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A Practical Raising Capital Conversation with the RevNYou with Real Estate Partners

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A Practical Raising Capital Conversation with the RevNYou with Real Estate Partners

At one point or another, all real estate investors are going to have to raise capital for their deals. It’s not a question of if, but when!

Knowing this, what can we do as real estate investors to become exceptional, ethical raisers of capital within our own networks?

Join RevNYou with Real Estate Education Partners, long-time joint venture expert Gary Spencer-Smith and host Doug Meyers, as we discuss the ever-important subject of Raising Capital on this edition of the show.

Conversation points include:

Why raising capital is about relationships Building trust and integrity People need to know that you’re looking for capital! Sources of capital – both traditional and creative Educated real estate investors can always find the money Takeaway exercises to help you identify where capital potential exists in your network

If you’ve got any questions about this episode, please e-mail us at info@revnyou.com.

Thank you for listening and we look forward to welcoming you to the RevNYou with Real Estate community!

– The RevNYou with Real Estate Team

IG: @revnyoucanada

FB: Rev N You With Real Estate

YT: Rev N You With Real Estate

How to Structure a Joint Venture Real Estate Deal

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How to Structure a Joint Venture Real Estate Deal

Joint Ventures

Our first joint venture real estate deal was the very first property Dave and I bought together in 2001. We were dating at the time and pooled our resources to do the first two deals. I had excellent credit, $16,000 in savings and zero debt. Dave didn’t have any savings but he did have money in RRSP’s, which he cashed out to invest in our properties. We both had good jobs at that time, although I was leaving mine to do my MBA.

We moved into one of the properties so we could put less money down and still qualify for good financing.

After that, we were out of cash and I was now a student in Toronto so we had to find other ways to get deals done that didn’t require cash or bank financing.

Despite the cash challenge, we still managed to add another four properties to our portfolio in 2002 and 2003. Two of those properties were our first external from us and we did a joint venture with a friend. Dave also made some money off an assignment deal – finding a great deal and assigning it to someone else for a fee (also called wholesaling).

Since then we’ve largely relied on other people’s money to fund our deals.

During 2010 – 2012 when we were aggressively growing our portfolio and averaging one new house almost every month, the majority of our purchases were joint ventures.

The majority of these deals were structured so that we were the managing partners (finding the deals, negotiating them, hiring the teams and overseeing the renovations and overseeing management) and our money partners came to the table with financing capability and the initial investment capital required (e.g. down payment, closing costs, 2 month reserve fund).

It was a fabulous way to grow our portfolio quickly and reduce some of our future costs because our partners will split any future costs (and profits) with us 50% / 50%, but partners also can be limiting and always bring additional stress to handle when there are issues (more on that in a minute).

Options for Structuring Joint Venture Real Estate Deals

Structure JVs There isn’t one right way to structure a JV. Over time you’ll discover the way that is the most fair for you and your partners given what each party is bringing to the table (Also see – Real Estate Investors Checklist for Working with JVs).

We look to our partners to put in 100% of the initial investment capital (typically the down payment, closing costs, 2 months of a reserve fund and minor renovations) in exchange for 50% ownership in the property. When we sell the property, their initial investment is repaid first, then any capital we have invested, and then we split the proceeds 50% / 50% as per the ownership.

As long as we can reasonably suggest our partner is going to get 10-15% per year return on their capital and they don’t have to put in any effort, we believe it’s a fair exchange for them and for us. Those are our measurements, by the way, they don’t have to be yours.

It’s about the return and the limited amount of involvement they have in the deal – not the share of the deal they own. These folks are busy – usually successful businesses or careers, families and hobbies they want to focus on. They want to be in real estate but they don’t have the time or inclination to become experts. That’s where we come in. We’ve spent thousands and thousands of hours becoming experts. While we may only put 40 hours into getting a deal done for our partner, that doesn’t account for the $100,000 in education and 10,000+ hours we’ve put into learning what to do to minimize risks and maximize returns.

Remember all you bring to the table in your own business – whether it’s your first deal, or fifteenth. If you don’t feel you bring enough to the table then you need to build on what you have – take more courses, improve the quality of your team, get to know your area more by touring more properties and walking around. One of the most critical things you can do is become an area expert.

We prefer the traditional 50% / 50% structure, but that is far from the only option. You can create whatever structure you feel is fair given what you’re bringing to the table. For example, if you are new to the game, and are not bringing a ton of experience, perhaps a 30% / 70% structure is fair with you getting 30%. This is of course if your investor is putting in all the capital and qualifying for financing. If you both are splitting the capital contribution and qualifying for financing, then a 50% / 50% deal is more fair (again if your experience is limited).

There are endless options for how you can structure a Joint Venture Real Estate Deal but here are a few others we’ve done:

• 30% / 30% / 40% – if there are two cash partners and one managing partner or maybe one person is going to be a tradesperson offering their skills to renovate in exchange for a share of the property (essentially they are putting in sweat equity while someone else funds it and someone else is the managing partner). It’s always critical to lay out roles and responsibilities in your agreement but it’s even more important in an arrangement like this.
• 60% / 40% – we’ve done this two ways. Once, when we have had to put in some money and do all the work – we took 60% of the deal. Two, when we felt that someone was bringing more to the table than our usual arrangements we would offer them more equity. Perhaps they are funding a large renovation and leaving that cash in there and we need to increase their equity to ensure they get a great return, or maybe they are offering some skill in addition to the cash or if we were new, it could be how we get the deal done if we aren’t putting any cash into the deal.
• 75% / 25% – We’ve done this when we put the down payment in but couldn’t quality for financing. We gave someone 25% in exchange for their name on title and finance-ability. It would not be our first choice in an arrangement but we were in a pinch and had already lifted conditions. We needed to close on the deal and this got it done.
• 50% / 50% – Someone already owns the property and is unable to sell. They don’t want to hire a property manager for whatever reason. You can step in and offer to oversee everything in exchange for 50% ownership in the property. Their ‘initial capital contribution’ can simply be the equity they have in the property as of that date (get a property appraisal to determine this value relative to the mortgage owing). We did this when someone we met at a club meeting wanted to turn their property into a rent to own to sell it but didn’t know how. They also wanted to go away traveling and didn’t want any hassles.

Simple Structure Is Best

The most complicated structure we did almost completely bit us in the butt because one of the partners got divorced (the 30, 30, 40 split).

We brought two partners into one deal. We all brought money to the table but in different amounts. One couple put less in as they went on title and qualified for financing. Between us and our other partner we covered the remainder of cash. We split the deal with them 30% 30% and we got 40%.

