we’re buying them for – without putting any money into them. Instant equity thanks to this secret weapon.
  4. The final ingredient isknowing which strategy to use in your target area. Some areas that we focus on won’t cashflow well as a regular Buy N Hold but they will work beautifully as Rent to Own’s. And in another area, a Buy N Hold strategy is perfect because the prices are 10-20% lower but rents are only 5-10% lower than higher end areas. So when you are picking 2 or 3 locations within your target city/market to specialize in, know what strategy will work there. And how do you know what strategy will work in your chosen area(s)? Well, that’s a whole other article, but simply said, you’ll know because you’ll have done your research on rent rates in that area, how many For Rent signs you see there, the type of people that live in the area (are they blue collar, white collar, immigrants, students, etc.), and the property types in the area (multi-units, single family homes, starter homes, luxury homes). Knowing the answers to all of those categories/questions will help to define which strategy is best used there.

This weapon is simple but it’s deceptive in it’s simplicity. The hard part is not getting distracted when someone starts telling you about a hot deal they found in another market or the deals you’re hearing about in US sunny states. The really hard part is staying focused. Trust me – I know! But now that I know how powerful my secret weapon is I am finding it so much easier to turn away from the juicy sounding commercial deal someone sends me or the fix and flip potential of a deal in a different market. I remind myself that I can work less and make more just sticking to what I know and know very well. Plus my wife not so gently tells me to stay focused … that helps too.

Published November 18th, 2010

5 Quick Wealth Creation Tips

 

“So what do we do? Anything. Something. So long as we just don’t sit there. If we screw it up, start over. Try something else. If we wait until we’ve satisfied all the uncertainties, it may be too late.”
~ Lee Iacocca

Wealth CreationFirst, let’s be clear about something. Wealth and income are not the same thing. I think many people confuse the two.

Just because someone is making $250,000 a year doesn’t mean they are wealthy. In fact, they often aren’t. They live in a big house with a big mortgage, drive a fancy car, with big payments and take luxurious vacations. They are living the high life but that doesn’t mean they are wealthy. In fact, many people with big incomes are struggling to stay afloat because they feel they have to keep up with the other people around them. They have to live in a certain area of the city, they have to drive a certain type of car, and have a cottage for their family to spend weekends at in the summer. They have a whole bunch of liabilities burning through the big pay cheques they bring in every month. If something happens to that monthly income then their entire lifestyle will crumble before their eyes.

They are not necessarily wealthy.

Income is what you make… the money that is coming in every month. Wealth is what you have built up. It’s what you’re worth.

So how do you create wealth? There are five simple things you can do:

  1. Learn the difference between assets and liabilities, and then focus your efforts on accumulating assets. And folks, I don’t care what your accountant tells you, your home is not the kind of asset we’re talking about here unless you have a rental suite in the basement that is paying your mortgage. Keith Cunningham says it best when he says “Assets will feed me. Liabilities will eat me.”  If you have to make monthly payments out of your own pocket then you haven’t bought yourself the kind of asset that is building your wealth.
  2. Don’t eat your babies. We partnered with some friends of ours on one of our latest purchases. They were selling their house to purchase a bigger place with a yard and we pleaded with them to not “eat all their babies” when they sold the property. We suggested they send some of their babies out into the world to make more babies. And to this day they continue to report back to us on the babies they’ve eaten or the babies they didn’t eat. The income you earn are your babies. When you invest your money into assets that produce cash flow, like a solid rental property, you’ve effectively sent your babies out into the world to grow up and make more babies for you. So, when you spend that hard earned money, you are effectively eating your babies. When you think of it this way that brand new flat screen t.v. or designer purse doesn’t look as appealing does it? This is also known as paying yourself first and there have been dozens of books written about the subject from the Wealthy Barber to David Bach’s books on the Automatic Millionaire Finish Rich principles. The bottom line is that you can’t spend all your money and expect to become wealthy.
  3. Do what you have to do to become who you want to be. In other words… if you made a new years resolution to buy $1 Million worth of real estate this year then let’s get to it. Too many people are searching for a magic button to solve all their problems but the real solution lies in yourself. If you want to build wealth you have to do something every day to do that. You have to be so serious about building wealth that you are actually going to DO something about it. If you want financial independence you have to take action to create it. Period.As you begin to take action toward the fulfillment of your goals and dreams, you must realize that not every action will be perfect. Not every action will produce the desired result. Not every action will work. Making mistakes, getting it almost right, and experimenting to see what happens are all part of the process of eventually getting it right.” ~ Jack Canfield
  4. Use leverage. When I suggest that you don’t eat your babies, I am not suggesting that instead of eating them you save them. It’s going to take a long time to save your way to rich. And let’s face it … cash is actually worth a little less every year so if you have money sitting in the bank it’s actually shrinking in value. So instead of saving your way to wealth you invest your way to wealth. And… when you invest a dollar use other people’s money to leverage your dollar into many many more dollars. Leverage is the best part of being a real estate investor. For very little money you can control assets worth hundreds of thousands of dollars… and in many cases you barely need any of your own money at all to do this.
  5. Educate yourself. I cringe every time one of our friends mentions what their financial planner suggested they do. It’s not because they’ve trusted a stranger to invest their money instead of investing in one of our deals (ok… maybe there is a little of that going on but not much!). It’s because the advice of an average financial planner is not really that good. Now… there are excellent financial planners out there. Most of the time they are fee based… so they make money because YOU PAY THEM to evaluate your situation and help advise you on your investments. This is very different than the free financial planners that make money when they do a transaction… and unfortunately while I am sure there are good ones, the advice of these folks is almost always the same. And it’s not usually very good. But it’s easy… and it’s free… and a lot of people will find themselves utilizing the services of a financial planner for that reason. So instead of following the easy and free route take the time, money and effort it requires to educate yourself. If you want to invest in stocks, learn about stocks. And if you want advice pay someone that knows what they are talking about, has made money for themselves and for others. The same things goes for real estate. Don’t just blindly hand over your money… if you want to create real wealth you need to get in the driver seat of your own financial situation and drive. I really don’t think the good things in life come for free … except in the Rev N You newsletter… :)


