Karysa is a millennial Investor who didn't understand the normal career choice lifestyle. Discovering real estate investing, she is now CEO of a national award-winning real estate company. Karysa strongly believes this is the way to financial security and even financial freedom! She hopes to inspire young adults to consider this method to help create a life they desire and enjoy.
A few years ago, we were approached by a gentleman that was looking to hire a management company to run his property. It wasn’t just any property – this was a property he’d built himself in the 70s. He knew every nut, bolt and screw in the building. Apparently, he had been making regular yearly calls to various management companies looking to hire but things never seemed to work out. He just never seemed to find the right company.
You may have already experienced the same feeling. Hiring a Property Manager can be a stressful time for some investors.
In my experience, each market area will have various types of Property Managers that you can get quotes from. The options will vary from a friend’s friend that looks after properties, to real estate agents, to mom and pop shops, all the way to larger management firms.
As an investor, it’s important to properly align yourself with a Property Manager that has the same principals as you when it comes to running an apartment building. Chances are that you will be working with this person for a long period of time therefore its a good idea to find someone that you like and respect.
When the gentleman called us, we were a young company and hungry for business (as we always are…).
After several discussions and meetings, we won the business. We’ve been managing the property ever since and our relationship with this owner has blossomed into a wonderful partnership. We spend a lot of time providing him with great service, providing the property residents with great service and things have worked out great. But, a big part of what sold this business, and we’ve found helps us stand out from other property management contracts, is our onboarding process. It’s not just about bringing in a new client – it’s all about ensuring that the owners and their tenants are set up for a successful partnership.
Getting the management agreement signed is the easy and sexy part of this business. Managing the property and all its stakeholders is a completely different ball game. When you’re looking for a property manager, ask them about their onboarding process for new owners and their tenants. If you want to ensure your property is going to well taken care of and that you have a professional running your rental property, understanding what they are going to do as soon as you become a client will help you.
Having on-boarded hundred of property owners over the years, I know how important this first step is to the relationship between property manager and owner. If you’re not having your expectations met at this stage of the relationship, it could be a short and bumpy ride.
Below are 5 Key Items to Ask a Potential Property Manager Before You Hire Them:
1. Do You Have an Owners Manual?
The very first item that you should look for is some sort of owners manual detailing how the management firm runs their operations and what you can expect to happen in certain situations.
Having clear expectations from both parties on any business transaction is a must. In the world of Property Management and investment properties, it’s critical that the owner and the property manager be on the same page on how run a building. Ambiguity and assumptions are dangerous and therefore should be avoided at all costs.
Items to address in the manual could include the following:
When do I get paid my cash flow?
When and how do I get my statements?
How do you deal with late rents?
What dates do you send out eviction notices out by?
How does the Property Manager handle expense expenditures?
When such a document exists, there are no surprises as to how things work. Sometimes you and your property manager may agree that a situation should be handled differently, but generally, an owners manual or a guide to the policies and procedures will ensure that you know what to expect from your property manager.
2. How Do You Communicate with Your Owners?
How you’ll communicate with your property manager is important. Find out how your property manager will typically communicate with the owners and establish your own communication strategy that will work for both parties. Setting the ground rules for regular meetings/discussions is critical.
Some property owners are of the opinion that no news is good news while others want to know every detail. Let your property manager know where you sit on this so that you are getting the information that is important to you.
Agree on times and frequency of phone calls. This is intended to be a minimum. Example would be 1 phone call per month to review financials if you’re an owner of a larger property. For single family houses, you may only need to speak quarterly or semi-annually.
Agree to an email volume that can accommodate both parties. Do you want email notifications about every little thing, or just when something important happens?
3. What Will You Do For an Initial Property Inspection?
Now that the fundamentals are in place, you want your property manager to go do a full inspection of the property. You want your Property Manager to know every detail on the property and you should help him in every way possible. In an ideal situation, your manager should be able to produce a ‘building file’ on the property. This building file would essentially act as a central holding spot for all the property details.
Some key items are the following:
– Taking pictures (professional ones are recommended) – Documenting general condition of common areas – Roof and window condition – Age and serial numbers for hot water tanks – Alarm System details – Functioning keys for all doors – Water shut offs – Elevator details – Pool maintenance – Heating source(oil, natural gas, electric …) – Central Air system
A well-documented building file can be very useful for both owners and property managers. If you’ve recently purchased the property, providing your property manager with the inspection report can help speed up this process.
4. How Will You Handle Tenant Introductions?
Tenant relations are one of the most important tasks for any owner and property manager. You want your manager to take the time to go and meet with each of your tenants. This goes a long way to building and cultivating great relationships.
In addition to the introductions, welcome letters should be distributed with all the details on how to work with the new managers.
5. What Kind of Software Do You Use? And What Is Available for Your Owners?
If you’re working with a professional management firm, chances are that you will be provided with a web-based portal to access your property details. Find out how this works and whether the manager will provide you with all the login details of how to access your portal as well as how to use it.
In most cases, you might be using the portal more often that you speak to your manager so it could be a key component to your overall management solution.
There is a lot of emphasis on property steps and questions to ask when hiring a Property Manager, and these are important, but many of them overlook how much emphasis should be put on the on-boarding process. Now you know what to ask about and look for when you meet your property manager.
Written by Tony LeBlanc.
Tony LeBlanc is a zealot when it comes to managing your property. His first gig? He was a precocious teen and live-in superintendent. Yes, that’s right, he was practically born into the industry. His resume is lengthy, but here are the highlights: A successful entrepreneur two times over, income property owner, and a competitive body building software engineer with a financial background that would fluster your financial planner.
Ground Floor PM is a strategic firm born of his desire to create wealth for property owners. With his solid financial acumen, and technical skills, he’s created property ecocystem, with to the minute financial reporting and forecasting. His reputation for anticipating trends and recognizing value are renown. Prepared to act as an advisor on future investments, he sees himself as a partner in your long-term growth. How’s that for a service perk?
I remember the first time my house was robbed. The thought that my personal space had been violated, felt horrible. The idea of a stranger walking through the house and going through my things was nauseating.
It is a terrible feeling, but it happens all too often. I’ll get a call from a tenant, landlord or property managertelling me a property has been broken into. The window has often been smashed, the door kicked in, or the locks tampered with.
It’s a scary experience for the tenant, and it is a headache and drain on money for the landlord. More often than not these instances can be easily avoided with some simple maintenance of the property’s security.
Here are my top tips to for rental property security.
Secure Your Main Entrances
In most provinces it is a requirement that all entrance doors be fitted with a deadbolt.
While it is optional to use a single or double cylinder deadbolt, I highly recommend installing a double cylinder deadbolt for extra security. This is especially important if you have a window nearby. A double cylinder deadbolt will stop the thief from reaching in and opening the door from the inside.
The deadlock can be a separate piece from the door handle, or you can buy a deadlock that is incorporated into the handset.
To further secure your entrances from unwanted intruders, install solid wood or metal doors. Flimsy wood or doors with windows can easily be kicked or smashed in. A solid construction door will ensure that any potential thieves will have a hard time getting through.
If you have had to evict a bad tenant, get your locks rekeyed. This is often cheaper that buying a new set of locks. [Note from Julie: We install the SmartKey locks by Weiser on many of our properties so rekeying doesn’t require a locksmith].
Check Your Window Security
Whilst windows must be fitted with a mechanism which prevents the window from being opened from the outside, in a lot of provinces they don’t require a lock.
However, in most cases a burglar can easily smash a window and open the latch, giving them easy access to your home. If burglars can see that you have installed locks on your windows, they will second guess breaking in. A locked window with broken glass is harder to get through than a window that is opened.
Install External Lighting
The last thing a would-be thief wants is having a spotlight shone on their suspicious behavior. Motion sensor lighting is an excellent deterrent to intruders.
As a minimum measure, make sure you install security lighting at the main entrances to your home. If you have a larger budget, consider installing security lighting around your property to illuminate potential hiding places for burglars.
Install A Security System
Security systems are one of the best deterrents you can install in your property. It also has the added benefit of increasing your properties desirability to prospective clients.
If you already have one installed, make sure you run new tenants through how the system works. Some people prefer their privacy, and may not share their own access codes with you. As the landlord, you can ask for your own access code that you can use in an emergency. [Note from Julie: on a few of our rentals with security systems we have a master code the tenants can’t change – they can always change their own access code, but our master code will always override the system. This is especially important if a tenant forgets the code, leaves without telling you their code, or as already noted, there’s an emergency requiring you to go inside.]
If you don’t have a security system, you should consider getting one installed. There are many different security systems available. These include options that won’t require drilling holes into walls or taking a long time to install. There may even be an insurance discount available if you have a monitored security system in place. And, tenants in certain areas might be willing to pay additional rent just for the peace of mind a monitored security system can provide.
Make sure you thoroughly discuss with the security provider the details of the system and how it works. Check if there are any long-term binding contracts associated with installing the security system. Not all security systems require this, however, it is a good idea to check.
I recommend landlords are present during the systems installation. This helps to address any further questions or worries you may have.
Advertise That Your Home Is Secure
Posting up security signs in prominent places can work as a good deterrent to would-be thieves. These signs are reasonably cheap and should be placed in a noticeable location such the front door or entrance to the property. Many times the company will give you stickers or signs to put up.
Keep the signs generic. Don’t include the make, model or manufacturer details of your security system on the sign. This information can be used by more experienced burglars to disable or bypass your security system.
Remove Potential Hiding Places
Do you have any shrubs or objects near the windows or doors of your property? These can be used as a cover for someone trying to break into your home.
If possible, get these removed next time you clean or renovate your property. If you have any tall or thick shrubs around your doors or windows that you don’t want to remove, make sure the tenant keeps them well trimmed.
Document All Of Your Furnishings
If you own a holiday rental or include furnishings with your property then it is a good idea to have a detailed record of the items in your property. If your property is broken into and something is stolen then this will make it easier to replace and claim with insurance.
Details that you should document include:
A Photograph Of The Item
These details should be kept with you, and not on the property.
Consider engraving or using invisible ink to mark your belongings. This can help recover any stolen property. Engrave something that is traceable such as your drivers license number.
Before you do engrave your belongings, double check with your insurance company and make sure that engraving doesn’t void the warranty.
For items that can’t be engraved, you can mark them with an ultraviolet pen. These pens don’t damage the item and are only visible under an ultraviolet light. These marks can fade over time, so renew the markings whenever you get the chance. If you have tenants in your property for long periods of time, make sure you re-mark everything before a new tenant moves in.
Items to consider marking and documenting include:
Garden & Power Tools
Any bicycles you keep on the property
Anything else of value in your rental
Before You Start Updating Your Security
If your house is currently occupied, please double check local laws and the contract your have with your tenant. It is illegal for either the landlord or tenant to remove or change any locks without getting the consent of the other person. You may have to wait to update your rental property security until the tenant moves out.
If you are choosing to upgrade the security of your property above the minimum standards, then it is important to talk to your tenant. You may need to add an addendum to your lease to account for the new agreements you make to cover the new security measure. Make sure you put any agreements in writing and make sure that both of you sign the agreement.
Whether it’s for your tenants, your own peace of mind, or a bit of both, updating security is something that can prevent hassle, reduce potential insurance claims, and increase the confidence you have that all is well with your investment!
AUTHOR BIO: Nathan is a founder of a LocksmithsInSydney.com. Locksmith Sydney provides the resources you need to make sure your property is safe and secure. He specializes in helping property owners find the best locksmith for their security needs. Check out his simple free checklist to securing your home against intruders.
Walking 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
Second, 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.
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
Fourth, 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 firstname.lastname@example.org or connect at www.investorsmarts.ca.
Two months of unpaid rent and the tenants are moving out.
Maybe I’ll be able to collect some of that money, but most likely, that cash is gone forever.
Compounding the problem is the fact that the property looks rough.
I don’t want to attract more deadbeats to the place who don’t pay their rent, so I need to make it look nice. But, I’m already quickly heading into the negative cashflow territory with unpaid rent so I have to make the rental property look all shiny and new without spending too much money.
Here are some of the ways I’ll tackle this rental, like I’ve improved past ones. You can use these tips to make your rentals look great on a tight budget too:
Low Cost Renovation Tip #1 – Kitchen Cupboards
Kitchen cupboard face lift: You’ve probably already thought of painting the cupboards – and that’s a great way to brighten up a place and make it look fresh, but you probably will have to strip, sand and prime to make that happen. You can do the work, but the time investment is pretty high for you to get a good result.