A few years later the couple got divorced. Thankfully they were able to settle things amicably and were able to agree to keep the property. Had their divorce gone the ugly way of many, the property would have gone on the chopping block and we would have been put in the awkward position of either selling it prematurely to get them out, or having to buy them out, switch title and find our own financing. Not always an easy thing at the best of times, but we would have had the added pressure of making it fair given our other partner as well…

Thankfully it didn’t come to that and we all still own this property together but it was a good reminder that it’s best to keep your smaller deals one partner to one property. Every partner brings their own set of complications so why make it harder on yourself than you need to by mixing and matching?

Word of Warning: JV’s are Limiting and add stress – Use with Caution

One of our rent to own properties failed. The tenant buyers chose not to buy the property from us, as per their option, and rather than selling it in a slower market, we chose to convert it to a regular buy and hold rental property.

The property barely cash flows as a regular rental, but it’s a perfect property to add a legal suite to. It would potentially be one of the easiest places we’ve tackled to add a legal suite to because of the location of plumbing, electrical and the heating source. We approached our partners with the proposal to add a suite. We were going to split the cost of renovation with them, as per our 50% / 50% ownership with them because we have already owned it for several years. We would charge a small general contractor fee just to cover some of our costs of overseeing the work, but otherwise we were agreeing to take on a ton of work and time to improve the overall performance of the property. This move would have turned a neutral cash flowing property into one that is giving us at least $600 a month. Despite all the effort required to do this, it made perfect sense to us. If we owned this property on our own that is what we would do.

Our partners said no. Not because they didn’t like the idea, it was because they didn’t want to invest anymore cash into the deal.

They want to wait until the market is good enough to sell and then they want out. Getting them out now to make the change ourselves is more complicated and cost ridden than it is worth to us. It’s frustrating as we would much prefer it to be a solid holding property with strong cashflow, but it’s one of the limitations and issues with partners.

Joint venture real estate deals are a great way to grow your portfolio when you’re short of cash resources for down payments, struggle to qualify for financing, or want to work with other people who bring something to the table that you don’t have. They are long term business relationships, however, and need to be carefully considered to make sure it’s a fit and that the structure you select makes sense given what you are all bringing to the table. Hope this gives you a few new ideas.

Other Articles on Joint Ventures & Using Other People’s Money:

>> How to Write a Comprehensive Real Estate Investment Deal Summary (Business Plan for Real Estate Investors)

>> 5 Things Every Real Estate Investor Should Know about Money & Credit

>> How to Use RRSP’s to Fund Your Real Estate Deals

>> 5 Tips to Create Credibility as a Real Estate Investor

>> When to Sell a Real Estate Investment

Brad Price Specializing in Joint-Ventures

Brad Price Podcast Cover Photo

Brad Price is a Real Estate Investor specializing in Joint Venture Real Estate Acquisitions and Investment Management in the residential sector.

Brad has a number of real estate related businesses which he has either co-founded or founded, including Calgary based Commonwealth Home Ownership, a Canadian real estate investing education company that hosts networking events and provides tools and resources to help real estate investors build profitable portfolios. He is the President & CEO of REIBS Canada, a cloud-based bookkeeping company specifically designed to simplify and automate bookkeeping and accounting processes for real estate investors. Brad also manages BCP Coaching, a One-on-One coaching service for people looking to take that next step towards financial freedom. He highly values positive high-performance habits, a desire to breakdown the status quo, and an unwavering commitment to all of his clients.

In addition to Brad’s real estate related companies, Brad has extensive residential and commercial construction knowledge with over 17 years of experience in the industry. Brad’s most recent projects include two $100 Million commercial construction projects in Calgary and the development of $3.7 Million of residential investment properties in Edmonton. Brad’s next project is a $2.5 Million residential investment development in Calgary, commencing in the spring of 2020.

In our conversation Brad and I discuss:

The inspiration behind his start in real estate investing: “How much do you earn while you’re sleeping?” Educating yourself with the drinking from a fire-hose approach How to decide what real estate investing strategy is right for you Why he loves the joint-venture strategy for building a real estate investment portfolio Understanding what you are an expert in (as an investor) and communicating what your market has to offer Why it’s NOT all about market appreciation (in fact, why you should be hedging against downturns by holding strong cash-flowing assets) The basics of being a successful joint-venture working partner Advanced joint-venture working partner keys Highlighting the operational side of real estate that people often overlook, don’t know about, or just simply struggle with (bookkeeping, reporting, managing, systematizing) Finding joint-venture money partners – how to attract, communicate, and build relationships that lead to successful investments over time What Brad means by “people buy into you before they buy into a deal Telling, not selling, what you do The Joint-Venture Associate Program through Commonwealth Home Ownership Tips for investors looking to get started or take their investments to the next level

I hope you enjoy this comprehensive conversation with Brad Price!

Commonwealth Home Ownership: www.cwho.ca

Connect with Brad:

IG @brad.c.price

brad@cwho.ca

Connect with RevNYou with Real Estate

 

Questions, comments, feedback, or just want to get in touch? Send us an e-mail at info@revnyou.com

Thank you for listening and we look forward to welcoming you to the RevNYou With Real Estate Community!

Gary Spencer-Smith & The History of RevNYou

Gary Spencer-Smith Podcast Cover Photo


Welcome to the first interview episode of The RevNYou With Real Estate Podcast! Thank you for tuning in!

In the show’s inaugural episode, Doug catches up with fellow RevNYou team member and award winning investor Gary Spencer-Smith.

Gary was born in the UK and started investing in his native country during his time in the Royal Navy, He emigrated to Canada after 11 years of service, which saw him travel all over the world before settling on Vancouver Island. Investing on the island for over ten years now, Gary has won awards from Canadian Real Estate Wealth Magazine and The Real Estate Investment Network for his strategies and success, and been nominated for countless others. Gary enjoys the lifestyle investing in real estate affords him and has a passion for helping others change their financial futures by using real estate as the catalyst. “When I see people finally realize they can totally change their lives, it’s like a light goes on, then they know what is truly possible for their lifestyle and the future of themselves and those around them. That’s why I teach!”

Joint-Venture Investing

After getting to know Gary and his background story, the conversation shifts towards providing listeners with a primer on joint-venture investing before getting into the tips, techniques, strategies, and ways of being that have made Gary such a successful joint-venture working partner in his many years as a real estate investor.

Gary shares his knowledge and experience on:

  • How to screen your joint-venture partners to work with the right type of people, creating win-win relationships
  • Identifying opportunities to match with the right joint-venture partners
  • Communicating with various personalities and different communication styles from your own
  • Developing, managing, and strengthening relationships with your joint-venture partners for long-lasting success

Investor Resources

As the conversation winds down Gary also shares some great resources for investors looking to get started or for those looking to take their investing journey to the next level!