Wealth creation is not something that you can do overnight. It’s not going to be easy but it is relatively simple and if you take these five tips to heart and work them into your plans for 2010 I promise that you will see some very impressive results by the end of the year. And if you don’t, I will give you a full refund for what you spent to read today’s article. :)

 

Published on January 6th, 2010

3 Lessons Learned from Michael Masterson

Are You Making Good Decisions?

Every conscious moment you have is an opportunity to be richer or poorer” –Michael Masterson

Lessons learned from Michael MastersonAre you making good decisions? Are you making decisions in your life that build your wealth or take away from it? Are you making choices that:

  • Make you smarter
  • Improve your skills
  • Develop your connections?

Are you investing your money or are you spending it?

I think most of us know the difference between investing and spending but we will find a way to convince ourselves that something we want is an investment.

These were some of the questions Michael Masterson asked the attendees at this year’s Early to Rise Information Marketing Bootcamp as he discussed his thoughts around creating a rich mind versus a poor mind.

The rich mind makes enriching decisions.  The rich mind is adept at analyzing long term value and has the internal capacity to act.

The poor mind sees the world as unfair, believes in luck and feels powerless over his own life.

It was a fantastic presentation … one that went on to discuss the 8 steps to develop a rich mind and some tricks for getting yourself into motion. And I took pages and pages of notes.

But the best lessons I learned from Michael Masterson came to me over the next few evenings as I spent a bit of time with him. I’m going to share 3 of them with you right now.

Lesson 1: Learn to ask good questions

Larry BenetOne of the networking tricks we were taught by Larry Benet, also known as the “Connector of Billionaires and Millionaires” is to find out what the other person is passionate about and then figure out how you can help them achieve what they want to achieve in their life. The realy message from Larry was to put the interests of other people ahead of yours in every meeting and every conversation.

Sitting with Michael Masterson at dinner I was thinking about the questions Larry had suggested we use to find out what someone is passionate about and thought I probably didn’t need to ask Michael Masterson anything because anything he wanted in the public domain had likely been covered in his writing… and I’ve read six of his books and at least half of the newsletter articles he’s published in Early to Rise in the last 4 or 5 years.

So, really I already knew all the answers he was going to give me!

So, I took a sideways attempt at Larry Benet’s suggestions and asked “What’s most important to you right now?”

He laughed and said “Well I am not going to tell you that, but it’s a better question to ask me than the one someone else used on me today which was ‘how can I help you?'”

He went on to explain that somebody in his position, and in the position of most of the speakers at this event would just feel uncomfortable by that question because there probably isn’t anything you could do to help them at this point but they wouldn’t want to say that.

So what should someone ask him or someone else who has achieved massive success in business and in their life?

Well, according to Michael Masterson, he’d rather you ask him for his advice.  Personally I think even asking someone like him about “What’s something you’re really looking forward to?” or “What’s been the best part of this conference for you?” would be just fine too. Just think about what you’re asking before you open your mouth! You’ll find you build a better connection with the person and you’ll keep the conversation flowing!

Lesson 2: Sometimes You Should Do As They Say Not As They Do

watching tvAs a long time reader and student of Michael Masterson I’ve severely limited the time I spend watching television. He spent countless Early to Rise newsletters and even a section in at least one of his books talking about the negative impact television has on your success and your health and your life.

I have never bought a television set in my life. The three t.v.’s I’ve had were all either on loan or by hand me down gifts.