A cool, quick and low cost way to get the same result is using a great product from Rustoleum that is called Cabinet Transformation Kits which come in many different colors. The kit costs only $100 and is really easy and quick to use. Just clean the cupboards, paint the cupboards and the end result is a kitchen that looks almost new!
Note: We did a lot more to this kitchen … including changing the counter tops and appliances and switching one set of base drawers with a regular base cupboard that was beside it. Those cupboards are the same though – just used the transformation kit!
If the cupboards are at the end of their life and need replacing, a used kitchen ‘recycling’ company in the USA will frequently sell a full kitchen package, complete with all the appliances, for incredible prices.
The dropping Canadian dollar makes this option less appealing right now, but it can still be a great deal. They even have luxury kitchens. The company is Green Demolitions, and the founder is a recovered addict and all the money goes to an addiction recover charity.
Even when the exchange rates are good, the challenge for Canadians is getting the cabinets across the border. You can drive down and bring it back or try online shipping companies.
It can be worth the effort.
This is an example of a kitchen that we purchased from Green Demolitions for an executive home that we built in 2010. That impressive commercial grade stove alone is worth $10,000 new. The entire package was worth over $75,000 if we’d purchased it new. We paid $15,000 for everything; the cupboards, island, granite counter top, the 4 foot wide double oven and we even had 4 large cupboards left over that we installed elsewhere. It cost $1,000 for us to rent a cargo van and a weekend of our time to travel and pick up the kitchen in Connecticut. We paid $3,000 for installation. So, for an investment of $20,000 we had a $100,000 kitchen.
You are not going to get all that with an IKEA kitchen. Every time I go on the Green Demolition site, I want to do a renovation just to get one of their kitchens!!
Low Cost Renovation Tip #2 – Bathroom Vanity
The kitchen renovation ideas apply to bathroom vanity renovations too!
But, a quick trip to IKEA or Costco could get a brand new vanity at a minimal cost.
If you want something a little special for a low cost you can hop on the website Pinterest for inspiration. On the left are two examples of dressers that were headed for the dump that have been brought back to life as bathroom vanities. You can find old dressers like this on Kijiji or Craigslist – sometimes free with pick up. It may take a bit of creativity, but you sure can create an unmistakable charismatic vanity. You’ll find ideas like this on Pinterest for just about every room in your house.
Note: I found these vanity ideas on Pinterest … which led me to the following websites: http://www.tidbitsandtwine.com/guest-bathroom-makeover-reveal/ and http://www.hometalk.com/443163/re-purposing-our-dining-room-buffet-into-a-bathroom-vanity.
Low Cost Renovation Tip #3 – Fix the Holes Yourself
There are always small drywall repairs to be done before paint jobs. Save money and do these jobs yourself before you hire a contractor to do the rest of the work. Small holes are easy to cover with and sand and take no time at all. Larger holes are fairly easy to fix by inserting small pieces of wood in the hole in the drywall. Here’s a great explanation of what you need to do (with step by step pictures).
Fixing your own large holes can save you upwards of $200/hole … so it’s well worth your time to make these quick repairs yourself.
Low Cost Renovation Tip #4 – Hiring Low Cost Painters
Fresh paint always has a great payback. It makes the place feel cleaner and just makes a place more appealing for showings.
It’s a low skill job so you’re probably tempted to do the work yourself, but save your back and time by shopping around for the labour.
I recently posted an ad on Kijiji to hire a painter for $15/hr and had about 20 responses!. Some even said, I will beat the lowest price.
“Great,” I thought, “A bidding war, no better way to get a good price!“
Of course, you won’t just pick the lowest price. Check the references to ensure that the workmanship will be equal as well. Costs for painting 1,200 square feet with lots of trim details came in from $1,000 – $4,000 plus materials. I hired an experienced semi-retired painter who did it for $1,200 and we bought the materials at his cost at his preferred paint store.
Low Cost Renovation Tip #5 – Light Fixtures
Light fixtures are an upgrade that can really change the mood of any room. You can bring an entire space from the 70’s to the current year by changing up the fixtures. The best part is that light fixtures can always be found on sale at regular hardware stores or online.
Again, if you are handy and ok with electrical, this is a great project to do yourself to save money. Some handymen will do it for less than an electrician if you aren’t inclined to do the work yourself. An electrician can cost you upwards of $100 per hour so you can hire them to do it, but that will cost you a lot more. You can also change light switches to a new style one for a very small cost and place sensor switches in rooms that you enter frequently for short periods like a pantry, laundry room or bathroom. These are nice features for tenants and for resale.
Low Cost Renovation Tip #6 – Granite Countertops
Many think granite is too expensive, but everyone wants it. Depending on your market (it’s always important to understand your market), it could be that these kind of upgrades are expected. The younger generation wants upgrades like they had in mom and dad’s house.
If you just need a straight piece of countertop, it’s possible to do a ‘do it yourself’ granite countertop. We recently installed some of our own granite and it was very satisfying. It’s a bit like cutting plywood, except thicker and slower. You can use a regular circular saw by installing a diamond blade ($40). You get the approximate location of your line and then put masking tape down where your line will be. Then mark your line with a marker and clamp a 2×4 piece of wood onto the top of the granite, on the line you measured, with an offset of the blade to the guide on the saw. This will be the guide for the saw as you cut, so you’re not just free handing on the line. While cutting you will need another person to hold a water hose spraying water on the blade as you cut so the blade does not heat up too much.
It probably goes without saying, but you should measure several times before you cut! You want to be certain.
You will also need a friend (or, two) to help lift the countertops when you’re ready to move them, but it’s possible that with one cut you may have your counter.
A few shims and carpenters glue and install is done. Most quotes for a straight forward kitchen come in around $5,000. You can purchase granite slabs from a local supplier or you could try Build Direct and they will ship directly to your home. In the home to the right, we purchased 4 pieces that were 6 foot 6 inches of 1-1/4” thick countertop and an island top that was 6 foot 6 inches x 3 feet, 1-1/4” thick from Build Direct. Our material cost was $1,800 delivered to our door and we had five helpers lift the island top into the house! This is the before and after (minus a few walls that we removed to open it up).
Low Cost Renovation Tip #7 – Backsplash Makes a Big Splash
This is another tenant appreciated upgrade that can be very economical if you get tiles on sale and install yourself. Even if the tiles are not on sale, you are usually only covering an area that is 2 feet by 10 feet = 20 square feet of area = 20 tiles. It does take a few steps to do the work, however it is very satisfying and does not take that long.
This video is a great explanation of what to do to install a glass mosaic tile backsplash: https://youtu.be/CtursWP-Vlw.
Low Cost Renovation Tip #8 – Crown Molding
This is a high impact addition to a home to make it look and feel like a high end property. Due to the head swirling, backwards, sideways, upside down cuts required, installing crown may not be a DIY project, however the payoff in the value it creates in your home is well worth the money you spend upgrading. Using a contractor, you will likely pay per job or per foot. You can use use cheap baseboards as a layer of the crown moldings to reduce the costs. Look close at the picture below, the lower layer is baseboard to give it a larger effect.
Our labour cost for the crown molding shown was $2.80 per linear foot. It was two pieces of trim which means the carpenter went around twice. If it was one piece, the cost would have been half of that. We bought the moldings for $1.69 per linear foot which included a crown style molding and a floor molding turned upside down. So for a 20 foot by 20 foot room, this cost $360.
The example shown has a 9 foot ceiling on the edges and 10 foot in the center. Because of that, the moldings were a little larger. With an 8 foot ceiling, you would likely only go with the one piece crown molding at $1.00 per linear foot plus $1.40 per linear foot to install which would be $192 for a 20 foot by 20 foot room.
Low Cost Renovation Tip #9 – Pay Off Your Renovation with the Increased Cashflow
Home Depot will allow you to defer payments for 12 months if you purchase on their credit card and the amount is over $299.
Need a new furnace or air conditioning unit? Canadian Tire has a program where they will allow you to purchase today and defer your full payment with 0% interest for 36 months program. As long as you make the regular monthly payments, you’re good. This is a great way to pay it off with the extra cashflow these upgrades will generate.
Low Cost Renovation Tip #10 – Shop Around
If you need materials big or small, such as drywall corner beads, lights, cupboards, doors, flooring, almost anything can be located at a local used building material store. In Ontario, you can go to Restore which is a Habit for Humanity non-profit store that has odds and ends of building materials. You have to be willing to look around and call places to ask for what you need, but if you find it, the savings can be huge. You can find everything from gently used carpets, doors, sinks, to cupboards, flooring and fixtures. And you can always take the old stuff there instead of loading up the landfills.
Watch for sales on materials. If you know you have a renovation coming up – keep an eye on the flyers. You can often get great quality materials for a low price if you’re watching for them a few months in advance.
I know all of these have helped me keep costs down while keeping the style up. One or all of these ideas should help get you through another renovation and to a point of signing up a great tenant who will appreciate and take care of your investment.
Nathan Richard is not afraid to get his hands dirty to get the work done in real estate. Over the past 12 years building Colmac Properties he’s experienced new builds, Rent to Own, RRSP self-directed mortgages and flips. Nathan is a Rev N You Certified Coach with PlanSmartInvesting.com and provides training and coaching to new investors.
My investor client Megan wanted to refinance one of her properties to purchase another investment property. When she first purchased this property, Megan went straight to her bank and locked into the lowest 5 years fixed mortgage product available on the market. Unfortunately, blinded by the low rate; Megan ignored the fine print that indicated that the mortgage was completely closed for the full term and that it cannot be refinanced.
Megan’s only option to access her equity in that property is to find a lender who’d approve a secured Line of Credit – in second position – or where she can obtain private funding.
While mortgage rates are very important variable in the financing formula, they should be secondary to obtaining the right mortgage product that aligns to your investment strategy.
Here are 4 Common Investment Strategies and how you can match your financing to each of them:
As a rent to own investor, you need to focus more on matching the mortgage term to the lease option term or keeping your options opened.
There are many variables in a Rent to Own that determine whether the tenant will be ready to purchase from you by the end of the lease term. Some of those variables are not fully controllable such as a sudden change in the tenant’s income situation or a market turn.
These days, I highly recommend a five year variable rate mortgage for Rent to Own investors versus locking into a fixed rate because:
Variable rates are currently lower than fixed rates,
You can lock in at any point – if you need to,
You always pay a 3 months interest penalty regardless of when you break them.
The variable rate gives you great flexibility with the least costs.
Financing Advice to Increase the Chance of Success for Your Tenant Buyer:
Make sure you separate your option contract from your lease contract and that you collect separate payments for each. This way, when the time comes and the tenant buyer is ready to purchase from you their broker can show the lender a clear proof of what they paid you towards the down payment. Some lenders will not consider the option payment if it is combined with the rental received from the tenant.
Help your tenant buyer accumulate 10% in down payment funds at minimum. While the plan is to help them improve their credit and be in a position to purchase from you by the end of the lease term; unless their credit is in pristine condition by the end of the term (score and content); mortgage insurers such as CMHC, Genworth and Canada Guaranty will not finance the deal.
As a backup plan, if they have 10% down; the deal can still close with a Trust Company without the involvement of the mortgage insurers.
2. Renovate and Flip
If you plan on renovating run down properties and flipping them over a short time period for profit; it is important to keep your options opened to avoid any large mortgage penalties at the time of sale. Going with an opened mortgage for this particular strategy works best.
Depending on the property condition; lenders may require you to increase your down payment or offer you higher rates.
For example: a bank will not finance a property that has an oil tank, asbestos and knob and tube wiring but a B lender (Trust Company) would.
Discussing the nature of your purchase with your lending advisor upfront and being transparent about the condition will ensure you get the right financing from the get go and will save you time.
3. Renovate and Refinance
This strategy is similar to renovating and flipping, but you would be looking to refinance the property – after the property is renovated and rented out.
With this strategy, you need to focus on keeping your options open in anticipation of a refinance (i.e. going in with an opened rate mortgage, variable rate, a Line of Credit or a short-term fixed rate).
Lenders typically like to see at least 6 months’ worth of mortgage payment history before you can refinance a renovated property.
If you are looking to refinance in less than 6 months: you will need to finance the initial purchase with a trust company, using private funds or with your own cash; then you can refinance it at a lower rate with a bank or a lender that can offer a low long-term rate.