Resources mentioned in the show:

  • Julie Broad – More Than Cashflow: Understanding The Real Risks & Rewards of Profitable Real Estate
  • Robert Kiyosaki – Rich Dad Poor Dad
  • Don R. Campbell – Secrets of The Canadian Real Estate Cycle
  • CashFlow Game – https://www.richdad.com/products/cashflow-classic

Did you enjoy the podcast? If so, please let us know by clicking the subscribe button on the podcast platform of your liking.

Want to become a part of the RevNYou Community? We’d love for you to join our following on YouTube, Facebook, and Instagram for real estate investing resources, and to stay up-to-date on what’s happening in the RevNYou With Real Estate World.

5 Secrets on Finding Money to Buy Rentals

5 secrets to finding people with money

5 Secrets to Find Money to Buy Rentals

Raising Money

Have you ever wanted to invest in real estate but you don’t have the funds to start? We are here to tell you its no excuse! There are many ways to get started in real estate without using your own money.

#1 – Use the equity in your own home.

If you’ve owned your home for a while and you’ve paid down your mortgage and perhaps the house price went up a little bit, you might have some equity sitting there. Use what you’ve got to get what you want. You already have it, so why not put that to use? Otherwise the equity is sitting there doing nothing for you. It might giving you peace of mind, but it’s not helping generate anything for your life. So use what you’ve got to get what you want.

#2 – Do you have RRSPs?

There are two ways of using RRSPs if you have your own. You can lend it out as a mortgage through a soft direct account. And the other one is if you’re an investor, you can use other people’s RRSPs. Now there are a few rules behind this. They can’t be a parent or sibling. There’s various rules and we’ve got a video that explains about RRSP mortgages on our YouTube Channel, but you can also use other people’s RRSPs and you can have that as a first or a second mortgage on your property.  Typically we will do 8 to 10% on a RRSP for someone and that’s secured against an asset. This makes sure people are happy when they’re doing it and they’re happy to lend it. We usually do that for shorter term lender, not for long term lenders, but that’s what we use RRSPs for.

#3- Private Money.

This is sometimes called hard lending, but basically that’s somebody that has cash and they’re willing to lend it to you for a guaranteed rate of return. This can be high. I’ve done 50 to 60% of the deals that and we’re finding people that have money but they don’t necessarily have the time to put into a real estate deal. So we’ll use their money, we’ll put it in our time, and then together we will create a joint venture, then give them a return on their money. It’s secured against a solid asset. It’s in real estate. Most educated people don’t want to just put it in the bank, they don’t want to put it into a mutual fund. When the market crashed in 2007 2008 people saw the money just disappear. An example of who people may want to take it out and put it in a solid asset.

#4 – Be a Joint venture Partner.

If you might not be able to qualify for a mortgage, then we shall find my “friend Bob.” Thankfully, Bob has great credit and his ability to borrow to get the mortgage is possible.  Now you and your “friend Bob” with create a joint venture agreement for a real estate deal! There are many ways of getting into a joint venture. A joint venture is you and at least one other person are going into a venture together to partner up to go purchase some real estate and it’s gotta be a win-win.

You want to make sure everybody’s happy and you want to make sure that everybody has different benefits that they’re bringing to the deal. Someone might be bringing the experience, someone might be bringing the money, someone else might be bringing the ability to borrow from a lender, are a few to name. If someone has money for example, which you may hear the terms; a private money lender or a hard money lender would be one person in the deal. Someone with no money may borrow this persons money because they’re self employed or cannot qualify. Its kind of like fitting the pieces into the puzzle or the different people into the same deal. Usually if your the one borrowing the money your skill will have to be putting in your knowledge and managing of the project. If you need investor training go to Rev N You School and see our real estate investing courses.

#5- Presenting a Good Deal. 

And the final way, and this is probably one of the most important. One of my mentors said this to me very early on, they said, “Gary, if you find the right property and the right deal, the money will come to you.” Now I didn’t really understand what that meant. And then as I got further into the process of looking at properties, looking for deals, I then realized that you can’t say the wrong thing to the right person if your deal makes sense on paper and is simply a good deal! So what I mean by that is it, if you came up to me now and you were showing me the numbers on a piece of paper of this deal, and it’s a great investment. There’s lots of people I know, friends of mine, people in my narrow, they’ve all got great deals and when they show me on paper, I’m like, I would find the money for that.

For example, if I had a Porsche that was worth $150,000 you know it’s a really good one. And I said, Hey, you can have this push for $10,000 you might not have $10,000 in your pocket, but you’d find $10,000 pretty fast because you know that is worth $150,000. It didn’t matter if I was giving you the wrong information about the statistics of the brakes. It doesn’t matter how good the deal is, if it’s not the right person to invest and then not the right mindset, you could talk to them for three days. They will never invest. But if you have the right house and the right property, then the money will find you.

 

Finding Money Resources

BONUS TIP: Go to local real estate meetings and start to network and meet people! People are constantly connecting and finding joint venture partners by taking the extra time to go to events. It’s beneficial if you have a great deals ready to show people or talk about then follow up with them with more information.

Watch this video before you head to your next meeting.

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

girl pointing money floating

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

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

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

Why is it harder to qualify for mortgages?

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

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

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

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

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

#1 – In Your RRSPs

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

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

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

#2 –  Use Your Own Home Equity or Cash

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

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

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

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

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

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

#3 – Purchase an Existing Mortgage

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

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

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

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

#4 – A Vendor Take Back Mortgage

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

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

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

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

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

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

 

 

1st Image Credit: © Noodles73 | Dreamstime.com

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

 

 

7 Steps to Invest Your RRSP in Real Estate

Guy thinking

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

How to Match Your Financing to Your Investment Strategy

light bulb with words in it

Match Financing to Investment StrategyThe biggest expense you have on your investment property is, in most cases, your mortgage. It’s no surprise that investors always look for ways to reduce this expense in any way possible.

With the Bank of Canada maintaining rates at historically low levels, you probably wonder where to find the best rates for investment properties and how you can maximize your returns.

Rates are important, but as discussed in the 7 Things to Know About Why You Can’t Get Financing at the Bank, rates are the second priority for investors – or at least – they should be.

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:

1. Rent to Own Investing

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:

  1. Variable rates are currently lower than fixed rates,
  2. You can lock in at any point – if you need to,
  3. 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.