And if it weren’t for Dave’s need to watch the hockey games on t.v., we probably wouldn’t have had any of them hooked to cable. And these days it’s so much easier to just rent a show on DVD or watch it online that we still don’t sit in front of the t.v. to watch anything but sports.

But the decision not to watch t.v. early on was mostly based on the fact that my budget didn’t allow for luxuries like cable. I wanted to save my money for travel! Later on in life I stayed away from television because Michael Masterson said I’d be more successful if I avoided it. And not that I did everything he said to do or not to do, but whenever I chose to follow his advice I was better off for it.

So imagine my surprise when the dinner conversation turned to television programs and his colleagues from the UK that we were dining with started talking about a few different shows and Michael Masterson not only knew of the programs but had seen every single episode. He went into detail about the differences between the American version of The Office versus the British version. He even made a comment about Vampire Diaries and a few other shows. This was clearly a man that was watching a lot of television!

I had very little to contribute to the conversation because not only had I not seen most of the programs they were talking about, but I hadn’t even heard of one of them. At one point he looked at me and said “you haven’t heard of that show?”. I couldn’t help myself … I said “No, because you advised me and the other Early to Rise readers not to watch television so I have kept my t.v. watching to a minimum.”

He smiled and said something like “If it weren’t for hypocrisy I’d have no good ideas.” He went on to explain why they now have 10 television sets … and how they didn’t have any when the kids were at home but now that they’ve moved out they have t.v.’s everywhere and he stays up late watching … he wants to get rid of the t.v.’s because he is so addicted but his wife likes watching a few programs.

Anyway, I am not about to judge him for his new t.v. addiction. I’ve made great use of the time I would have wasted in front of the television, and I don’t feel I’ve missed much even if I couldn’t really contribute to the hour long conversation we had about the different television shows that are on these days!

My point is that sometimes the advice an expert or a mentor gives us is something they are no longer doing… but let’s face it, when one of your company’s made $375+ Million last year and you’ve started plenty of other successful businesses, several of which made it to over $10 Million in annual income, then I think you’ve earned the right to go easy on yourself and spend your evenings pondering which is better, the British or the American version of The Office or Little Britain.

I haven’t reached that point in my life yet so I think I’ll still follow his advice … when I have multiple companies grossing hundreds of millions of dollars each year then I will re-evaluate things. :)

Lesson 3: Invest your money

As I said at the start of this article … you know the difference between investing your money and spending it. Most of us just find a way to make our spending feel like an investment.

But as a Rev N You reader we know that you’ve taken a good look at your finances and we hope you’ve taken measures to invest more money than you used to. And we also hope that you’ve been learning how you can invest it into real estate. But, just in case you still haven’t started buying real estate I wanted to share what Michael Masterson asked me when I was sitting with him and some other folks from Early to Rise one evening after the conference was over.

We’d all been chatting about plenty of different things … from the excellent words of Clayton Makepeace that were shared at the event, to the interesting people we’d all met at the conference, to the cigars Mary Ellen Tribby presented to Michael Masterson as a gift in celebration of Early to Rise’s 10th anniversary.

It was a fairly light and friendly conversation when Michael Masterson turned his total attention to me. He’d mentioned the previous day that he’d like to see me a bit more involved with Early to Rise … writing a few more articles for his publication and maybe work on a few other things with the group … but we hadn’t talked about anything related to that in this conversation when he turned to me with a serious face and said “I need to know some things. I have some questions for you.”

The other people at the table naturally turned their attention to me too. “Oh boy – I’m on the hot seat! Everyone’s listening” I thought.

His first question: “Are you buying real estate right now?”

Phew…easy to answer … “Yes”.

What specifically am I buying he asked. “Residential… mostly single family homes or duplexes”.

No reaction on his face… my mind is racing thinking about what he’s been writing about lately. Has he been talking about real estate in his newsletters I wondered? Am I about to fall into a trap because I haven’t been reading the newsletter as much as I used to?

He asked where I was buying: “On the west coast of Canada and in the interior of B.C.” I replied.

We talked about this for a minute more or so, and then he nodded. He seemed satisfied.

Even though I felt like I’d given him answers that he was happy with, I wanted to know what he was doing.

He said he was buying single family homes right now. The time is right to be buying properties to hold for the long term.

We agree …

Of course, there are definitely some markets in North America that haven’t seen the worst of it yet. In fact, even in many parts of Canada where the media is headlining the “housing market recovery” we believe caution is still required because there are probably still some tough days ahead of us, but with buy and hold investing you don’t have to buy at the absolute bottom of the market to make a bundle!

Single Family HomeWe’ve said it a dozen times …you’ll make money through the positive cash flow and the pay down of the mortgage by your tenants even if the value of your property doesn’t go up. Plus, you’ll enjoy some significant tax benefits along the way. And if you buy right, and hold onto the property for the years to come, unless history doesn’t repeat itself for the first time in housing history you can rest assured that your property value will virtually double in the next 10 – 15 years.