4. Buy and Hold
An ideal product for investors who purchase under this strategy is a re-advanceable mortgage product. This product allows the investor to tap into equity in a very efficient manner without having to go through the hassles of approvals, appraisals or incurring costs associated with accessing funds.
As investors pay down the principal on the mortgage, they get access to any paid-down principal in the form of a secured line of credit. This allows investors to “recycle” equity to purchase more properties, renovate or lend funds privately.
In summary: Determine the investment strategy first.
Focus on getting the right product for your strategy before you worry about finding the best rate.
Speak with your lending advisor to determine the best lending product and the type of lender best suited to the strategy. Then, work with the lenders where your deal will get approved (given your credit, finances and property characteristics) and where the desired product is offered and negotiate the best rate with that lender
Always “Begin with the End in Mind “ ~ Stephen Covey: The 7 Habits of Highly Effective People
I worried “What if I mess up and my family’s finances become a permanent mess?”, and I had to deal with the rather uninformed opinions of some friends and family who thought I was nuts to be taking on what they saw as excess risk in the form of mortgage debt.
There was simply a lot of negative noise that I knew I had to get over in order to confidently move forward with real estate.
A big part of the solution to allaying my fears and taking action was finding the right group of people with whom I could surround myself. I wanted (and needed) to be around enthusiastic, successful and active real estate investors because I knew that was where I would find the motivation, inspiration and encouragement I needed to succeed.
Whether you are just beginning your investing career or you are already on your way to becoming the next Donald Trump, finding a group of people to connect with will always move you forward, no matter where you start.
The good news is that there are so many great real estate groups across the country and with a tiny bit of detective work you can probably find a club right in your community. In most urban centers, you can find your local club listing on meetup.com. Or you can go to Google and type in “your city + real estate investing club” and you’re bound to find something great.
If you would rather not do this homework yourself, I have rolled up my sleeves and investigated some clubs already. Here are some that I found that I would recommend split out by province:
The REIN community is a dynamic network that includes individual investors, families, corporations, professionals and entrepreneurs of every kind, all sharing a desire to secure their financial futures with positive cash flow real estate. REIN members learn how to apply proven investment strategies and how to take advantage of economic events that affect real estate markets across this country.
Where: Monthly meetings in BC, Calgary AB, Edmonton AB, Toronto ON and quarterly meetings in Ottawa, ON. Online membership options are also available for those not able to attend the live workshops.
Who is it for: Anyone interested in securing their financial future through investing in real estate Content/focus: Real estate education and networking Networking time: 4 hours at the monthly workshops and continuously via our online forum.
Run by: Patrick Francey (CEO) and Jennier Hunt (President)
The REINVESTORS are on a mission to help and inspire 1 million people to become financially educated and inspired to invest in real estate so they too can live a more fulfilled life. Founders of the “GO BIG TO GIVE BIG MOVEMENT” The REINVESTORS are a For-Purpose business inspiring others to set bigger goals so they can give back more to their passions and communities.
Where: Monthly meetings in Victoria, BC.
Who is it for: Anyone looking to network with like-minded people in the real estate world. Networking time: 2 hours with a guest speaker and time for networking.
This club’s focus is on education and raising one’s level of financial knowledge; Their site explains that gaining the right information and training, ultimately leads to financial independence and freedom.
Who is it for: All levels Content/focus: Education focused Who runs the group: Geoff Lee
This club is aimed at individuals who understand the potential of real estate as an investment but who need more information about what to do, or more importantly, what not to do. The club’s goal is to provide an atmosphere for networking and fun, as well as to provide education and guidance to people who are thinking of getting into real estate investing, particularly in local BC markets (yes, you can make money in real estate in the Lower Mainland!). They also discuss investments in the USA and out of province.
Where: Surrey, BC (A second chapter in Richmond with Teresa Leung is coming soon!) Who is it for: All levels Content/focus: Education focused Networking: 30 minutes before the keynote speaker and 30 minutes after the 1-hour presentation. This group allows for a brief introduction from every member (why they are there, what they’re looking for, etc.). At the end of the keynote, 15 minutes is allotted for any member that has a deal, is looking for a JV, etc. Who runs the group: Sua Truong, Senior Mortgage Advisor @ MortgagesLab Financial (www.SharingBankSecrets.¬com) Marc Ramsay – USA Investment Specialist (Majura Properties, Majura Investments)
This group was founded just three years ago and has already grown to over 1200 members. The purpose of this group is to help individuals learn about real estate investing through the collective forces of a group. Every month knowledgeable guests are invited to speak on real estate investing as well as share with the group their experiences and personal development tips so investors can take their advice to build their real estate portfolio.
Where: Vancouver, BC Who is it for: All levels Content/focus: Education only (strict policy of no selling) Networking: Following the presentation Who runs the group: Bai Jiang
Join this meet-up to discuss properties on the market, contracts, mortgages and anything else about real estate investing and business. Meet and network with successful like-minded people with similar goals and ambitions. Whether you’re looking to buy your very first property or you’re a seasoned professional, we invite you to come out and meet others in the Real Estate industry. This is Edmonton’s longest running Real Estate Club, established in 1985.
Where: Edmonton, AB Who is it for: All levels of real estate investors Content/focus: Education as well as the ability to share deals with the group Networking: Plenty of networking time. Who runs the group: Brandon Rolheiser
SASKATCHEWAN Real Estate Investing Club:
We’re not aware of any active clubs in Saskatchewan anymore. If you’re attending or running a great club, please email below and let us know the details please.
Truly Invested is a club where like-minded real estate investors come together. This club is located in Winnipeg, but members can also join the group virtually. The group meets monthly and covers various topics related to real estate and investing. They are member-focused, and strive to create great networking and informative meetings to create opportunities for growing wealth.
Where: Winnipeg, MB Who is it for: Open to all levels of investors Content/Focus: Education only (strict policy of no sponsors, no relationships with vendors or service providers, no backroom deals) Networking time: 15 minutes before the presentation, 15 minutes between speakers, 1-2 hours after the meeting Run by: Ben Eko-Davis, Tamika Joseph, and Candice Bakx-Friesen
The Rock Star Inner Circle was founded to bridge the gap between real estate theory and the implementation that provides real life results. Not only does the group provide constant education and information through members-only newsletters, interviews, classes, and events, but the team works one-on-one with investors to help them implement the strategies to reach their goals. Its mission is to help people use real estate to live their “Rock Star Lives,” whether it is travelling the world or spending time at the cottage. Either way, it is living on your terms.
Where: Based in Oakville, ON with events in the Greater Toronto Area Who is it for: Investors looking to use real estate to live life on their terms Content/Focus: A list of classes and events focused on providing current day, on the streets information and strategies with personalized coaching to implement them. Networking time: Multiple times a month during different member classes, and three times a year at “Your Life. Your Terms.” events. Run by: Tom and Nick Karadza (two brothers outrageous enough to name their company “Rock Star”)
Founded in 2008, this club has grown in active monthly attendance from three to 100 people. Every month the Durham REIC draws in great keynote speakers and then allows ample time for networking. The three main goals of the Durham Real Estate Investor Club are:
1. Network – with like-minded people focused on the Durham Region 2. Educate – wide range of speakers on talks of interest to Real Estate Investors 3. Support – provide peer support for Real Estate Investors to help their business grow
Where: Whitby, Ontario (Durham Region) Who is it for: Open to all levels (but 90% of attendees own at least one property) Content/Focus: Education only (strict policy of no sponsors, no relationships with vendors or service providers, no backroom deals) Networking time: 15 minutes before the presentation, 15 minutes between speakers, 1-2 hours after the meeting Run by: Quentin D’Souza, Chief Education Officer, full-time real estate entrepreneur.
3- Guelph Real Estate Acquisitions Team (G.R.E.A.T.)
An educational and networking group for Real Estate investors, located in Guelph. This is a strict “no selling” group. We are simply there to learn from each other and to make connections! We are not there to sell any product or business.
Who is it for: Whether you have zero properties or one hundred properties, we would love to see you! Get inspired, learn, find a mentor, network, but most of all….grow wealthy and have fun!
What to expect: They will meet five times a year to hear the stories and lessons learned from investors. Learn new ways to profit from Real Estate. Learn from mistakes, pitfalls, and successes of others. Make connections with successful Real Estate investors!
Mr. Hamilton’s Inner Circle meetings are packed to capacity with attendees that are experienced, friendly and always willing to share their investing knowledge. The meetings are not open to the public and the average attendee already owns more than one investment property. Every month the group invites high calibre speakers, conducts a review of a real estate-related book and provides need-to-know information about investing in Hamilton and the surrounding area.
Where: Oakville, Ontario Who is it for: Anyone interested in spending time with like-minded people who are investing in Hamilton and surrounding areas Content/Focus: Education and networking. This club generally avoids beginner material and instead educates its attendees about what’s happening on the ground in Hamilton and it also provides tactical information that Hamilton investors can apply to improve their business. This group has guest speakers on a wide range of subjects from goal setting to land development. Networking time: As much as folks want until they have to lock the doors! Run by: Erwin Szeto and The Mr. Hamilton Team of Rock Star Real Estate Brokerage
This group was created to empower women all across Canada to reach their personal and financial goals as well as gain independence through the purchase of Real Estate. The goal of this club is to provide solid, comprehensive education as well as the tools and systems necessary for anyone to make sound investment decisions (whether that is the purchase of one’s first home, a rental condo, or a multifamily property).
Where: There are chapters in Ottawa, Mississauga, Markham, and Toronto. Who is it for: This group is for any woman who is looking for tools, education, resources and networking opportunities to expand her Real Estate portfolio. The group welcomes women with any level of experience, whether they are a complete novice or an advanced investor. All members are encouraged to share their experiences and wisdom with others and encourage a supportive and interactive environment Content/Focus: Content and education. Zero selling from speakers. Self-promotion by members is encouraged in a “non-selling” context. Sponsorship opportunities for people who would like to promote their products or services limited to 1 sponsor per meeting with only a 10 minute speaking spot. Networking time: 30 minutes prior to the presentation. 45 minutes – 1.5 hours after the presentation. Run by: Lena Guirguis: Lena Guirguis is a real estate coach, asset management consultant and author, managing Partner New Venture Solutions, VP of Operations NV, Property Management, Founder Stilettos & Hammers
This club was founded three years ago with three main goals in mind: to share, inspire and network. Today the club has 1300 members and is still growing. Every month one to two speakers are invited to share their own journey and to educate and inspire the group with their personal trials and triumphs in real estate.
Where: Monthly meetings are held in downtown Toronto and bi-monthly meetings are held in Mississauga and Oakville. Who is it for? Investors of all levels Content/Focus: Education Networking time: Before and after each speaker Run by: Todor Yordanov – Investor and real estate agent
7. Smart Home Choice Smart Home Choice is one of Durham Region’s largest groups of investors and it offers guidance through years of experience and understanding of the market.
Where: Ajax, Ontario Who is it for: This group is to educate all level of investors to ensure they have the required knowledge and resources to allow them to make informed decisions in their investing strategies. Content/focus: Their primary focus is education. However, they do allow presenters to promote their website, materials and other content focused on providing education to all levels of investors. Networking time: 1 hour for networking: 15 minutes at the beginning, 15 minute break between presenters and 30 minutes at the end of the meeting. Who runs the group: Gary Hibbert – Real Estate Agent, Darlene Hibbert – Mortgage Agent
Thornhill Wealth Forum is dedicated to helping people build wealth through real estate investing. Beginning investors can connect with active real estate investors and prosper through knowledge sharing and networking. Through monthly meet-ups, participants get direct access to prominent investors, practical resources, local real estate deals and financing strategies to help them leverage their time and efforts.
Where: Thornhill, Ontario Who is it for: All levels Content/focus: Proven beginner strategies for building wealth, getting started with or without money, diversification and getting to the next level How much time for networking? 40% Who runs the group: Rachel Oliver — active investor, best-selling author, trainer and leading expert on Rent to Own.
The Brockville Real Estate Investment Club is a new but growing club, focused on education, networking and support in the Brockville community. Each meeting has a different theme and includes a segment on the latest news impacting the real estate world, such as a discussion of current property listings, tools and resources available to investors, a book review or legal and accounting tips. Each meeting also has an invited guest speaker whose presentation is related to the theme.