Rent to Own Financing TipFinancing 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

Dalia BarsoumWritten By Dalia Barsoum
Dalia is an MBA, Fellow Institute of the Canadian Bankers Association is a Best Selling Author of Canadian Real Estate Investor Financing- 7 Secrets to Getting All The Money You Want and winner of the 2014 Mortgage Broker of the Year by the Canadian Real Estate Wealth Magazine. Dalia’s Canada-wide investor-centered lending practice (www.StreetwiseMortgages.com | www.CanadianInvestorFinancing.com) helps investors develop and implement a financing strategy to grow their wealth in real estate.

 

Other Articles On Financing and Funding Your Investment Properties:

>> How to Buy 20 Real Estate Investment Properties

>> 5 Things Every Real Estate Investor Should Know About Money and Credit

>> No Money Down Deals – 3 Things You Need to Know

>> 7 Things to Know About Why You Can’t Get Financing at the Bank

>> 5 Ways to Finance All Your Real Estate Deals

7 Things to Know About Why You Can’t Get Financing at the Bank

guy with hands up by computer

If you are investor who owns several properties or planning on building a portfolio of investment properties, you must have heard about the “financing wall”.

What is “the wall”?

Is there really one?

If there is one, how can you avoid hitting it?

If you hit it or believe you are about to hit it, what can you do?

The wall simply refers to the maximum number of properties you can finance as an investor.

Most investors are under the impression that once their portfolio reaches five properties; they will no longer be able to grow their portfolio. Others have heard you can finance up to sixteen.

I can tell you that the maximum is not 5, 16 or anything in between. There is actually NO LIMIT.

The only thing that can limit us at times is our personal belief and ceilings around what we can or cannot achieve.

From a financing point of view, you can keep your portfolio going using three techniques:

1. Planning portfolio financing in advance, prior to going shopping for your rental property.

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:

  • Your credit,
  • 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:

financing wall1. 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 BarsoumDalia 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:

 

1st Image Credit: © Tagstiles | Dreamstime.com

2nd Image Credit: Dalia Barsoum

How to Break Up a Real Estate Joint Venture

chain breaking

What if my investor wants out of the joint venture deal?

Our worst partnership was created when I was more focused on my new career after graduating from my MBA than I was on our real estate portfolio. It was 2004. Dave had begun to dream really big and had met someone to work with on these big plans.

This guy was a creator and innovator. He had started a company that was growing rapidly and was already winning some business awards. He was an idea man and was well connected to a lot of people with money who would be keen to put it into real estate.

The two of them thought that they could create a syndicate with this guy’s contacts and Dave’s expertise. Dave spent hours and hours meeting with him and planning the syndicate. They did a couple of deals together and planned to do a lot more.

I was busy with school and was not interested in a syndicate. I also didn’t think this was the guy to do it with. He was controlling and yet scattered. He insisted on being involved and yet was hard to get in touch with.

Dave was frustrated with the challenges he faced in working with this guy but continued to push forward as he saw the potential. When they had the first two under their belt, Dave found a couple of other ones. Dave made offers but Dave could not get him on the phone. He had to let those deals go (those deals promptly doubled in value so Dave was pretty upset he’d relied on this guy instead of doing them without him).

He couldn’t even get in touch with this guy to discuss the properties they already owned. Sometimes it would take 2 weeks before Dave would hear back from him.

Eventually Dave accepted it wasn’t working. So he needed to break up the joint venture.

This is the only time we’ve had to break up a joint venture. We quickly realized how important it was to only work with our ideal investors. So what are your options?

First, prevention is the best medicine.

You may pursue Joint Ventures (JVs) for flips, big deals like apartment buildings or commercial developments and your specifications of what you’re looking for may be different than what we do (see structuring real estate Joint Ventures). For us, we tend to look to private lenders for money for anything outside of buy and hold residential deals and rent to owns. There are a lot of reasons for that but the biggest reasons are the increased risks and the increased need that someone has to be on the same page as you for the future financial requirements of a deal (we’ll be teaching you how to find private lenders and joint ventures in April in Toronto). We prefer to handle those issues on our own and work with a joint venture for the more stable investments like small multi unit or single family buy and holds and rent to owns.

In those cases you want to make it clear that you are looking for a minimum of a five year commitment. You want this even for rent to owns because if the deal doesn’t close as expected it likely will be a property you hold for close to five years (or longer) (see why rent to own investing can stink).

In our agreement we state a minimum hold of 5 years or an increase in value of 25% before either party can exit.

Despite the prevention measures, life happens. If it’s time to exit, someone needs out or the relationship is challenging and you want out, what are your options? These need to be spelled out in your joint venture agreement, but here’s a few options for you:

Right of First Refusal – if the term has completed and one of you wants out the other partner has the right of first refusal to buy them out. This ensures that either party doesn’t turn around and try and sell the property from under the other party. It gives the other partner a chance to buy the person out before they sell it to the market (a third party).

What does that process look like? Your agreement needs to spell out how you determine fair market value. For most people you will get an appraisal done and if both parties agree with the appraisal or the value then the one party may buy it from the other for that price. We allow for the average of two appraisals to be taken to determine fair market value in the event that the parties don’t agree on the value of the first appraisal.

Splitting the Chocolate Bar – Now, if you have not reached the five year term, if that is what you agreed to, (or the value hasn’t increased by 25% as per our agreement) and one partner wants out, our approach to this is something we call “splitting the chocolate bar”. Other people might call this a shot-gun clause.

If one party wants out before the contractual time frame this is how we handle it.

Imagine you have a chocolate bar. One party breaks it in half and the other one picks which side they want first. If I am breaking it to share I am going to split it as close to the middle as I can so you don’t take a bigger piece from me.

If, however, I am a crazy person that doesn’t like chocolate, and I don’t want to end up with the chocolate bar, I should break the bar so that there’s a bigger piece for you to take so you are more likely to take it.

Taking this to the property to explain the concept: the person who chooses the value would be the one that wants to break the contract. The other person determines if they will buy the property at that price or sell it to you. If you want me to buy you out and you’re choosing the value, you would be wise to offer it to me at a slight discount so I am motivated to buy it from you (or it’s attractive for me to bring someone else in to replace you in the deal). I basically get the choice of whether I buy it from you at that price or sell it to you at that price. If you get too greedy I can tell you to buy it from me.

For example, I know the property is worth $240,000 but I want out. When I decide the value of the deal I might say $220,000 to give the other person an incentive to buy from me. If I say $240,000 there is a good chance the other party will say “Ok I’ll sell it to you for that!”