So maybe Michael Masterson no longer follows his own advice about watching television  … but if he’s buying single family homes and thinks now is a good time to learn about buy and hold investing then I believe you should be paying attention.

And you definitely should be listening to his message about making good decisions. In every moment you have the chance to make choices that make you richer or make you poorer. You can choose to ask people good questions that enrich the conversation and add to your connection. You can choose to turn off the television and work on improving your skills or plan your investments. And you can choose to invest your money instead of spending it. You can choose to buy at least one piece of property this year to start growing your wealth now!

Published on December 4th, 2009

The 10 Million Dollar Dream

Good DebtA few years ago my Dad told me that he’d set a new goal. He wanted to owe the bank $10 Million Dollars.

I nearly choked on the freshly baked chocolate chip muffin I’d been devouring.

Why in the world would you want to owe the bank $10 Million dollars, Dad? I thought you were trying to retire!!”

He went on to explain that it wouldn’t be $10 million dollars in debt from living life extravagantly. If he and Mom just spent the money going on cruises, buying nice cars and eating at expensive restaurants while accumulating that sort of debt load, that would be bad debt. But, his intention was not to get into bad debt. It was to get into good debt.

The concept that any debt can be good can be a tough one to wrap your head around. We’re taught that when you owe someone something you should pay it back as quickly as possible. And, in general, debt comes with a negative stigma. And, in many cases, it should. Debt that is accumulated for the purchase of “stuff” is not good debt.

But, when you take on debt carefully, only accepting debt attached to an asset that will generate cash to cover the cost of that debt then that is good debt. In the case of real estate investments and their associated mortgages, it’s debt that someone else is paying for through the rent they pay. It definitely qualifies as good debt!

So back to my Dad’s $10 Million dollar dream …
I’ve heard Donald Trump say, “If you’re going to think, you might as well think big.” In my Dad’s case he realized that it is going to take the same amount of time to pay of $1,000,000 in investment property debt that it will take to pay off $10,000,000. He said to me:

“It’s going to take me 20 years to pay it off whether it’s $1,000,000 or $10,000,000 so it might as well be $10,000,000.”

In other words, if he’s going to wait 20 years for his assets to be paid for by his tenants he might as well be waiting for a $10,000,000 pay day instead of just a $1,000,000 pay day.

AND – the incredibly rewarding part of his plan is not just that he is thinking big and challenging himself at a time in his life when most people are content to roam the golf course and play the slot machines at the casino – it’s that the properties he started buying a few years ago in pursuit of his $10 Million dollar debt dream have gone up in value substantially and are creating a VERY nice cash flow that helps him pay for his living costs today!

I’m also working hard to follow in my Dad’s footsteps. So when my Dad recently said to me “Julie, you and Dave are in way more debt than we were at your age” I know he is proud of what we’ve been able to achieve and is complimenting us on our progress!

I encourage everyone to take a lesson from my Dad and his $10,000,000 dream:

  • It’s NEVER too late to start making your dreams come true – so what’s holding you back? Plan your plan and starting working that plan today.
  • Make sure you know the difference between good debt and bad debt. Get rid of your bad debts quickly (or better yet, don’t take on any bad debts if you can!) and grow your good debts quickly yet carefully. It’s only good debt if someone else is paying it off for you!
  • If you have to wait 20 years … you might as well make the pay day a good one!

If you liked this article check out Julie’s 10 Simple Tips for Wealth Creation.

Published on August 27th, 2009

Getting Started in Real Estate Investing

Real Estate Investing

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

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

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

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

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

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

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

  •  “It seems complicated and risky to me – question is how to make it less risky/scary?” –reader from Burlington, ON
  • “How do I start? How do I feel good about that initial decision?” –reader from North Vancouver, BC
  • “How do I get started in real estate investing?” –reader from Chicago, IL
  • “How do I get started?” –reader from Esperance, NY.

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

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

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

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

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

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

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

Ask yourself some questions:

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

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

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

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

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

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

Action! Nothing Happens until Something Moves, RobertRinger

Published December 1, 2008

Automatic Wealth

Wake Up Richer Everyday

It’s time to face the hard facts. If you haven’t committed to yourself that you are going to build your wealth, made a plan to do so and started working on that plan, then you are probably only building your wealth when you are awake and working. Isn’t it better to know that when you sit down to watch t.v. or you close your eyes at night you are still making money?

Passive wealth creation, or being able to wake up richer everyday, is one of the reasons we love investing in real estate. We talked a bit about this in our March issue this year. Of course, there are other reasons why real estate is one of the main ways we’ve pursued to build our wealth. We’ve never been as scared of investing in real estate as we have of stocks (we started right around the time that most of our friends and family lost buckets of money in the Nortel stock crash). And we’ve never found real estate as daunting or as time consuming as creating a business.