Where: Brockville, Ontario (on the first Thursday of every month) Who is it for: All levels – The club is open to new investors as well as seasoned pros. Content/Focus: The content of the presentation is education-focused. Networking: 30 minutes at the end of the presentation. This is the only time that members can discuss their respective business services. Otherwise, there is a strict “no selling” policy. The focus is on education, networking, and support. Who runs the group: Jeff Patry
9. The GTA Real Estate Investors and Professionals Networking Group
This is one of the longest running groups in the GTA and now has over 700 members. The purpose of this club is to hold networking events where real estate investors can meet, mingle and form joint venture partnerships with other real estate investors and professionals in the real estate industry as well as expand their knowledge base and stay current with trends in real estate.
Where: Thornhill, ON (at The Bayview Golf and Country Club) Who is it for: All levels Content/Focus: 1 hour educational component featuring star guest speakers as well as regular sponsors with informational booths set up at every event offering the best services and wealth creation opportunities to attendees. Networking: 1 hour of mingling Who runs the group: Monika and Vaughan Jazyk, owners of Real Property Investments, helping REAL people build REAL wealth through REAL Estate
The Ottawa Real Estate Investors Organization is a non-profit organization dedicated to providing education, networking, and support to new and experienced Canadian real estate investors in the Ottawa and surrounding areas. At the monthly meetings, guest speakers educate attendees on how to invest in real estate, how to manage their properties, how to attract joint venture partners and much more.
Where: Ottawa Who is it for: All levels Content/Focus: 1 hour educational component featuring star guest speakers as well as regular sponsors with informational booths set up at every event offering the best services and wealth creation opportunities to attendees. Networking: Plenty of networking prior to and following the speaker Who runs the group: John Walsh
QUEBEC Real Estate Investing Clubs:
1. Montreal Real Estate Investors Group
Local Meetup This group is dedicated to supporting the beginner real estate investor. At every event attendees can expect announcements about other real estate events, updates on relevant real estate articles, guest speakers and access to support. Where: Lachine, QC Who is it for: Beginner investors Content/focus: Education How much time for networking? Ample time for networking Who runs the group: Jennifer Lynn Walker
Where: Montreal, QC French investment club with mentoring, courses and club meetings. If you speak French check out their extensive website for more information. They have 20,000 members in Montreal and Quebec.
Moncton REIO is a non-profit organization group of professionals dedicated to encouraging and promoting ethical real estate investing in the Greater Moncton Area. Every meeting consists of a networking session, “positive action stories”, sharing deals and listening to guest speakers.
Where: Moncton, NB Who is it for: All levels Content/Focus: Education and members are able to share their deals. Networking: Plenty of networking time Who runs the group: Darlene Smith
This is a friendly and ambitious group of seasoned and new real estate investors interested in meeting, learning, sharing and networking with one another in order to achieve optimal results with Real Estate investing. The meetings are FREE and the club guarantees that by the time you leave you will have made new friends and increased your network of professionals as well as taking action on the path to wealth and financial freedom.
Where: Halifax, NS Who is it for: All levels Content/Focus: The content of the presentation is education-focused. Networking: 30 minutes at the end of the presentation. This is the only time that members can discuss their respective business services. Otherwise, there is a strict “no selling” policy. The focus is on education, networking, and support. Who runs the group: Richard Killeen Payne
This is a group for anyone interested in meeting like-minded people investing or planning on investing in Real Estate. Affordable real estate education is the priority to the community and different speakers present every month on the six vehicles of real estate wealth generation. This group strongly believes that real estate investing is the best vehicle toward wealth creation and it is their desire to help their members reach their goals faster.
Where: Dartmouth Private Board Room / Metropolitan Tower of Boyne Clarke LLP Who is it for: All levels of Real Estate Investors Content/Focus: The content of the presentation is education-focused (mostly on the six vehicles of real estate Investing), networking, support. Networking: 15 minutes at the beginning of the meeting for people to network and to introduce themselves and make their goals known. Another 30 minutes are allotted at the end of the presentation. Who runs the group: Nick Harvey-Pearson
By attending any one of these clubs, you will most certainly find a community of individuals filled with energy, enthusiasm and passion for real estate investing. Surrounding yourself with the right people is critical for any real estate journey, whether you are just starting or are a seasoned pro.
I am sure I have missed some really great clubs. If yours was somehow forgotten (or you attend a really great club that isn’t on this list), please let me know, as I will update the list regularly.
Gillian Irving of InvestInStudentRentals.com likes to say she was an “accidental investor”, when buying a duplex in downtown Toronto in 2009 with little planning or preparation. Luck was on her side though, and she was able to ride the value up and refinance to get capital to keep growing. At that point, she wasn’t going rely on luck and an “H&P” (hope & pray) strategy if she wanted to leave her job and provide long-term financial security for her disabled son and three other children. Gillian became a serious student of real estate investing and combined what she learned with her professional skills as a market research analyst to purchase 35 doors in Southern Ontario in 18 months. Today, Gillian is a full time investor and entrepreneur, focused on student rental investing with joint venture partners. She’s also going to be opening up a fabulous Sky Zone Trampoline Park in the Toronto area in 2015.
2. Working with the right lending advisor – one who specializes in Real Estate portfolio financing, who has strong relationships with investor-friendly lenders and knows how to place and package your deals in the right sequence with lenders to keep the approvals coming.
3. Shopping for the right lender for the deal – who will approve your deal, get you a step closer to your goal and also offers a good rate.
Planning Portfolio Financing in Advance
It is important to understand what happens behind the scene when you submit an application in for approval. Many investors just chase rates and that is the primary criteria for choosing a particular lender.
This approach increases the chances of a decline and decreases the chances of financing more properties down the road because they may have placed the current deal – without knowing it – with a lender, where the numbers may not continue to work well down the road as the portfolio grows.
There are 3 broad group of lenders in the market today A, B and P ( private) ; with A offering the best rates, B’s offering mid-range rates and Privates being the most expensive.
When lenders review your application, they look at many factors including:
The amount of down payment you have,
The type of property you are buying,
The rental income the property will generate (and how much of it they will include),
How you derive your income (as employed or self employed)
The investment structure ( i.e. whether you are buying personally, under a corporation, or with a JV partner).
Unless you are in the lending business on a day to day basis, it is impossible to learn and keep up with the continually changing rules. An advisor who knows the rules for portfolio financing can advise you of what you need to do with respect to each criteria to keep the approvals coming.
The earlier you plan your portfolio in your investment career, the higher are your chances to get your deals approved with A lenders at great rates, best amortization terms and lowest down payment.
During the planning session your advisor can review your situation and make recommendations that can help squeeze as many properties as possible with the A lenders before starting to look into more expensive financing options.
Some of the things your financial advisor will look at (and you need to be aware of) when you are ready to finance your investment properties include:
1. Tax planning of personal and rental income:
Personal Income: When you’re self employed it’s really appealing to reduce your net income to minimize taxes. However, showing a higher net income on your tax returns could be a much bigger advantage to you in growing your portfolio. In this case, your advisor can help you weigh the pros and cons associated with paying more taxes on your income in return for getting your deals approved with A lenders
Rental Income: At some point it’s very likely you’ll be looking to finance your deal with A lenders that rely on the rental income reported on your tax returns for an approval. If that is the case, it is important to plan ahead of time and consider carefully the amount of property-related expenses that you should deduct.
2. Improving your Portfolio Debt Coverage Ratio (DCR):
The DCR ratio is calculated by taking the amount of rental income you receive from your properties and comparing it to the debts and expenses your portfolio has. Lenders like to see this ratio at 1.2. As your portfolio grows this is a common way A lenders will look at and approve your financing request. Knowing this and doing some critical number crunching early in the game plays a big role. You also should be aware of the impact that refinancing a property or buying a new property will have on your portfolio DCR . If you don’t know how to calculate this yourself, your financial advisor can take a look at the numbers and help you figure it out.
3. Increasing the down payment:
Most investors want to minimize the amount of capital they put into an investment property but sometimes the best way to get the most attractive financing options is to increase your down payment. Locking more capital into an investment property can however work out in the long run so that you get more favourable terms on this and future mortgages.
4. The parties on the deal:
One of the considerations is who is on title is who will be qualifying for financing. Buying under a corporation may result in different financing terms compared to buying under your personal name. Multiple people on the purchase agreement (And title) is not necessary either. The important thing is that the the individual (or corporate entity) from a credit, income and networth point of view can support the loan and the lender is best protected.
Dave tackled the topic of whether you should have a corporation as a real estate investor in this video:
5. Improving your credit:
Your credit score is pretty important as a real estate investor. Your goal should be to improve it and take measures to protect it. But, what is a good score? Anything above 600 is considered good and anything above 750 is excellent. Most banks are going to be very happy with any score above 700.
If you have poor credit then your advisor can help you determine why and that will help you to know what to do so you can fix it. But, the big things are always paying your debts back consistently and not maxing out the debt you do have. Maxed out lines of credit or credit cards will reduce the score you have.
6. A Joint Venture Agreement
If you’re not able to qualify for financing for any of the above reasons then bringing a joint venture partner could be an option. The person you JV with must strengthen the deal in areas that hindered a successful approval in the first place. For example: if credit was the reason to why a deal was declined and the lender requested a higher down payment that you did not have; then a Joint Venture partner with sufficient down payment, credit and income can help facilitate the approval. <More about joint ventures>
You definitely do not want to find out that you need a joint venture partner in the mist of a deal! This is where planning comes in.
Working With the Right Lending Adviser
Many factors drive the approval of your deal and the rules do change on a regular basis. You will get a bank’s financing if you meet the lender’s criteria and if the numbers work for that particular lender.
When you look for someone to work with to help you finance your deals, I recommend that you find someone who:
1. Is well-versed and up to date with all the rental property rules in Canada. 2. Has a strong relationship with investor-friendly lenders. 3. Is able to finance not only the property at hand but also understand the short and long term implications ( if any ) on your future portfolio financing. 4. Is able to provide you with proactive guidance on how to plan your financing versus speaking with you only at the time of the approval. 5. Ideally is an investor themselves with personal experience using creative and traditional financing methods for investment properties
Forming a long-term relationship with the right financing advisor will have a direct impact on the number of properties you can buy.
Shifting Your Mindset
While interest rate is a very important component of your financing strategy, it should not be the primary driver of how you shop and fund your deals.
Chasing the rate alone does not guarantee approval as you may not meet the lender’s guidelines in the first place and when you do, it is important to discuss with your lending advisor any implications to your long-term financing.
We have seen investor’s chase a 2.99 rate at 25 years amortization only to find out at their 4th property that they no longer qualified with the banks. Had they taken a slightly higher rate with a different lender, they would have had the opportunity to finance 2 more deals with the A lenders.
It is about taking the deal to the right lender who will also offer you a great rate given your finances and where you are in your investment career and will get you a step closer to your goals.
There isn’t really a financing wall that will stop you from growing your portfolio if you do some planning, get the right people on your team and are willing to be flexible with the financing options you take for each of the properties you buy.
Dalia Barsoum is a Portfolio Financing Strategist, a Best Selling Author of “Canadian Real Estate Investor Financing: 7 Secrets to Getting All the Money You Want” and is a recipient of the 2014 Mortgage Broker of the Year Award by the Canadian Real Estate Wealth Magazine. Dalia’s Canada-wide lending practice (CENTUM Streetwise Mortgages), focuses on strategically positioning investment portfolios for growth and success using traditional and creative financing techniques and products. Dalia holds an MBA in Finance and is a Fellow of the Canadian Bankers Association. For questions, contact Dalia at info@CanadianInvestorFinancing.com
Wondering how to set up your bank accounts? Here’s a great video discussing how to set up your bank accounts as a real estate investor:
“Getting information off the Internet is like taking drink from a fire hydrant.” – Mitchell Kapor
I have a confession to make. I hate the Internet.
Okay, well maybe that’s not totally true. But I certainly have a love-hate relationship with it.
On the good days, I marvel at how quickly I can put my finger on a precise fact or figure or locate an invaluable resource for my real estate business. I count my lucky stars at just how available access to great information is.
Then there are the bad days, when the Internet is like a giant black hole that sucks me in but only spits me out after precious minutes – and sometimes hours! – have mysteriously vanished.
As a real estate investor, access to information – especially info from reputable, trustworthy sources – is a critical part of my toolkit for helping me make informed, strategic decisions about my business. I need good, reliable information, and I can’t afford to waste a single minute finding it.