If you are in the position where it’s favourable to buy out your partner but you can’t qualify for financing or you don’t have the cash then you can consider bringing in a new person to replace your investor. If they have made the price attractive enough and it’s a good asset, you should be able to find someone to take their place. You could also look at private money if the cashflow is strong enough to cover the higher cost of a private mortgage. And, if all else fails and you can’t buy them out when they want out no matter how attractive they make it for you, you’ll have to put the property on the market.

How Do You Determine Fair Market Value?

It’s easy for us to determine fair market value for most of our properties because we are hands on and very active in the market. We know what is selling and for what price. But for the purposes of splitting off a partnership or where fair market value needs to be determined, we spell it out in our agreement how the valuation will be done.

You should include something in your agreement that spells out how fair market value is calculated. Our agreement typically states that each party hires an appraiser and take the average of the two appraisals.

Timeframe:

We have a term in our agreement that says that the property will be held until the property appreciates by 25%, or we’ve held the property for 5 years. When one of those conditions is met, either party has the right to sell – and the other partner basically can’t refuse. This is when the right of first refusal kicks in.

If one of you wants out before either of those conditions is met, for example if your partner wants to sell after three years and the property has only gone up in value by 5% it’s probably not advisable to sell. In that situation you would use the ‘splitting the chocolate bar’ method to separate.

One of the questions most people will ask you is when they will get their money back. As we’ll discuss shortly, the most important thing for you to do is align your investments and your strategy with the right people. In our case, buy and hold real estate investing, we’re always holding for the longer term. Our ideal partnerships are those that really don’t have a need for the cash anytime soon. We want to hold for as long as possible to maximize the return and profit. That can take more than seven years depending on where you bought in the real estate cycle. We would prefer someone who is continuing to generate income and is using this as part of their overall income strategy to grow their wealth. As a result they won’t need their money out until we believe it’s the best time to exit. But regardless, everyone wants to know when they will get their money out so having something in your agreement that shows them there is, in fact, a way to end and get their money out will give them comfort.

And since we’re talking about breaking up a joint venture, let’s talk about a darker subject.

What Happens If Someone Dies? The incapacity Event

This is a subject nobody likes to consider, but it is important.

For your own comfort and that of your loved ones, you should know what is going to happen to your properties if you pass away. For your partners assurance they need to know you have a plan.

For your assurance you need to know your partner has a will so the property doesn’t get tied up in probate hell for years.

We spell this out in our agreement and you should too. It outlines what happens if someone can’t make decisions anymore or they pass away.

In our case, if Dave or myself were to be incapacitated, the other would just take over. We run our business together and while Dave handles more of the day to day operations, I am capable of running the entire business. If we both were to pass away, we have a real estate experienced lawyer who is our executor and he would take over the managing role.

We have it spelled out that he would contact the JV partners and review the options.

One of my coaching clients was concerned about what would happen if she passed away. Her husband is not involved and she fears the amount of stress it would put on him if he had to manage the properties himself. My suggestion to her was to hire a property manager for at least one of her properties so that she built a relationship with someone who could take over all of the properties if something were to happen to her. I also suggested she create a spreadsheet that outlines all the important information for each property (including bank account numbers and passwords). Keep that locked in a safe and up to date.

It’s not a foolproof plan, but it’s much better than no plan at all.

If something happens to your JV partner and they’ve qualified for financing what is going to happen to their side of the deal? Does it transfer to a spouse? Do they have insurance that will pay out the debt? Just like you have to cover your side of the deal, you also need to understand they have their side covered.

In most cases, in the event of death, you’d probably sell the asset or the surviving party would buy out the estate of the passed partner. The important thing is that there is some commentary around that. Ensure you have that conversation with your JV  and with your lawyer.

As with every legal document there are a lot of areas to cover and this is not every single detail. I am also not a lawyer nor have I had any legal training. This gives you some critical elements to discuss with your real estate specializing lawyer when you get your own document drawn up but should not replace the advice of legal counsel.

Joint ventures are a great way to grow your portfolio but it’s a business relationship. It’s important you treat it like that and consider the ways to exit the deal as well as all the ways you’re going to find people to enter a deal with.

You are about to become a compelling conversationalist that attracts money right to your door.
Eliminate the fear you have around asking for money for your deals – forever.

Natural born salespeople need not apply – this is for folks who aren’t sure how to structure their joint ventures and lending agreements. This is for people who feel uncomfortable pushing their money raising agenda in front of people. And, this is absolutely for people who want to learn how to be comfortable AND confident when they talk about their deals with other people.

There’s no fancy techniques or slick selling tactics. What we teach is what we do … We don’t teach weird sales tactics. We teach you how to have people COME TO YOU!

You don’t have to register today, but you could miss out if you don’t.

Get the details and get registered right here ===>>http://jointventurerealestate.ca/

The Ultimate Guide to Creating a Real Estate Investment Deal Summary

happy working

Are you planning on raising money in a joint venture or from a private lender? Are you ready to have conversations to get the cash? Let’s just see …

Imagine you have $100,000 to invest in a deal. Who are you going to work with?

Meek Megan, who has slouched shoulders and lowered eyes, looking away from you frequently, saying:

“I know you’re busy so I want to thank you for taking time out of your day to meet with me. I would like to talk with you about borrowing $50,000. It’s for this deal I am working on. I think it’s probably a good deal. You know my realtor said it is probably worth about $300,000 and I am buying it for $275,000. I have tried everything to come up with the money. The bank says they will finance me if I can put down 25% so I have to raise that money. I know real estate isn’t your thing but it would be such a big favor to me if you loaned me the money for the deal.”

Or, Confident Courtney, who looks you in the eye, holds her head high with her shoulders back and says:

“I am so glad I had time to meet with you today. Thanks for your interest. This deal I am working on is pretty cool. I have an accepted offer on it for $275,000 and it’s worth $300,000. After a paint job and some landscaping which will cost less than $5,000 I believe we’ll get $2,000/month rent for it. It’s in a really great area and I already have a few tenants interested in it. I’ve got a lender lined up, I just have to bring in a partner who can qualify for financing and put in the initial $60,000 required for a down payment. I can’t make any guarantees, but based on mortgage pay down and cash flow, even if the property doesn’t go up in value a cent, the person I work with to fund the deal should make at least 10% a year on the deal each year, probably more.”

Clearly, Courtney is getting the money.

But, Megan and Courtney had the same deal to offer so what was the difference?

Coming into any conversation confidently is trickier than it sounds. Few people can fake confidence, so you have to build it from within.

I’ve always found that if you’re worried that someone is going to object to something or think you’re not experienced enough, that is the VERY thing they will say or think.