This month we’re investigating the advice on wealth creation found in Michael Masterson’s “Automatic Wealth: The 6 Steps to Financial Independence“.

 Michael Masterson’s “6 Steps to Financial Independence”

 

by Julie Broad

Recently, Dave and I attended a 4 day marketing bootcamp in Delray Beach, Florida put on by Early to Rise. We each went with different objectives, but we both came out incredibly impressed with Michael Masterson, the keynote speaker of the conference. I think he is best known for his copywriting expertise and affiliation with the American Writers and Artists Institute, but he started with little, held many jobs over the years, and has built his wealth through just about every kind of business imaginable. He’s owned businesses for things like pool installations, direct marketing, selling discount jewelry, and has been involved in half a dozen real estate development ventures. This book was a great mental tune up. Masterson offers sound advice in the book from someone who has been there and hasn’t lost touch with reality despite his profound wealth and success. He’s a guy who wakes up richer every day. I thought some of our readers would enjoy a snapshot of his 6 steps to financial independence.

The Nuts and Bolts of the 6 Steps:

  1. You will make you wealthy…and it won’t happen as easily as putting 10% of your income away each month,
  2. You have to plan to be wealthy – wishing won’t work,
  3. You must develop rich habits as the rich are different from ordinary people and it’s not just because they have more money,
  4. Increase your income radically. He isn’t talking about a 3% a year raise here, he is talking about boosting your income by 150% for starters,
  5. Get rich automatically – true wealth is built through the creation of equity,
  6. Retire early, if you want to.

After you have taken stock of your current financial situation, you must plan to become wealthy. As we have said in several issues, “What are your real estate investing goals?”. His approach to goal setting asks you to imagine your funeral. What do you want people to say about you? What are the words from your family or close friends? A coworker? A mentor? And someone you didn’t know? Based on that, determine your goals in the long term, and then dive in and figure out what the medium and short term looks like. Make them specific and measurable, and write them down.

Plan in hand, it’s time to develop wealthy habits. My favourite chapter of the book is “Step 3: Develop Wealthy Habits“. Masterson says “Budgeting is like dieting: It’s enormously sensible but almost never effective”. I have been a budgeter for over 10 years. I have a great understanding of where I spend my money, but I also have a lot of stress about spending money.

Instead of continuing to focus on where I spend my money, as I already have a deep understanding of where my money goes, I’m taking the Masterson approach of doing a personal balance sheet.

Create a spreadsheet that lists all of your assets and all of your debts. Conservatively estimate the value of all of your valuable assets (stocks, bonds, real estate, art) and how much you owe. Then, each time you check your balance sheet, promise yourself (And take the steps necessary to make it a reality) that next time you check you will be wealthier. Before you make a purchase or a decision to do something new, you will find yourself asking “Will this make me richer or poorer?”.

Let me skip ahead in his book now, as this is a newsletter about putting the “Rev N You with Real Estate”, not about general wealth accumulation and life goals. Step 5: Get Richer While you Sleep is all about investing in real estate, stock investing and investing in businesses to build your wealth. He gets right to the meat of real estate investing as a means to create wealth by saying “While you are building wealth, you should treat your rental real estate portfolio as an equity play. You will want to use leverage (by taking mortgages) to get the maximum appreciation on your cash…As your equity increases in each property, you should consider taking some of that money out of it and reinvesting it in other properties” pg.185.

This has been our strategy, and it’s worked very well, especially since the market has been so strong. It hasn’t put cash in our pockets (in fact it often feels like our properties take cash out of our pockets) but our balance sheet is better every time we look at it.

He goes into a lot of detail and examples to convince you to invest in real estate. But his bottom line, and we agree, is “If you haven’t already begun investing in real estate, start doing so today. If you are a budding real estate tycoon, resolve to add to your empire this year. You’ll find that actively investing in real estate can give you much-better-than-the-stock-market returns, and the comfort of knowing your investments can’t disappear” page 219. Couldn’t have said it better myself Michael! Pick up a copy and check it out for yourself.

PublishedNovember 18, 2007

The Advantages of Real Estate

Rev N You with Real Estate
One Year Anniversary!

One year ago this week we launched our first edition of the Rev N You newsletter. Thank you to those who have been there from day one, and a big welcome to our new subscribers. To begin this edition, let’s look back at how we began our first newsletter last year:

Real estate is a great place to put your money (and one of the advantages of real estate is that you can make money while you sleep), but it is not without the pitfalls. In five short years and eleven purchases we have dealt with a property manager on trial for murder, tenants with knives, fire code inspections going all wrong and so much more.

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

Make Money while you Sleep:
The Advantages of Real Estate

It’s not all roses and rainbows, but there are many advantages to owning investment properties. It’s what the big stories are made of, and why we stick with it despite the many challenges we have told you about over the last year. Let’s look at several of the perks to being in the revenue property market.