Armed with a desire to improve my productivity (and encouraged by my coach, Julie Broad, from RevNyou.com), I have compiled a list of real estate websites and blogs that will hopefully save real-estate investors from the clutches of the dreaded Internet black hole.
Think Tanks/Due Diligence for Canadian Real Estate Investors
Savvy real estate investors know that a lot of homework and due diligence goes into buying the right house, in the right location, at the right time. To make that ideal purchase, having access to a variety of reliable economic and financial data is a must.
myreinspace.com provides the latest global real-estate news, market updates and unbiased economic research. REIN reports are designed to keep investors informed and ahead of any trends so they can make the right decisions about where and when to buy – and, just as importantly, when to sell.
conferenceboard.ca delivers authoritative economic data on the business cycle, labour demand and trends, and several barometers of consumer and business confidence, including the widely quoted Consumer Confidence Index and the leading economic Indicators.
theglobeandmail.com, especially the Friday Real Estate Section, is filled with timely, relevant articles describing the various real-estate markets across Canada. “Done Deals” is a personal favourite, as it showcases local homes and reveals both the asking and selling price and the number of days on the market.
cmhc-schl.gc.ca is another resource offering objective housing research and advice to Canadian consumers.
statcan.gc.ca If you need to put your finger on projected population growth, migration or household income trends to help determine whether the timing and/or location of your next investment is right for you, Statistics Canada is the go-to site for these or any of your stats-related queries.
The big banks all have useful economic data information, but RBC is particularly reputable in this department (see #4 above). So is CIBC, and especially anything by Benjamin Tal, as the IMF calls him “one of Canada’s leading experts on the real estate market.”
canadianmortgagetrends.com This site has plenty of up-to-date information, articles and videos that discuss the current state of affairs and long-term trends in the mortgage world.
housepriceindex.ca. I think this site is super-cool. Even if you aren’t a numbers-geek like me, the charts showing year-over-year (or month over month) appreciation by market are pretty awesome. Or maybe I just like this site because it shows how incredibly strong my investment towns (Toronto: +7.32%) and Hamilton: +7.97%) have been relative to last year!
landcor.com With access to 77 unique characteristics on each of British Columbia’s 1.9 million properties, landcor.com provides up-to-the-minute valuations on everything from a Vancouver condominium to a ranch in the Kootenays.
MORTGAGE COMPARISON TOOLS
The mortgage on your rental property is its single biggest expense, so getting the best possible rate is critical to your bottom line. Use the tools below to shop around and to compare what’s being offered by a multitude of lenders. Knowledge is power, so knowing the mortgage landscape will help you decide whether to sign on the dotted line or walk away from a lender offering uncompetitive rates.
ratehub.ca will allow you to compare just about any kind of rate you are interested in – mortgage rates, credit-card rates, GIC rates or USD rates – with the click of your mouse.
ratespy.com utilizes a network of assets to monitor virtually every Canadian lender that publicly advertises mortgage rates. That includes 345+ banks, credit unions, trust companies, insurance companies, wholesale lenders and online brokers.
RENTAL RATE COMPARISON TOOLS
Rental income IS your business. Price your rents too high, and you might find your unit vacant. Price them too low, and you will leave cash on the table. As a real estate investor, you need to be an expert on rental rates in your area. In addition to commonly used sites such as Craigslist and Kijiji that allow you browse rental listings, the following site helps you easily compare your rent to other areas:
rentometer.com: Paying too much for rent? Charging too little? Rentometer is the easy way to compare your rent to other neighbourhoods.
LANDLORD SUPPORT SITES
ltb.gov.on.ca. Understanding your rights and obligations as a landlord is extremely important from a legal perspective. Every province is different, so be sure you find the landlord tenant board in your particular province. This link is for the Ontario site.
Don’t know how to write a letter to your tenant to complain about excess noise, garbage, or late rent? This site has lots of free documents, forms and templates and also includes a lease builder that is customizable for your province. www.ezlandlordforms.com/documents/free-landlord-forms/
landlordselfhelp.com provides information, advice and referrals on a variety of topics related to residential rental relationships in Ontario. It’s geared toward the needs of small-scale landlords. (Note from Julie – In BC, we’re members of https://www.landlordbc.ca/. They are an excellent service and also have all the documents you need for every step in the process working with your tenants).
FINDING THE PERFECT PROPERTY
There are lots of great resources out there to help you find the ideal property or agent.
realtor.ca will help you find residential real estate for sale or rent by agents anywhere in Canada, while www.icx.ca is a listing and search site that features commercial and business properties for sale across the country.
rew.ca (Real Estate Weekly) has a variety of interactive maps showing open houses and houses for sale in the Vancouver and the lower mainland areas. This site also has an information-rich news section.
zoocasa.com offers an agent matching service and an extensive listing database for residential listings across Canada.
theredpin.com specializes in home, condos and townhouses for sale in the Greater Toronto Area.
This is where the black hole always gets me – in the blogosphere. There are just so many great, smart people to follow that it’s hard to know where to start (or my case, where to stop). I didn’t want to reinvent the wheel by creating my own list, so instead I am including a link to a list compiled by Toronto realtor Jamie Sarner. He’s done a really thorough job of ranking the 50 best real estate blogs in Canada in 2014. It is very comprehensive and includes a good representation of blogs/websites from across the country.
mrhamilton.ca: The realtor behind the successful Mr. Hamilton brand, Erwin Szeto, rocks. He is crazy smart and has a great blog in which he posts regular articles about the state of the real estate market in Southern Ontario.
biggerpockets.com is a social network for the real estate investing community. Here you can learn about real estate investment, get free tips & education, make deals, and grow your real estate business.
It’s always important to stay current with the most up-to-date real estate news, and these sites will help you do that. Many offer an online sign-up that will deliver daily news highlights straight to your mailbox. That’s what I do, and it makes me feel like I always have my finger on the pulse of the latest real estate news.
There are zillions of cool sites, and I couldn’t possibly list them all. What I will do, though, is regularly include cool sites that I discover through my newsletters (so be sure to subscribe at Invest In Student Rentals). Here are a few great ones to start with:
Virtual staging for your property. Yes, you read that correctly. Instead of renting expensive furniture, you can have furniture digitally added to your online photos. So, even though the house remains physically empty, the online photos show your house with its best foot forward.
walkscore.com. Is an awesome, useful site which could also easily have found its home in the “due diligence” or “rent comparison” section. A home’s “walk score” gives a great indication of how walkable (read: desirable) the property is to local amenities, attractions and transit.
The best networking site by far in my opinion is meetup.com. On this site you can find any type of group under the sun. It doesn’t matter whether you’re looking for other real estate investors or palm readers. You can find these and any other hobby or interest group you can think of.
UP-AND-COMING REAL ESTATE INVESTING SITES TO WATCH FOR
There are lots of new sites out there, and below are some of my faves. Yes, the last site on the list is my own site, www.InvestInStudentRentals.com. Be sure to join my online community, as I will be offering regular articles and video blogs to keep my subscribers up-to-date and informed.
I hope this list proves to be useful to you! My goal is to save you from being sucked in by the Internet whenever you’re seeking important and relevant information for your business.
If I’ve forgotten a site that you find particularly useful for your real estate business, please leave a comment on my website at: http://investinstudentrentals.com/contact-us/ and we’ll take a look at adding it to this list or I’ll publish it in one of my upcoming newsletters.
Gillian Irving likes to say she was an “accidental investor”, when buying a duplex in downtown Toronto in 2009 with little planning or preparation. Luck was on her side though, and she was able to ride the value up and refinance to get capital to keep growing. At that point, she wasn’t going rely on luck and an “H&P” (hope & pray) strategy if she wanted to leave her job and provide long-term financial security for her disabled son and three other children. Gillian became a serious student of real estate investing and combined what she learned with her professional skills as a market research analyst to purchase 35 doors in Southern Ontario in 18 months. Today, Gillian is a full time investor and entrepreneur, focused on student rental investing with joint venture partners. She’s also going to be opening up a fabulous Sky Zone Trampoline Park in the Toronto area in 2015.
“I’m interested in starting a real estate investment club – what should I do?”
That’s a question I’ve been asked many times from realtors and mortgage brokers who want to create more business for themselves, and new real estate investors who want to create a place to network and learn.
Since starting the Durham Real Estate Investing Club in 2008, I have a few tips that will help you to grow your club and help you avoid some of my earlier mistakes. (Note from Julie … this will also give you an idea of what kind of clubs to look for when you want to find one to attend!).
I started the Durham Real Estate Investment Club in a coffee shop in early 2008. I didn’t have any friends or family that invested in real estate and I was looking to create a peer support group for the properties we had. The very first Durham real estate investor club meeting was four people that showed up, drank coffee, talked and shared information about real estate investing.
In December 2014, the Durham REI meeting had two amazing keynote speakers, a panel discussion of five full-time real estate investors that collectively owned hundreds of units, and local infrastructure and economic updates. We had close to 100 members and guests attend that meeting, and the club continues to grow every month.
The very first thing that you need to do is create a vision for your club. By creating a vision, you actually help to identify the key goals of the club. This is easy when you can answer a few questions.
What is the reason to have the club in the first place?
What do you want people to get out of coming to a meeting?
What are you hoping to help them avoid by coming to your meeting?
What do you want to get from giving many hours of your time each month? Or will it be worth your time?
Why start a club in the first place? Are there other clubs you can help to grow?
How big do you want it to grow – be specific?
There are many different components of running a real estate investing club:
Finding, screening and organizing speakers,
Booking and organizing the facility,
Ensuring that the speakers show up and deliver a positive message,
Facilitating question and answer at meetings,
Welcoming members when they arrive, ensuring they have name tags and feel comfortable enough to network — the list goes on and on.
There are systems and processes that you can setup that help with all of these components. But, one thing that will change how a person feels when they come to your club is based on your leadership style.
There are two main leadership strategies that I see people use – one is to lead from the front and the other is to lead from the back. Both types of leadership styles offer good opportunities for members to learn but how you feel after going to the meeting will be a little different.
Many real estate investment clubs are places where a person leads from the front. Usually, it is a place where a particular real estate investor, has established themselves as the expert in a particular area within real estate investing. They impart their wisdom to you as someone who is leading the charge. They present themselves as the ultimate expert in real estate investing and they or their associates will help you on your journey. Their goal is to help you to learn and to grow by working within the business model or service they offer.
This approach isn’t ideal for all investors because it doesn’t clearly present the options that they need to achieve in their own personal objectives. It’s also often bias towards the experience and methodology of the speaker. And sometimes, the person leading from the front is speaking about what the members should do without having the experience to back them up, and people can see through this.
My preference is to run and attend clubs where the leader does so from the back.
A club where a person leads from the back is organized a little differently. This is almost like what Stephen Covey would describe as servant leadership position. It is actually a leadership strategy that I learned while taking my principal qualification courses (I spent many years working for a School Board).
5 Tips for Leading a Real Estate Investing Club from the Back
Focus On Helping Others To Develop Their Real Estate Business – The focus should be on coaching and supporting others, rather than controlling or pushing a sale.
Listen To What People Want – Pay attention to what people are saying. Really listen to them and find out what they want and need. Then try to offer it to them through sharing some knowledge or inviting a specific speaker.
Cultivate A Culture of Trust – Invite other experienced investors to share what they are doing by being open and honest about what you are doing.
Act With Humility – Don’t think that you are better than everyone else, but act in a way that shows that you care for others.
Develop Leaders In Your Group – Help others to lead in the community that you build within your club.
One important clarifying point needs to be added. Leading from the back does not mean that the people leading the club have limited real estate experiences. In fact, the best clubs are run by someone that understands the most fundamental part of the rental house and apartment business. That person must understand that the business has nothing to do with bricks and mortar – it is about people. And the relationships that we develop over time help us all to succeed a little better.
Many of those who lead from the back have a depth of understanding that supports the others in the club.
The idea behind this leadership strategy is almost to be in the background helping people to grow and as a result you improve the community that you serve. This leader shares the stage with multiple people, and helps others to rise.
One such organization that I think exemplifies this model of leading from the back is Rock Star Real Estate in Oakville. I’m not sure if they would refer to themselves as a real estate club, but Tom and Nick Karadza do a wonderful job running great meetings – helping their team to grow, and their members to flourish. Their events have grown to a massive size as a result (their last one had over 400 people in attendance!). Here is just one simple example of what they do. Most people refer to real estate agents as Realtors, but at Rock Star Real Estate, they are referred to as “Coaches”. In their day to day language they use the word “Coach”. This simple change in title of the real estate agent to a coach, indicates the person is there to help you to grow, not to sell you a property.