You have to believe in you and what you’re offering before anyone else will.

This has next to nothing to do with having the right documentation and everything to do with you, your expertise and your ability to communicate the offering. The right paperwork and marketing materials really aren’t part of a successful conversation, except to make you feel like a prepared professional. If you’ve taken the time to develop an extensive deal summary, or business plan for your investment property, you’ll have thought through what you’re offering and will feel like you are bringing a lot of value to the table.

So what do you need in a deal summary?

The first thing to prepare for any conversation are your answers to the 5 Why’s. These are the key points you’re going to cover in your presentation. And, they are the things you’ll figure out the answers to when you create your deal summary.

Those questions are :

1. WHY YOU?

2. WHY NOW?

3. WHY YOUR MARKET AREA?

4. WHY THIS DEAL?

5. WHY THIS STRATEGY?

This video walks you through these questions and explains, briefly, what each means:

Your deal summary, which is pretty much a business plan for an investment property, addresses these questions. Creating the deal summary is less for your prospective partner than it is for you!

<NOTE: You should never SEND this deal summary to a potential investor via email before you meet with them. It’s probably more beneficial to send it to a space station than it is to send it to a potential investor in advance. Emailing a deal summary – no matter how beautiful or comprehensive it is – does not raise money or uncover partners.>

You might expect that a business plan is important as a presentation tool but the reality is that the business plan is critical for you! You should rarely, if ever, actually use it during the course of a presentation. It’s great follow up material. It’s nice to mention in the conversation, but pulling it out in the middle of a conversation, will completing change the focus of the presentation. Try it … when it doesn’t work, go back to keeping it in your bag for the end.

We no longer create a deal summary for each of our deals. We don’t need to. We know what to say and we don’t even give a copy to our investors so it’s not necessary anymore. We have past deal summaries to show them as examples and we ALWAYS prepare an executive summary (1 page document with a picture and key numbers of each deal). But, when you’re first raising money, the deal summary is a CRITICAL piece of your preparation.

Doing the work to create one forces you to spend time thinking about each of these key questions. You will have to do research for your specific market area and deal types. When you carefully think through a business plan you will identify gaps in your plan, work to correct them and this process will build your expertise and confidence. When you write the deal summary you will also be crafting the answers to questions that will come up from partners and lenders.

Well thought out answers to questions demonstrates that you are a professional and have considered all the elements.

With that in mind, here’s a quick review of all the main sections that should be in your Deal Summary:

1. Introduction:
This should be no more than 1 or 2 pages and is a quick overview of who you are, what you are trying to accomplish, and what’s in it for the Partner (quick overview of the five WHY’s).

2. The Management Team:
Who are you? Who is on your Team? Why would I want to partner with you (vs. the competition)? “Money follows Management” so if you are light on experience, you have to be very strong in at least one other area (market area expert, huge network, relevant trade expertise, etc.). Then support that with a team that you can confidently boast about. For instance when you reference your team, you could say my realtor is the #1 investment property specialist in the city, my accountant owns over 10 investment properties himself so understands our investing strategy, or my brother has been a licensed carpenter for over 10 years and specializes in low cost renovations. Your prospective Partner is always most concerned with “what’s in it for them?” They want to work with someone who is confident, capable and has a great team (WHY YOU!).

3. The Opportunity:
Where are you investing? What are you investing in? And most importantly, WHY are you investing there? This section is where it’s imperative that you have done your market research. (Please note: we do not teach you how to properly conduct your market research in this program. If you wish to learn how to do your due diligence on a market, please contact us at info@revnyou.com for a special offer on our program.). Again, your Partner will want to know the What, Where, and Why of your opportunity. This section should include enough details to give your Partner an idea of where their resource (money, time, expertise) will be going without overwhelming them with pages and pages and pages of data. (WHY NOW? WHY THIS MARKET AREA?)

We have a Properties with a Cause Model that we follow and always discuss.

4. The Investment Analysis:
The “numbers” are not as important as you might think. Most investors just want to feel confident that you’ve done them. This section ensures that you have run the numbers carefully and have thought through the strategy. (WHY THIS DEAL? WHY THIS STRATEGY?)

You might be focused on how much your investor can gain but most investors are more worried about ensuring they don’t lose their money. Most people react to fear of loss or the threat of pain more strongly than they do the potential for gain. You need to show them that you’ve thought through the risks and are taking care to mitigate them where you can.

Once a potential investor has a basic understanding of what they can gain, they typically turn their attention to all the ways they can lose their money in this deal. The “numbers” in this section will demonstrate that you have covered all the bases of this investment opportunity. Include enough detail and clarity that the person can follow along and understand “what’s in it for me” from their perspective.

Also see, how to analyze your deals, and why you’re the only one that can.

5. The Joint Venture Structure:
This part of the summary clearly identifies each persons roles and responsibilities are for the duration of the joint venture. This article discusses JV Structure.

6. Exit Strategy:
When will I get my money back? How do I know this will work? Why are you using this strategy? What happens if it doesn’t sell?….we can’t rent it?….the market crashes? This section should be focused on answering these questions. Your investor really just wants to know that they and their money/credit/resources are protected (WHY THIS DEAL? WHY THIS STRATEGY?). This section really becomes a lot of the material you’ll use when you handle objections in a conversation (although, the more confident you are with your strategy and what you offer, the fewer challenges you’ll face from potential investors).

7. Appendices:
This is the last section of the Deal Summary and is not always necessary. We use this section to demonstrate our expertise and market area knowledge. It really supports what you’ve already demonstrated in the other sections. Here’s where you can include articles you’ve been featured in, references to awards you’ve won, key references in the media to your market area or your strategy, and anything else that would be useful to reference regarding the deal. Testimonials from other happy partners or investors are also a nice touch for this section. If you’re a renovator, before and after pictures can be a great piece to add here as well.

For us, if a potential investor goes through the Appendices in detail, it’s a good sign they are probably not our ideal investor. Most people will just flip through it to see if anything catches their eye.

The Appendix, for us, is a good place to keep really important credibility boosting pieces or high value articles, that you might want to reference in the future.  can really have anything you want in it but please check out the sample deal summaries we have included to get a sense of what we use. Make it your own and of course, make it useful!

Nothing replaces the face to face part of raising money. You have to have a lot of conversations to get cash for doing multiple deals. Having a high quality and well thought out deal summary will boost your confidence and reassure an investor, so it’s important if you’re new to raising money or investing, but it’s not the most important thing you can do. The most important thing you can do is become an area expert, have a great team, master your strategy and learn how to have a compelling conversation that you control.