 

  • The leveraging advantage;
  • Powerful Return on Investment (ROI);
  • Tax write-offs;
  • Tangible asset class;
  • Residual income/equity building; and
  • Limited land supply.

Real Estate Advantage: Leverage.

In a nutshell, this refers to the idea of using OPM (other people’s money) to help purchase property. In most cases, we obtain a mortgage from a bank for upwards of 85% of the value of the property. This allows us to use less of our own money to build wealth thru appreciation, positive cash flow, and rent covering principal and interest repayment. There are not too many investment options that allow us to invest in only 15-25% of the asset while obtaining 100% of the return.

Real Estate Advantage: ROI.

If you put down $25,000 on a $100,000 rental property, with 5% annual appreciation, approx. 2% principal payback, and 1% positive cashflow from your rent collected, that will earn you $5,000 + $2,000 + $1,000 = $8,000 in your first year. Divide this into your original down payment of $25,000, your annual ROI is 32%! Just imagine what your ROI would be if the property appreciated 10% in a year (if you guessed 52% you’d be right)!

Real Estate Advantage: Tax write-offs.

Of course, you should speak with your accountant before determining exactly what you can and can’t write-off, but there are plenty of expenses that you can write off when you own real estate. A few of these items include: interest paid on the mortgage, operating costs such as heat, hydro, insurance, property management, even some of your closing costs can be written off. In addition, your accountant may even advise you to depreciate your building which helps at tax time too!

Real Estate Advantage:Tangible asset class.

Owning a rental property is owning something tangible. You can kick it, smell it, touch it, and I suppose even taste it (not advisable but you could)! Buying 100 shares in a company is really just a paper-based asset. Financial trouble or internal turmoil are not immediately apparent to the shareholders. Did the CEO just sell all his shares? You don’t know until you read about it in the paper. Now, I am not saying not to put your money in the stock market. I proudly own shares in many different companies. I am simply saying that if you are wondering how your property is doing, go do a drive-by or ask a friend to. Order an appraisal to check it’s current market value. I love the idea that at any given time, I know what is going on in my property.

Real Estate Advantage: Making Money while you Sleep.

As the title of this article suggests, real estate allows you to build equity, and if you have positive monthly cashflow,make money even while you sleep! You don’t have to work at real estate everyday like a regular job. If you buy well and manage (or hire a property manager to manage) the property well, you will make money on it without working on it very often. Even if the market is depressed a property where the rent covers the costs still makes money even if the value has depreciated.

Real Estate Advantage: Limited land supply.

The amount of land we have on Earth is limited. It’s even more limited in all the world’s major cities. Yes, urban sprawl tends to push out cities boundaries, however, there is a limit to how far people want to live away from a city’s downtown core (or wherever the majority of workplaces are located). Because of this, land value will always increase over the long run. Supply and demand is a powerful theory especially when it comes to real estate. My parents used to live not far from where Julie and I live now. Thirty-five years ago, houses in this area were selling for a meager $20,000. Now, houses are selling for $500,000 to over $1 million! Imagine if you bought 3 houses putting $5,000 down on each 35 years ago. Your $15,000 would now be valued around $2,000,000!. How’s that for ROI!

Making Money in Real Estate is Simple as 1-2-3

Canadian Money in Real Estate

 

Many of Canadian Business Top 100 Wealthiest Canadians made their money through investing or developing real estate. It seems like it was easy for them, so wouldn’t it be easy for anyone? Five years ago, with only a small amount of savings and RRSP’s and a loose plan, we set out to see if we could join the ranks of the rich.

13 properties into our real estate investing adventure, we have learned a lot the hard way. But despite $45,000 in surprise repairs, a property turning into a crack house ,and having a property manager rob rent money from us we are in the real estate market for life. Each year we have averaged returns on our investment of 63% despite some pretty big mistakes.

Of course, increasing property values over the past five years gave us shelter from the storms we created with our mistakes, but even in properties we own that didn’t appreciate much over the past five years, we still made money. That is because in real estate, there are several ways to build wealth.

You can make money through any or all of these ways:

  • Property appreciation
  • Cash flow
  • Other people’s money paying your mortgage.

Let’s look at a basic example of just how powerful each of these can be. Pretend you find a desirable property for $100,000, and you buy it for 25% down ($25,000).

1)Appreciation: Property goes up in value by 5% in year 1. It’s now worth $105,000. Return after one year is 5000/25000 = 20% on your $25,000 investment in the first year!

2)Cash flow: Rent each month is $1000. Your mortgage, insurance, taxes and miscellaneous expenses are $900/month. Income minus expenses = $100/month. 12 months x $100 = $1200/year income.

Add that to the appreciation and you have made 6200/25000 = 25% in the first year through appreciation and cash flow.