In a club where a person leads from the back you will not hear about the hundreds of real estate properties that they have purchased or the myriad of businesses that they own in order to position themselves as an expert. They will often lead by sharing information that will help other people in their real estate investing. The way that you hear about the leader’s expertise is from other people in the group, one on one conversation, and your own interactions with that club’s leader.
I hope to meet you one day at the back of a Durham Real Estate Investor meeting. Or you can start your own club, where I hope you to, will lead from the back.
Those are the sweet words that we all want to hear as investors.
Who hasn’t paced the room, checking their phone 20 times in 5 minutes, unable to focus on any conversation, just waiting for the seller’s counter offer?
Closing the deal and taking possession are exciting moments, but it is the negotiating of the deal that gets your adrenaline racing; The sheer happiness you feel as you jump for joy when the realtor calls with the news you have been waiting for. Or, facing the loss if a competing offer wins.
But, you can win more often – and get the best terms and price for your properties. Here are four ways to help your real estate negotiation:
Negotiation TIP 1: What’s the REAL Reason They Are Selling (Find their motivation)
Typically the more questions you ask, the more you will learn.
Get your realtor to ask some specific questions before you go to the house, and then again after your appointment.
You want to know things like:
How long have they owned the house,
Have there been recent upgrades,
Are there any issues with the house,
Why they are selling, and
What are the utility costs?
If you are negotiating directly with the seller, asking questions is a good way to build rapport and get information.
While you’re looking at the home, look for signs of seller motivation.
Bring a checklist of structural things you want to look for, and add “seller motivation” to that list. I look for things like 2 or 3 beds in a bedroom- maybe the sellers need more space for the kids. If the walls are bare and there isn’t much furniture, they could be moving out of province or there was possibly a marriage break up. Only two months ago I successfully negotiated an offer at $15,000 under fair market value because I knew, through asking pointed questions, that the sellers were highly motivated. They had already purchased another home and were under pressure to sell their current home.
Negotiation TIP 2: Create a Connection
As a realtor I get to hear the sellers side. I suspect most real estate investors would be surprised to know that one thing a lot of sellers say is “I hope a nice family moves into my house!”.
I’m selling my house right now and I actually feel the same way – someone with kids NEEDS to buy my house so that they can enjoy the play structure that my husband tirelessly put together over Father’s Day weekend 2 years ago!
Selling to a family often ranks higher in people’s minds than money.
Think about that one for a minute.
Sitting with a couple reviewing competing offers earlier this year, the couple was trying to figure out if one of the offers was from a neighbour’s friend. They didn’t even know. They just heard that the friend might be writing an offer and thought that those people should get that chance to buy their home. They were willing to take $10,000 less from those people than a higher offer we had!
Decisions are not always rational! So, what does this mean for you, the investor? When a homeowner sells their home, they are usually confused and disappointed if they see a corporate name on the offer. If that is how your offer will be submitted, I recommend including a letter that talks about you as a person instead of an investor. You may even want to include a picture of your family to really humanize yourself.
If you’re speaking with the seller directly, let them know that you purchase nice homes in good areas to rent to great families. Bring the softer side of the business to the table.
Negotiation Tip 3: Help the Seller Get What They Want (As Long as You Get What You Need)
Too many deals fall apart over the terms in the offer.
I have had clients say: “Can you write in the lawnmower, snow blower, and that pile of firewood beside the fire-pit? Oh, and I really love her china cabinet, I bet she doesn’t want it anyway anymore because it will be heavy to move. Do you remember if there was one freezer or two? I could use an extra freezer. And don’t forget to write in the offer that they take all their junk out of the garage.”
When the list of chattels gets too long, AND there are a lot of conditions, AND a small deposit- the offer starts to feel very unfair to the seller.
Everyone wants to think that they did a good job in negotiating their home purchase or sale. Be reasonable in your offers and negotiating.
Make sure the seller feels like they got a good deal too. Reputation matters, and you need to build good relationships in this business. A strong reputation will get you more referrals, more opportunities, and more profit.
Negotiation TIP 4: Know When to Fold ‘Em
When I was a kid, my Dad loved to sing that Kenny Rogers song “You gotta know when to hold them, know when to fold them, know when to walk away, know when to run”. It doesn’t just apply to card gambling- it’s true for negotiating in real estate.
Don’t fall in love with the house (or, the idea of doing the deal) and pay too much.
Negotiating is an emotional experience. It can be easy to lose site of your goals or stretch them a little in the process. Sometimes, you might feel like you’ve invested so much time you can’t walk away, or you’re worried you won’t find another deal quite so good, and you settle for terms that don’t make sense for you.
If it’s not the deal you wanted, walk away. So often that leads to an even better deal. Sometimes, the seller will call back days later and the investor then you can negotiate an even better deal because you’re back into a position of power and a calm rational state of mind.
Negotiating doesn’t have to be a stressful experience. Use these tips to make your next real estate purchase a successful one. It does take practice to become a great negotiator. But by using the guidelines above, and remembering to use Kenny Rogers’ advice too- you can save a lot of money and create an abundance of the great deals that you want.
Candice Bakx-Friesen has been successfully investing in real estate for 13 years. She has diversified her buy and hold strategy to include duplex, single family, multi-family, and commercial holdings. She’s also a realtor in Manitoba. Her passion for helping others is fierce and she loves to see people succeed. Candice welcomes your questions or comments; contact her at Candice@cbfteam.ca.
You already know real estate joint ventures are one of the best ways to grow your real estate portfolio when you need additional resources. It’s a fairly straightforward process if you’re working with a fellow Canadian, but what if your money is coming from someone in a different country? How does a joint venture work with international investors, and what are the tax implications you should consider before you move forward? We asked George E. Dube, an accountant in the Toronto area who specializes in working with real estate investors, for advice to help you out!
What happens when you have a joint venture with a non-resident of Canada? International investors can be a great source of joint venture capital, but you have to understand the added complexities of holding, or selling, real estate in which a non-resident is involved.
Non-resident joint ventures
First off, we are talking about joint ventures that are not partnerships. Generally speaking the joint holding of rental real estate is considered a joint venture and not a partnership. Why is this important? In the case of partnerships with non-resident partners, the withholding tax rules are far more onerous and can impact all partners. So, you must have the proper joint venture agreement.
In a joint venture, each co-venturer:
Separately reports his or her share of the gross income and expenses from the property.
Claims capital cost allowance on his or her cost share of the depreciable assets without regard to what other co-venturers are claiming.
Therefore, the special rules that apply to non-residents (i.e. your international investor) only apply to the non-resident’s share of the joint venture.
Example You: 50% ownership Jathan (non-resident): 50% ownership
The non-resident reporting rules only apply to Jathan’s 50%. Technically, you may have no responsibility for the non-resident’s withholding and reporting requirements –although as a good co-venturer, you are likely going to be coordinating this as the non-resident’s Canadian agent.
International investors normally have a Canadian agent who acts on their behalf making tax remittances and withholdings, for example. The CRA will hold the Canadian agent responsible for paying taxes, and filing tax returns, for the non-resident. To protect yourself, consider as a requirement of the JV that your accountant files tax returns and annually provides you a letter confirming the return has been filed.
(Note that if you have a property manager, it’s often the property manager that acts as the Canadian agent for the tax withholdings.)
What paperwork do you need to file?
If a non-resident holds Canadian rental real estate, a 25% Canadian withholding tax is generally applied on the gross rents. If you are paying the rents to the non-resident, you must remit this tax to the CRA on or before the 15th day of the month following the month the rental income is paid or credited to the non-resident. Otherwise, it will be your property manager that does this.
Gross rents vs. net rents
The Canadian agent, the person responsible for remitting the withholding tax, must file an annual NR4 Return. This return identifies the amounts withheld from the gross rents and remitted to the CRA.
Alternatively, your international investor can elect to have tax withheld on the net rental amount instead of on the gross rent. This involves filing an NR6 Form.
Generally speaking, you prepare an estimate of the expected gross rental income, expenses and net income for each rental property on your investor’s behalf, then include the estimate with the NR6 Form.
If the CRA approves the NR6 Form, the Canadian agent collecting the rents on behalf of the non-resident can then withhold tax on the net rental income of each property identified in the calculation instead of on the gross income. Until the form is filed and accepted by the CRA, however, the agent must withhold tax on the gross rents, and then file a Section 216 Return.
Annual filings for CRA
Annually, the non-resident can file a Section 216 Return within six months of the calendar year-end (i. e. by June 30). This is basically a personal income tax return, but used to report only the net rental income relating to the Canadian rental properties. The net rental income is subject to tax at the graduated rates applicable to Canadian residents. However, the tax owing is reduced by the previously remitted 25% withholding tax on the gross or net rents. Excess withholding tax is refunded through this return. This return is, in theory, but practically must be filed if taxes are being withheld at the net rent.
What about when you decide to sell?
Selling Canadian real estate where one of the owners of the properties is a non-resident is a little more complex, and involves more paperwork for Revenue Canada, than your standard sale. When selling a property, non-residents must apply for a clearance certificate from the Canadian Revenue Agency by filing Form T2062, and Form T2062A. (These forms generally are prepared by the non-resident’s Canadian accountant.) The CRA must then approve the forms and issue a Clearance Certificate. Without these forms, the purchaser of the property is required to withhold 25% tax on the gross sale proceeds (50% in the case of depreciable property). If the CRA issues a clearance certificate which is provided to the purchaser, tax is withheld on the gain and on any recapture, instead of on the gross selling price.
Any net rental income generated in the year of disposal is reported on a Section 216 Return and the disposal of the rental property is reported on a different non-resident return. Any withholding tax paid, as calculated on the T2062A form, is credited on the Section 216 Return and any withholding tax paid, as calculated on the T2062 form, is credited on the non-resident return, to be offset against any tax otherwise payable on the respective returns.
Failing to follow these procedures can mean significant adverse tax consequences depending on the situation. These are general descriptions to give you an idea of what is involved. Be careful of the strict reporting requirements and deadlines.
Many of our clients have successful joint ventures with non-residents. The key from a tax perspective is ensuring you follow the reporting requirements for tax purposes, in both Canada and the home country. Many choose to use Canadian corporations to own real estate to avoid many of the reporting requirements. However, there are still catches for you and your investors to consider, and the best advice is to talk with an advisor experienced with non-resident issues.
George is a veteran real estate investor and accountant (CPA). He has spoken, written various articles, and co-authored two books on real estate accounting. Connect with him on Twitter: @georgeEdube. You can also email him directly.
Other Articles on Raising Money for Your Real Estate Deals:
“It’s really simple. These are the factors we have to put in the model…” and then he would rattle off a bunch of things so fast I had no idea what he was saying. Nobody in our group did.
We’d usually just look at each other, shrug and follow his lead. He was one of the smartest people in our entire MBA class so following his lead was usually a safe bet.
The challenge was when someone else in the group had an idea. It was tough for him to persuade the group. He thought on a different level than the rest of us and he spoke so fast that his arguments weren’t compelling. We just didn’t understand what he was suggesting.
As a real estate investor, communicating in a compelling manner is critical to your success too. It’s rarely the first subject people talk about in the real estate space. It’s usually about hiring your team, finding deals, researching your market or handling tenants, and yet your ability to excel at all of those things comes back to your ability to communicate effectively.
Sure, you need to run numbers, and that requires a spreadsheet more than your ability to communicate, but beyond that your success in real estate is all about you convincing people to do what you want them to do!
The scary part is that so much of what allows you be effective or ineffective isn’t about WHAT you’re saying. It’s about how you’re saying it.
Your voice – the pace you speak at, the tone you use to communicate, filler words, and the energy that comes through in your voice – are all impacting your ability to influence and impress other people.
A quick look back at some of the most famous Seinfeld episodes will confirm the importance of how you deliver your message. They’ve had fun with every kind of talker … the fast talker, the close talker, and the low talker.
Remember, how Jerry was ‘low talked’ into wearing that white puffy pirate shirt on stage at his show by Kramer’s low talking girlfriend?
Clearly, how you’re delivering your message is critical. So what can you do to ensure your message has the greatest impact on delivery?
Here are three things to ensure what you say is not getting ruined by HOW you say it:
1. Do you believe in your message?
Have you ever tried to convince somebody of something you don’t really believe?
How’d that work out for you?