If you need help with any of that … April 25th & 26th, 2015 we’re holding our final workshop on Funding Your Deals in 49 Days – the ultimate workshop for learning how to have conversations that you can use to have people ASK YOU about investing in your deals. You just might want to mark your calendar and plan to be there. Details coming soon.

Does Your Real Estate Website Suck?

website

Have you heard this story?

The sun and the wind were hanging out watching a man working in a field. They were bored so they decided to see who could get the guy to take his jacket off first.

The wind steps up and says “I am strong … you watch this”.

He blew as hard as he could. He huffed, puffed and gusted, but the guy actually zipped up his jacket and wrapped his arms around his body to hold the jacket tighter.

The sun smiled and said “I’ve got this.

He pointed himself right on the man in the field and started shining brightly.  Within a minute, the man wiped sweat off of his forehead. Then, a few minutes later, he unzipped his jacket. Soon, the jacket came off.

The wind is like facts and figures and the sun is like a story.

When you use facts and figures to try to convince somebody to do what you want, it often causes them to cling to the very belief you wanted them to shed.

When you tell a story that offers a different context, the listener doesn’t even realize you’re persuading them to see it your way; Their defenses come down and the jacket comes off.

Humans are not rational. We want to believe we are rational, but we are emotionally driven beings.

This is where the majority of real estate investing websites fail … and fail badly.

As an investor, you probably feel like much of your decisions are rational. The result is that you believe your website needs to speak to a rational person. That makes your website incredibly boring and like all the other boring real estate investing websites out there.

The problem is you’re trying to influence others by being the wind, when you need to be more subtle and persuasive like the sun.

So what else are you doing that makes your real estate website suck – and what you can do to make it stand out in the minds of your visitors?

Real Estate Website Mistake #1: Being Everything to Everyone

Too many real estate investing websites try to cater to a ton of different target markets. Your website shouldn’t be trying to attract JV money, home sellers and tenants all on the same site. Besides the fact that your tenants are probably not going to be too thrilled to see how much money you make off of their rent, it’s not going an effective marketing strategy to be everything to everyone.

Make your website focused and specific.

Yes, this means you’ll probably have to create three different websites – one for each target market. Or, maybe you don’t need a website at all. If the choice is a confusing website that tries to cater to everyone and no website at all, choose no website.

Real Estate Website Mistake #2: I am SO Frickin’ Wonderful

Your website should be about one person … that person, however, is not you.

Too many websites seem to cater more to the ego of it’s creator than to it’s prospect. Your website should be focused on what’s in it for your website visitor and what you want them to do when they arrive – not telling the world how great you are.

Take a look at your website and see if it’s first page is all about YOUR PROSPECT or ABOUT YOU. If it’s about you, it’s time to make a change, right now! You are great – I am sure of it – but the visitor is most interested in what you can do for them. Make it clear on the first page what you are offering to them:

  • On a rent to own website, instead of saying: “We have 7 years of experience helping tenants become home owners.” say: “Bad credit? Banks said no – again!? Home ownership is still possible for you – let us help!”
  • For a property management or your rental website, instead of saying: “Two time award winner of cockroach free rentals” say “No more dirty basement suites for you – beautiful well maintained homes with landlords that care at prices that fit your budget.”
  • On a website to attract investors money, instead of saying: “We own $6 million worth of real estate, have been investing for 10 years and have a track record we’re proud of” say “Sick of stock market roller coaster returns? Want predictable double digit returns on your investment capital in an asset you can actually drive by and see?”

There is a time and a place for talking about yourself, but it’s not the front page of your website.

Figure out what is important to the ONE prospect you’re focused on with your website, and speak to the pain they are feeling and how you can help them.

Real Estate Website Mistake #3 – Bad Pictures

real estate website bad picturesThere’s nothing funnier than a picture of a house for sale or a rental ad with a living room shot showing a hairy leg hanging off the couch or dirty dishes all over the counter. But, it is only funny when it’s your competition.

If those are the pictures on your website or the only picture of you was taken at a party with a drink in your hand and your arm around someone you’ve cropped out, it is not sending a professional message about yourself or your business.

You can hire a professional to take a great headshot for less than $100 in many markets. Get a professional headshot.

For your property, you can take amazing photos with your smart phone these days … just make the effort to get the property cleaned first.

It’s not about perfection, but it is about professionalism.

There’s also a fine line between showing that you’re into your family and making your website look like a family photo album. A photo here and there of your dogs and kids is fine, but if that is all your visitor sees, they may miss out on the important message you want them to take away from your site (see Mistake #1 – the website is not about you, it’s about the person you’re trying to help!).

Mistake #4 – Having a Website Just Like Everyone Else

There are a lot of rent to own and home seller attraction websites around that all look the same.

Sometimes they have a few different colours, but even the text used is similar. The only real difference is phone number and URL address. My guess is that a bunch of people took a course that sold website templates. It’s a lucrative business opportunity for the guy or gal at the front of the room selling the website. It is, however, not the best option for you as an investor. It seems like a simple way to get a website, but it’s not effective and it’s actually expensive compared to your options.

How are you ever going to stand out and be remembered if you look like everyone else online?

Hire someone to design your website. Get it set up on WordPress with your own hosting account. Spend a day writing some content. Now, you have your own original website.

If you have to pay someone to add your blog posts or post pictures, you’re on the wrong platform. These days, most investors are wise to hire someone to set up the design and template, but from there you should be able to do the updates yourself and hosting shouldn’t be more than $12/month. You don’t need to know any code with programs like WordPress. Writing posts and adding pictures is as easy as doing it in a Word Document.

Original content goes a long way with Google and with your leads. If you’re not sure where to start check elance.com or odesk.com for some good options on the website creation side.

Mistake #5 – Who the Heck Are You?

What is with the anonymous Canadian Rent to Own websites? The website is about your potential rent to own tenant, yes, but who are you? That should be on your website somewhere (this is what the About Us page is for).

Too many real estate websites are done anonymously or are made to look like you’re this huge corporation. Most real estate investors work from home – it’s part of the appeal of what we do. I am proud of the 16 stair commute that I have. Do you think my tenants care? No. Nor do my investors. If anything, most of our investors are happy that we run a lean operation. It shows we care about the bottom line.

Personally, I don’t want to do business with a company that hides who they are.

The About Us page is your chance to talk all about your self, build credibility and make people want to work with you. It still should be focused on what is important information for your prospect to know though (our About Us page differs on every website because, for example, our JV Partners probably like to know that I have an MBA in real estate and finance and Dave used to be a mortgage broker and market researcher for Scotiabank, but our tenants could care less about those qualifications. They are more interested in the fact that we have a great reputation and our past tenants recommend us).