3)Other people’s money paying down your mortgage: Assuming you have a mortgage at a 5% fixed rate, at the end of the first year you will owe $73,440 on your $75,000 mortgage. You have now built an additional $1560 equity into the property ($75,000 – $73,440 = $1560).

Your return including appreciation, cash flow and reduced principal give you a first year return of 7760/25000 = 31%.

Of course, finding a property that gives you consistent monthly cashflow is difficult, especially in the heated markets we have seen recently. But, over the long term, you don’t need to have all three of the above to make money from your investments. That is the beautiful thing about real estate, there is more than one way to make money from it.

Learn The Insider Secrets to Building A Seven-Figure Real Estate Portfolio

– Right Now –

While So Many Properties Present Once-In-A-Lifetime Opportunities …

Get the free Rev N You with Real Estate newsletter and start realizing your dreams today.

The Book That Got Us Started

rich dad poor dad

Rich Dad Poor Dad

BUY THE BOOK NOWRich Dad Poor Dad

You might roll your eyes when I tell you that the book that motivated us to set some goals, and actually start real estate investing five years ago was Rich Dad Poor Dad by Robert T. Kiyosaki. I admit that it’s a bit ridiculous how many different versions of the same concept have sold since then. I think they’ve diluted the power of their concept by over-selling it. Six years ago though, the messages in the original book really hit home for us.

Specifically, the two concepts that I carry with me today are:

  • The Rich don’t work for their money, their money works for them, and
  • Why your house is NOT an asset.

The Rich have their Money Work for Them

My parents have worked incredibly hard all their lives. Most recently they’ve been successful B&B owner/operators on Salt Spring Island, BC. They have set themselves up very well for retirement, have some money to spend now and have enjoyed being self-employed for over 30 years. What they haven’t had is freedom. Tied to their businesses 24 hours a day 7 days a week, until recently they had only taken a handful of vacations in their lives.

After reading Rich Dad Poor Dad my dad said to me, “We have been buying ourselves jobs instead of buying businesses”. At the time, I had been working for less than two years, and already realized it was going to be a long life of “punching my time card”, if I didn’t make a plan to get my money working for me. That is when Dave and I set out to figure out some ways to create income streams that didn’t require our attention every day. Neither of us was prepared to start a business, so we decided to build wealth while working for “the man” as Dave calls being employed. The objective, is and always was, to become financially free. We are working to be at a point where our assets make us enough money that we only work because we want to.

Your house is NOT an asset

This concept has been the subject of many debates in the media and amongst our friends and family, but it really made sense to both of us. The essential concept is that assets generate income, liabilities generate expenses. “The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets. (p.81)”

The enlightening concept here is that as a homeowner that works, you are making everyone else rich (the owner of the company you work for, the government, and the banks that loan you money to buy your “assets”). If instead of becoming a homeowner, you bought an income producing asset (stocks, bonds, real estate, intellectual property), you would increase your income, decrease the amount you pay the governement (in some cases), and your financial “cycle” would be generating cash instead of generating expenses.

Most of us get a raise, then think about buying a bigger house. A raise means more money for the government. A bigger house means a bigger mortgage, which means bigger payments to the bank (liabilities). A home, we’ve noticed, also means many trips to Home Depot, Home Outfitters, Sears and other stores to make your home nice. If you have recently changed from renting to owning you will likely have noticed how many things you suddenly “need” to do to your house or buy for your house. It’s a never ending cycle of expenses.

So, does this mean you shouldn’t own a home? No. What it’s about is awareness – don’t fool yourself into thinking that your home is an asset just because the rules of accounting say it is. Your home does not create income for you and your family, it creates expenses.

For us, Rich Dad Poor Dad got us into real estate early in order to begin getting our money working for us. We bought an investment property before we bought a home. But, the second place we bought was a small condo for us. We would rather pay down our own mortgage than someone elses. We have since lived in three places we have bought, and they have always been homes below our means. We put the rest of our money to work for us. We do this knowing that our home is a liability, but one that we have chosen both for lifestyle and financial reasons.

Published March 22, 2007

**April 3rd, 2009 Update: Check out the article celebrating Rev N You’s 3 Year Anniversary by Julie Broad called: The Day We Became Real Estate Investors. It’s a tribute to the lessons this book taught us**

 

How About Freedom 40 Retiring With Real Estate

Retiring with real estate is really appealing so we thought we would summarize some ideas from the Australian Property Investor Magazine on ways to achieve financial independence through investing in property.

One of their theories is that if you have five average- priced properties paid off completely, you should have the ability to replace your working income.

To apply that to Canada, the average priced home in Canada according to the Canadian Real Estate Association (CREA) in September 2006 was $277,470.

Hence, if you had 5 x $277,000 properties, this would equal $1,385,000 in equity. From this, the article debates the various ways you could earn income. They include:

1. Borrow some of the equity and live off that;
2. Sell some or all of the properties and invest the money in “safe” income producing stocks, bonds, and other liquid wealth products;
3. Live off the rent.