The first key is to having an influential voice is to believe in what you’re saying. This is challenging for some new investors who are trying to build a team or raise money. They are telling a realtor about what they are going to do, but they haven’t built the belief that they will actually make it happen (you can also read my article about finding a good realtor). Or, they are speaking with a potential joint venture why 50% 50% is a fair split when they don’t really know if it is.
In Grant Cardone’s book, the 10X Rule he talks about the danger of not being fully committed to whatever it takes to achieve your goal. He says:
“When you have underestimated the time, energy, and effort necessary to do something, you will have ‘quit’ in your mind, voice, posture, face and presentation…However, when you correctly estimate the effort necessary, you will assume the appropriate posture. The marketplace will sense by your actions that you are a force to be reckoned with and are not going away – and it will begin to respond accordingly.”
Belief and determination will shine through your voice. So before you try to convince and engage anyone, get connected with what is driving you to invest in real estate in the first place. Get into the mindset of ‘let’s do this – whatever it takes’ and pursue what you want with moxie. That alone will overcome a lot of the other potential voice issues you could face. People will sense your determination and your belief and will hop right on board.
Dave always talks about the power of looking someone in the eye and saying “I’m going to take care of your money because if we don’t make you money, we can’t eat. We only make money when you make money, and this is our primary business.”
That kind of determination and belief in what you do is powerful (and works to raise a lot of money)!
2. Record Yourself Speaking … And Listen Carefully
If you just groaned, I get it. Listening to your own voice is pretty painful for most people. It is, however, the best way to catch if you have any of these other potential voice issues that are making it hard for you to influence others.
Ideally record your side of a business call. Afterwards, listen for:
1. Vocal Tone – does your voice come through as a command or a question. If you’re asking a question – ok your voice should go up at the end of a sentence to indicate a question. Otherwise, a flat or even drop in your tone at the end of a sentence is much stronger. 2. Filler Words – Are you using them? You know, um, the ones, ah, like … right? 3. Vocal Pace – Are you speaking too fast, too slow, or are you just speaking at one pace and at one tone the whole time which will put people to sleep?
Have an honest friend give you input. Then, consciously work to change it!
3. What Do You Look Like When You’re Speaking?
This is an entire article unto itself. You can damage your credibility, look totally insecure or just not be likable to someone in an instant just by showing up in the wrong clothes or looking totally disheveled. Let’s be blunt … nose and ear hair really hurt your impact too.
You could also ruin any sort of positive message you’re saying with gestures like rubbing a beard while you’re speaking, constantly flicking your hair or rubbing your nose.
If you look nervous, the other person will feel nervous.
Besides the fact that these things are distracting, they don’t set someone at ease. In order to influence someone, they need to be comfortable.
The bottom line is that you need to look appealing in most cases so people want to look at you and feel comfortable doing so. It’s not necessarily fair or right, but the more attractive you are, the easier it will be for you to influence someone. You don’t have to believe me … you can just read Invisible Influence by Kevin Hogan and you’ll learn all about it.
People have to be ok to look at you while you’re talking so that they can feel comfortable and will easily engage with you.
Ask a kind but critical friend what you could improve. Hire a stylist. Video tape yourself speaking. Identify where you can improve your appearance and reduce the gestures you make that are taking away from your message.
If what you’re doing is working for you right now – you’re negotiating great deals, raising all the money you need, and work with a team you love, you could make a few tweaks I am sure (we all can I suspect!), but you’re probably actually good. If, however, you’re having trouble hiring the right people, your raising money efforts are falling flat and you never seem to get what you want in negotiations, it’s time to pay attention to HOW you’re saying what you are saying.
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!
If 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
We always ask our potential coaching clients to complete an application form. Working with people who are the right fit for what we offer is important to us. We only coach a small number of people each year, so we want to work with people that we can help in a massive way.
When we first started asking people to complete the forms, I was absolutely baffled by the numbers people had set for themselves as their real estate investing goals. We would ask questions like: What do you want to accomplish in the next 12 months? We had so many people responding that they wanted to buy eight properties or 17 in the next year. Those numbers were so strange. How did people come up with them? And why did so many people think eight or 17 was the magic number for the next year?
Eventually I realized it was because they were looking to earn recognition from a club they belonged to, and those were the levels at which you could earn recognition.
I loved that these folks were keen to take action, and that looking forward to earning a reward had them excited about making things happen, but my concern was that someone else had given them a goal. Even more concerning was that the goal was based on the number of properties and nothing else. “Seventeen properties” is not such a good thing if it doesn’t move you closer to living the life you want to live. And it’s definitely not a good thing if you’re buying any property just to get your recognition and reward.
In 2005, we woke up to the realization that the dozen properties we owned had taken us in exactly the opposite direction to what we actually wanted to create in our lives. We had set out in pursuit of wealth, yes; but more specifically we wanted to make enough money so that we had control over our time.
Instead of creating freedom, we had effectively created total chaos, stress and financial strain in our lives. We owned properties in four different cities at that time, worked with four different property managers, and were experiencing serious problems that ranged from bad tenants to fire code violations to shady property managers.
Yes, for a while we were actually making really good money. In fact, most of the properties we’ve owned have had positive cash flow. One of our properties produced $1200/month positive cash flow.
For us, it wasn’t that we had tried to squeeze ourselves with deals where the numbers didn’t work (which is a very common problem with investors who are pursuing a certain number of deals). Our problem was that we were too spread out and not involved enough with our properties. How can you be involved when your properties are all over Canada?
The Problem with Our Real Estate Investing Goals Back Then
We realized we weren’t clear on why we were investing. We were pursuing no-money-down deals and riches. We’d allowed a real estate course to tell us the deals we should do, and we ended up with a giant mess of a portfolio that took years to clean up. We made decisions based on where we thought the most money was to be made and we ended up very unhappy.
Owning properties in different cities sounds sexy but the reality is: it’s chaotic. You can’t rely on your local team to solve problems because your rock star plumber in Nanaimo, BC can’t help you in Niagara Falls, Ontario. And your fabulous handyman in Toronto isn’t going to commute to Niagara Falls to fix your units.
Five properties that are paid off will do a lot more for you than 17 that are leveraged as much as possible. Three great deals will do more for you than eight bad ones.
Numbers aren’t the most important consideration as a real estate investor – despite what most investors will tell you. What’s important is whether each deal you do moves you closer or further away from the life you want to live. Make sure you’re setting real estate investing goals for yourself, based on what you are trying to create for you and your family.
When we got clear on what we wanted real estate to do for us, and what we wanted our typical day to look like, we sold all our Ontario properties, and kept only our properties in BC. We eventually moved to Nanaimo, where 80% of our holdings are, and we focused on building a team to help us. Now everything is much simpler and we continue to look for ways to make things even simpler.
We didn’t get into real estate to complicate things, but that is exactly what we did until we got clear on why we wanted to be in real estate.
Like this article? You’ll LOVE More Than Cashflow: The Real Risks & Rewards of Profitable Real Estate Investing. This is just a tiny excerpt from the Amazon #1 Best Selling Book.
“I have read many different Real Estate related books over the years from many different authors across Canada and the US, but this book was one of the best that I have read in a very long time. If there is one real estate book that you should read this year, it is this one!” ~ From qmanrei on Amazon.ca
One of the biggest stumbling blocks for real estate investors (new and experienced) is where to invest. What market will be the ideal location for the next investment property purchase?
At one point in our business we owned property in six different cities across Canada. We had property in Ontario and in BC. It sounded cool to say that we owned property in so many different cities, but the reality was less than impressive as we were forced to rely on our teams very heavily. Traveling to solve problems or hire new team members was expensive and time consuming.
Real estate was supposed to create freedom and wealth for us, not cost us a fortune, stress us out and suck up all our time.
That’s why picking your market is a CRITICAL step in the process of becoming a real estate investor. But, because I am coming at this from a perspective of doing real estate deals that make sense for the life you want to live not just financial sense, this video contains two factors nobody else really talks about when it comes to choosing your real estate investment market.
I’m not suggesting you invest in towns that are shrinking nor am I saying that you have to find a $1.2 million dollar Vancouver house that will cashflow (it’s kind of hard to do that…). I am just giving you a few additional factors to think about that are more important than economic fundamentals when it comes to thinking about YOU, your family, and your goals as you build your real estate investment empire.
You might also be interested in these real estate investing articles:
Imagine, after weeks of hard work you finally have a meeting with a prospective investor who is interested in one of your real estate opportunities. You have the perfect presentation prepared. You’ve rehearsed your lines and you’ve dressed the part. You walk into the meeting confident and excited. You walk up and shake hands with the person and sit down across from them. You’re ready to take control and get started when the other person abruptly says “So what have you got? Tell me about the property.”
“Crap!” you think … I didn’t prepare for that. You try to recover and say something like “I’m so glad you asked – I am excited to tell you about that. First let me tell you a bit about what we do and who we are.”
Now firmly back in control you launch into your presentation and because you’ve stayed on the script you think you did a good job. The person, however, says “Sounds interesting. I’ve got a coworker who invests in real estate so I am going to run it by her. I’ll get back to you.”
Weeks go by. You’ve lost the deal and you’ve never heard from the other person again despite emailing, texting and calling them. What happened?
Only about 100 things went wrong here but there are three key things that could have changed the entire scenario.
#1 – Thinking you can follow a script to raise money is an enormous mistake.
That doesn’t mean you should not prepare but following a script only works for actors who are in a production together with other actors working off the same script. There is no magic script that raises money – there are things you should say and should not say to increase your chances of getting a positive result – but it’s absolutely not a script.
#2 – The more you talk the less likely you are to get the money.
When I was a young sales rep working for Kimberly Clark Canada selling diapers, tissues and towels, I didn’t know much about the businesses I was selling to and I barely knew anything about my own products, yet I won sales contest after sales contest. My secret was simply that I didn’t do much talking at all. My Dad always used to joke that it was better to keep your mouth shut and have people wonder if you knew what you were doing than it was to open your mouth and remove all doubt. People tend to think they have to talk a lot to get the deals when in fact the absolute best thing you can do is engage the other person and learn all about them. Ask great questions, be interested in the answers and let that lead the conversation, not your script.
#3 – A focus on the information versus the relationship.
I could interchange a lot of words with information … money, deal, script. The point is that the person was not focused on the most important thing and that is developing a relationship and figuring out if there is a fit to work together. That’s the most important step for you creating a business you like AND in paving the way to many more “yes” responses than “I’ll get back to you’s”.
The good news is that it’s actually pretty simple to raise money if you like to talk with people and get to know them. The bad news is that it’s a lot more complicated that preparing and executing a perfect presentation.
I am a little embarrassed to admit it, but this project has been a GIANT pain in my butt.
I’m not a brand new renovator. In fact, I can’t even count how many kitchens, bathrooms and other parts of a house we’ve renovated since we started buying rental properties in 2001. It’s in the double digits. So I should be able to run a smooth operation … and if I had been documenting the last couple of projects for you, I would have had very little lessons to share. They went extremely smoothly with on time and on budget delivery and minimal hassles.
This project is not going nearly as well.
Every time I go to the house where we’re adding a legal suite (which these days is daily – and you’ll see why in the second video I have for you today), I find something that makes me say very bad words.
On the bright side, we’re on time completely with the one unit and only a few days behind on the other. I’ve had to eliminate some updates I wanted to do from my plans, but with those cut out, I’m not far off my budget either. So it’s not a failure, it’s just been irritating. For you, however, it’s been a great one to learn some things to hopefully save you time, money and annoyance on your renovation projects.
If you watch no other videos than these ones in my weekly series on Adding a Legal Suite, you’ll learn a few of the big lessons I’ve (re)learned in this project. Enjoy!
Week 8 of Adding a Legal Suite – Want to save lots of money? Buy your materials on sale … but beware!
Week 9 of Adding a Legal Suite – Not ready to check in on your project every day? Then a big renovation project probably isn’t for you.
Coming up in the next two weeks we’re cleaning and getting the units ready to show to prospective tenants.
At the same time as I am doing all of that, Dave is getting things organized to finance the property with a bank so we can pull all the cash out (or most of it!). In one of the earlier videos I explained that the key strategy we use to fund these renovations is to buy with cash and finance out once the renovation is complete.
Even after 4 years of running our real estate investment business full time, eleven years of history of never missing a mortgage payment on any property, and a substantial net worth, we still find it challenging to finance our investments. In September we bought an beautifully cash flowing triplex. In order to finance it with the bank we had to show 3 years of mortgage and interest payments just hanging out collecting dust in a bank account. That’s on top of the 25% down payment that also has to be sitting in a bank account for 30 days before we even apply for the mortgage.
We bought it for $325,000. In order to even apply for the mortgage we have to have about $130,000 in cash just sitting around.
If you are starting to think about becoming a full time real estate investor and leaving your job, I encourage you to finance as many properties as you can while you have what the bank perceives to be a secure job. You’ll also want to start planning for your funding and financing future (one of the best ways to do that is to join us for one of our Fund Your Deals in 49 Days LIVE training events – we’ll help you build a funnel of sources for funds!).
The good news is that you do have some options when the bank says no or you don’t happen to have hundreds of thousands of dollars sitting around so the bank will say yes.
No Money Down – No Bank Needed
If you watch late night infomercials you’ll probably feel some attraction to the no money down, no qualifying at the bank strategies. We’ve been right there with you … not once but twice. We’ve invested almost $40,000 into learning “no money down” and no bank needed investment strategies.
The biggest lesson I can share with you is that just because you can do deals with no money down doesn’t mean you won’t need money.
Sandwich leases are a popular one these days for Canadians that want to do no money down and no bank needed type deals. A sandwich lease is simply where you find someone who will allow you to lease option their home from them and you turn around and offer it as a rent to own to someone else. You pocket the difference in monthly cash flow and option fee.
In theory this is a great strategy. The reality isn’t as pretty. It takes a lot of marketing effort to find the deals. It also takes a lot of effort to educate and explain what you’re doing to the seller. Finally, you’ll find the houses are generally in a state of disrepair and need some investment to improve them so you can attract good rent to own tenants. How much money do you want to put into a house you don’t own? The final issue is that it rarely works out that your lease option term aligns with the term that your rent to own tenants are able to buy within. It’s tricky. Your upside is limited in this type of deal and while you CAN do it without the bank, we find most investors get into this type of deal really excited and work hard for a year or two and then look for something new because it’s so much work for a minimal pay day.
Generally when we did creative deals – whether it was a sandwich lease, wrap mortgage or some sort of seller financed strategy – we ended up with problem properties and challenging tenants. We basically created a full time babysitting job for ourselves. That is because the kind of deals you can do creatively generally are not the great properties in good areas. They don’t attract the best caliber of tenant nor do they have minimal maintenance requirements.
The no money down and no bank needed strategies work but they didn’t work for the life and business we wanted to create.
The strategies we use to fund and finance our deals include Vendor Take Back Mortgages, Private Money, RRSP mortgages and joint venture partners. Sometimes we use a combination and other times we just use one. These strategies allow us to focus on doing great deals in areas that attract the best tenants. Our tenants typically love their homes like they were their own, apologize when they are late with rent or give us a heads up that it might happen, and rarely call us with problems. That’s because we focus on doing the deals that allow us to create a business and life we love instead of doing deals just because we can do them creatively or with little money down or no banks.
4 Great Ways for Getting the Money for Your Real Estate Deals
Vendor Take Back Mortgages
Seller financing, more commonly called a VTB or vendor take back mortgage is simply where the seller (Vendor) of a property is willing to provide some (or all) of the mortgage financing on that property.
Seller financing can take several different forms. We’ve done deals where the seller provided the entire mortgage, which amounted to 80% of the property value. We paid her 6% interest amortized over 25 years for a 3 year term with no prepayment penalties and an option to renew. She was able to sell her house in a slower market and made more money from it than she otherwise would have through three years of interest payments. We also have used seller financing to top up traditional bank financing.
Private money is simply money from an individual. It’s different than hard money. Hard money lenders finance deals for real estate investors as a business. They are more sophisticated in their investment terms and will typically seek quick repayment at high interest rates. With private money you can have more control over the terms of the loan. You can offer terms that suit your needs and offer a good return for your private lender.
The easiest way to find private money is to call your favourite mortgage broker and ask if they have any private lenders. That money is expensive thought. The upfront fees on those funds alone are usually1-3% of your mortgage amount. On a $250,000 mortgage that means up front you can start off with a $7,500 fee plus pay at least 7% interest on the loan. That’s ok if you’re in a pinch with a strong cash flowing property, but our preferred source of private funds is to raise them ourselves.
We find that a lot of folks have paid off their homes and are willing to put a line of credit on the property and loan that money out for a premium. One of our favourite strategies is to borrow $350,000 from someone’s line of credit to buy and renovate a property. We paid them 5% + their line of credit costs. (See an example of a property we’re doing this on right now in our video series on adding a legal suite to a property).
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. This is probably the largest untapped source of funds available to real estate investors because very few people know this option exists.
Master this and you’ll always be able to find the funds for your deals. With no management fees or advisor commissions to pay, RRSP holders could be making a stable and predictable 6, 7, even 10% or more return on their money inside their RRSP.
There are some additional rules around using RRSP funds though. For example, you can’t borrow funds from your immediate family to fund your investments. It needs to be arms length. You also can’t use the RRSP funds for a down payment directly on a property. You’ll need to put the funds on a different property as a first or second mortgage and then use those funds on the new investment. **We now cover using RRSP funds in our Fund Your Deals in 49 Days Live Training**
Joint Venture Partners
This is the most powerful strategy in our investment tool box. It’s the strategy that has allowed us to comfortably add a new property to our portfolio almost every month.
Our joint venture deals typically are structured so that we find the deals, oversee all work and management and split the proceeds 50% / 50% with our partner. In exchange for all experience and efforts, our partner puts in the cash required to close on the property and puts their name on title so they qualify for financing from the bank.
If anything goes wrong with the property and requires cash we are partners and split the costs 50% 50% just like we split the proceeds.
Busy people love this option. They don’t want to spend the hundreds of hours we’ve spent learning an area, building a team and digging up deals. And they definitely don’t want to take calls from tenants or handle issues around the property management. They can get into real estate without the hassles of being a landlord.
Motivated by a huge desire to create a business that would allow her husband to quit his job, Crystal decided nothing would stand in her way any more. Visions of fun family activities were dancing in her head – thinking of all the fun she would have with her husband and son once they were in control of their time and their financial situation.
When Crystal came to us in late 2011 looking for real estate coaching, the one thing that stood out for both myself and my husband Dave was her sheer belief that she was going to make it happen.
She didn’t have any real estate investing experience, she wasn’t that comfortable with computers – especially Excel Spreadsheets, and she had been looking at becoming a real estate investor for awhile without buying anything.
She was really interested in flipping property but was petrified of speaking to a contractor about doing renovation work.
“In the past I had looked at properties to invest in and if it required more than paint, I wouldn’t even consider buying it. I was truly terrified of renovations.”
Terrified? Yes! Paralyzed? Not even a bit.
Surrounded by support and people with experience and expertise, Crystal Rael, Victoria, BC real estate investor, dared to tackle her greatest fear – she took on her first fix and flip project and pocketed $45,000 in profit for her and her partner in 2012.
The money is great, but even greater than the financial pay day is the confidence she gained by diving head first into the one thing that scared her the most.
Once that project was complete she knew exactly what was next. She’s taking her investing south to Phoenix. The deal was barely closed and she was packing up her son and husband and heading to Phoenix to get to work. She sees that their money can go much further down there and getting out of the grey winters in BC is a big bonus for them too!
One month later she has lined up a few joint venture partners, set up her team and is just working through a few of the details around financing and corporate structure before she makes a move on one of the deals she has her eye on.
With her greatest fear overcome she is on fire. She now knows that she can do what she sets her mind to and is going for it.
Her first flip was a success – especially in a slowing real estate market – and she learned some important things she wanted to share with others that might be thinking of flipping.
Crystal’s 2 Big Things Learned on Flipping Property for Profits
Networking Pays Off – It Really Is About WHO You Know
“The numbers never work in Victoria” is something we often here. Yet someone Crystal met at a REAG Meeting brought her the deal.
It was a great price for the area so Crystal didn’t even hesitate. “I never thought I shouldn’t do it. I wanted to do a flip and it showed up. So I did my due diligence but never questioned it.”
But the deal never would have found her if she hadn’t been out networking and meeting other investors.
Double Check Your Budget
In her initial plan she had factored in the cost for 2 kitchens but forgot to transfer the costs for the second kitchen into the spreadsheet she was using to track the budget. She also had not planned on paying for an electrician because her husband is a ticketed electrician and was going to do the work. Unfortunately he was so busy with his own work that waiting for him was was going to throw everything off schedule (which would have messed up the drywallers and painters), so she had to hire that out which was an extra $5,000 not accounted for.
“If we’d had these numbers in the budget we would have been right on. We had budgeted $50,000 for the renovation and spent $57,000 so not too bad for my first one.” Crystal explains.
So what were the numbers on this property flip exactly?
Purchase Price: $372,440
Renovation Costs: $57,000
Closing costs, carrying costs and Selling Costs: $38,000
Selling Price: $512,000
Net Profit: $45,000
Not bad for 3 months of work!
Crystal says they planned for this project to take 6 months including time to sell but the renovation stayed right on schedule and the home sold fairly quickly with a fast possession so it was just over 3 months!
The worst part?
Crystal said the waiting was the most painful part of the whole process. “Once everything was done and it was listed on MLS and there was nothing left to do but wait for an offer to come in. Thankfully we priced it right and didn’t have to wait too long.”
If you’re thinking of tackling a flip, Crystal has 5 big lessons on flipping property she learned from this experience to share:
1. Find the right deal. This deal worked for her because it was under it’s market value, was in a great area and where there is a demand for properties with a suite. She also had a back up plan of renting it out if it didn’t sell (and with the suite she would be able to cover all her costs as a rental).
2. Make sure you get the right mortgage so you are not paying big penalties when you sell it so quickly.
3. Leave something on the table for the buyer. They priced it aggressively for a quick sale. If they were willing to wait longer to cash out they may have made more money but instead they priced it well and buyers recognized that and grabbed it.
4. Listen to your gut. Your brain might try to talk you into or out of something but listen to what your gut says.
5. Believe you can do it – then do it!
Her biggest surprise in this adventure was that she had all the tools she needed. She is part of REAG and Rev N You’s VIP Coaching program so she’s surrounded by support and expertise. All she needed was to believe that she could do it. When she got that, she committed to doing it, had the right support and mentors around her, and everything else fell into place!
Crystal is excited for the day that her husband can quit his job and work with her full time so they have the time and financial comfort to hang out as a family more. That goal probably isn’t that far away with such a compelling motivation and the strong belief in herself that she now in what she can accomplish. GO CRYSTAL!!
Want to make big things happen in 2013 in YOUR Real Estate Investing Business?
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One way to boost your rental income on a property is to add a suite to a house.
The cost of adding a suite is often a small investment compared to the returns it generates. When you add a legal suite you’ll often find it also adds a ton of value to the property. The hard part, we’ve discovered, is finding a house where it’s going to be relatively cost effective to add the suite.
We searched for months to find a property where it made sense for us to add a legal suite. The perfect property for suiting finally found us. Someone who had received our yellow letter several years ago had saved the letter and just contacted us now – ready to sell her property.
We thought it was PERFECT for suiting. It was in our target area, untouched since it was built in 1980, and fit our criteria for adding a suite. We closed on it last week and demolition is nearly complete.
We’re chronicling the adventure for you in a video series.
In the first video I explain the 5 things to look for when you add a suite to a house.
You’ll have to watch the video for all the details, but the 5 things we look for when we’re searching for a house to add a legal suite to are:
Entrance Points: How do the tenants get into the suite and the main home?
Heating Sources: Is there a furnace that has ducts that need to be closed off or is it baseboard heating?
Flow of the property and how the suite can flow when added in: So many suites lack flow because it’s awkward to put it into an existing home. Considering how it’s going to flow is important which is why we are removing 3 walls in this project and adding one.
Where are your plumbing and electrical systems relative to where you’re putting in the kitchen, appliances and any bathroom changes you need to make. One of the most significant costs of suiting revolves around electrical labour. The easier it is to separate the units the less you’ll pay. And can the electrical system handle the added load or does it need more?
Where will the laundry be for each suite?
There is more to consider, like purchase price, rents, location and condition of the property but generally speaking if those things are great (And in this case this property is in our #1 focus area and is in great shape – just needs cosmetic love) then the other items are the important ones on our checklist for finding a property to add a legal suite to.