Any of these would work really. It really depends on, yes, you guessed it, your real estate investing goals!

Let’s look at living off the rent. For argument’s sake, let’s say you have a GRM (remember, your Gross Rent Multiplier we discussed a few issues back?) of 10 on all five of the properties. This would look like this:

* $277,000 divide by 10 (GRM) = $27,700 per year
* Times $27,700 by the 5 properties = $138,500 total income per year.

However, this does not include any expenses associated with renting the property. As we have discussed before, we average approximately 40% expenses on our properties (taxes, insurance, property management, maintenance, heat and hydro – where applicable). So, taking that into account, you are left with:
$138,500 in total annual income minus 40% ($55,400 in expenses) = $83,100 annual income.
Of course, the taxman has to take some of that and then you can finally start paying for your personal expenses of food, housing, entertainment etc. But, it provides you with an idea of what can be done with some forethought into your objectives, savy purchasing, and dedicated debt reduction! In future editions, we’ll discuss more about the idea of retiring using investment properties.

Published November 16, 2006

For the Love of Money with Real Estate

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

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

On One Condition: Putting in an offer

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

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

Determine your price:

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

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

On One Condition!

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

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

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

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

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

Published August 15, 2006

It is Not All in the Numbers When Investing in Real Estate

 Just because the property has good numbers, does not mean it is a good buy

 

When the numbers on your potential real estate investment look good

After a weekend at the 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 from 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!

When the numbers aren’t as good, but the property has a lot of potential

When you know what your goals are, you can easily identify properties that fit within your goals. We were looking for a property to purchase with potential appreciation, reasonable liquidity and limited hassle. With several other properties causing us grief, we really just wanted a good investment, even if we had to pay more for it relative to the rent we were bringing in.

The numbers:

* Asking price = $275,000
* Monthly rent = $1,575
* $275,000/($1,575 x 12) = 14.55.

The property had a GRM that was over double what the real estate investing course recommended we purchase, however it fit all of our other criteria, and because we used equity from another property to purchase it, we didn’t need any of our own money for the down payment. In the end, it costs us $200/month to keep it, but we have some tax write offs to offset that, and it has been a very low maintenance and stress free purchase so far. It’s also the one that Julie still has yet to see!

Knowing your goals gives you comfort and confidence in your purchases. Also, knowing what you are willing and able to endure financially and emotionally will take you a long way to finding properties that fit into your life.

published July 16, 2006

 

Real Estate Investing Goals

Last edition we talked about whether investing in real estate is right for you. Assuming you’ve decided it is, then the next consideration is what are your real estate investing goals. When we bought our first two properties we were quitting our jobs to move to Toronto from BC. I was going to do my MBA and Dave was going to find a new job. My goal was to make my money work for me while I was in school.

Why is it so important to know what your real estate investing goals are? In order to figure out what type of property you are looking for you will need to know what exactly you want to get from real estate investing. Are you looking for monthly positive cashflow, longterm appreciation and equity building, or a combination? Are you interested in investing for the long term or the short term? How much time do you have and what is your risk tolerance?

Before you can determine your property type, it’s necessary to assess your current financial state and understand what you are trying to achieve and what is possible.

Your Five Year Plan – Goal Setting

This is a technique we use over and over. Sit down right now and write down:

  1. Where you want to be financially in five years (be specific, for example do you want to be earning $100,000/year in your job, own two properties that are giving you $500/month in positive income, and have $20,000 in RRSPs)?
  2. What can you do in the next 12 months to achieve each of the above items (once again, be specific and try and make the items measurable)?
  3. What can you do in the next six months to move towards your 12 month goals?
  4. What must you achieve this month to move towards your 6 and 12 month goals?
  5. Review these goals regularly. We used to do it monthly, but now we just do it quarterly. Find what works for you, and stick with it.

We will leave how to achieve your goals aside for now, and just focus on finding a property type to help you move forward in your real estate goals. Some initial considerations before you begin a property search:

  • Will you live in one of the rental units or will you be an absentee landlord?
  • Do you have any savings to use for the purchase (or can you use your RRSP’s as part of the first time Home Buyer’s Plan)?
  • What size of mortgage can you qualify for?
  • What is your risk tolerance?
  • How much spare time do you have to devote to the property?
  • Do you have any construction/renovation knowledge (or know somebody that does)?
  • Will you manage the property yourself, or will you hire a property manager?
  • Can you afford to supplement the property monthly if necessary?

Think carefully about your answers, as each one has an impact on your choice of property. For now, let’s focus on the very first decision: Living in the building with your rental unit or being an absentee landlord.

Is Making Money in Real Estate Right for You

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

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

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

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

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

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

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

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

Published April 17, 2006

 

Item added to cart.
0 items - $0.00