What you should NOT have on your About Us page is an anonymous BS statement like “Our company has been working with investors for two years and continually find great properties to invest in. We make our partners a great return on their investment and can help you too. Contact us today.” Seriously – what website couldn’t say that?! Make yourself stand out.

If you’re making any of these mistakes, today is a great day to make some website changes! Remember, your goal should be subtle persuasion like the sun.

And if you have a website and just trying to build your audience, here’s some tips you’ll be able to use:

And, if you don’t have a website, and are wondering if you need one, this video just might help you:

 

Second Image Credit: © Masezdromaderi | Dreamstime.com - Messy Bathroom Photo

Joint Ventures with International Investors

shaking hands

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.

Canadian agents

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?

Withholding taxes

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.

More paperwork…

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 Dube By George E. Dube, CPA, CA, LPA

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:

>> How to Write a Great Real Estate Investment Deal Summary

>> 2 Things That Never Work When Raising Money for Your Real Estate Deals

>> 5 Ways to Finance Your Real Estate Deals

>> How to Structure a Joint Venture

And … a video on where all those people with money are hiding.

Image Credit: © Matthewennisphotography | Dreamstime.com

It’s Not What You’re Saying that is Ruining Your Deals

Thinking man by computer

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.

In fact, your entire business relies on your ability to negotiate deals, hire the right people for your team (and communicate what’s expected of them), and raise the money you need to do fund your deals.

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.

Seinfeld Puffy Shirt 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.

Good luck!

 

1st Image: © B-d-s | Dreamstime.com - Young Woman At The Desk Gesturing OK Photo
2nd Image: (& fun info about the Puffy Shirt episode) http://seinfeld.wikia.com/wiki/The_Puffy_Shirt

5 Ways to Finance All Your Real Estate Deals

money in light bulb

Imagine your company has one week to live unless you’re able to get a huge capital infusion.

You’ve already sunk a gigantic sum of money into the company.

You have about $40 million dollars you could invest, but to do that is to put your last dollar into a company few people believe in.

Bank financing is certainly not an option. Private funds aren’t an option either. Most people really think you’re crazy for pursuing this dream. Nobody will throw money into a venture they think is going to fail.

It’s not even a choice really. Not if you’re Elon Musk.

You put every last dollar you have in to the company.

If you’re not familiar with Elon Musk and his entrepreneurial and innovative journey to creating SpaceX and Tesla, I have posted a few of my favourite interviews with him below. He’s an inspiring and interesting guy who is changing our world.

He’s also the kind of person who finds a way to get things done even when everyone says it can’t be done.

It’s unlikely though that you’ll face anything quite like taking on the big car companies or NASA, but you might need to channel a bit of Elon Musk when it comes to getting your real estate deals financed.

There will be a lot of people who will tell you NO. There will be many who don’t believe it can be done. It’s up to you to persevere and find a way.

But sometimes you don’t know where to start, which is why I have pulled together 5 ways to finance your real estate deals:

1. Traditional Bank Financing:

Your own cash for the down payment (usually 20% or 25% of the purchase price) and a bank or credit union finances the rest. This usually offers you the best possible interest rate, but it’s also the hardest to qualify for. You need to have a good and stable income, minimal debt, patience to pull together all the paperwork and a great credit score.

2. High Ratio Financing:

If you are moving into the property, this is an option. It has even more restrictions than the traditional bank financing option (because it’s insured by a company like Genworth or CMHC), but it allows you to get into the deal with as little as 5, 10 or 15% down.

This is an excellent option for a brand new investor. You can put less down on a home with a suite, move in, and get your feet wet as an investor while you rent out the suite. You also will typically get the best possible interest rate available since you’ll be living there (the banks sees that as a lower risk than if you’re buying it for an investment).

In a few years, you can move out, keep this property as an investment, and do it again for your next one (NOTE: the rules are changing a bit on this so speak with a mortgage broker if this is your plan).

3. Equity in Your Home or one of your investment properties:

You might find yourself able to qualify for financing but short of down payment funds. In that situation you just have to find the down payment money to get your deal financed.

The simplest option is to access equity in your home or property via refinancing or a home equity line of credit.

You need to have a lot of equity in your property to do that though. You’ll need to speak with the bank that holds your mortgage to see what Line of Credit or refinancing options are available to you.

Most refinancing options will not allow you to go past 80% of the value of the home. You can also encounter snags in refinancing if your property assessment is low (the assessment is what your local city assesses the value of the property to calculate the annual property tax. It’s rarely an accurate valuation of your property but the banks still use it as a measure of value for refinancing).

We tried to refinance a property this year to renovate. The assessment value of the property is $260,000 but the real value of the home is closer to $350,000. The bank will only refinance to 80% of the assessment value so we weren’t able to refinance.

Think carefully before you use your own home to fund your real estate deals. I prefer not to lever everything I own just to buy more – especially when it’s the roof that is over my own head. Also, whatever you finance, be sure the cashflow on your new property is more than enough to cover the financing costs and it’s expenses.

4. VTB, RRSP or Private Mortgage:

If you don’t have 20% down, or you can’t qualify for bank financing private money sources are a good option. Private money sources includes VTBs, RRSP mortgages and private mortgages.

A VTB (Vendor Take Back) mortgage is when the seller gives you financing. An RRSP mortgage is when someone moves their RRSP funds into a self-directed RRSP account and then loans you money just like the bank. You can learn more about RRSP mortgages here. Private mortgages are just what they sound like, money from a private individual.These options have a lot more flexibility in terms of the amount you’ll need to put down, the repayment terms and the qualification criteria. In fact, a lot of these details are up to you to negotiate and set up. One of our clients, has funded 100% of the purchase price of more than a dozen deals using private lenders who hold mortgages for up to 15 years. It’s all in finding the person who is a fit the for the deals you want to do.

You can use VTB, RRSP or Private Second Mortgage in first or second position mortgages. First and second position simply refers to the order in which a lender will be repaid in the event the property is foreclosed on. Because the first position mortgage gets paid first, the risk is lower for that mortgage holder therefore you’ll usually pay them a much lower interest rate than you will a second position mortgage holder. If you have bank financing for 65%, for example, you may want to find some secondary financing to get you up to 80%. That’s where you might be able to put a second mortgage on the property using the seller as a lender or an RRSP or private lender.

It’s important to note that most banks will not qualify you for financing if you can’t show you have the whole down payment yourself. They will not accept secondary financing as proof of your down payment. This means you will need to have the money somewhere even if you’re not using it for the down payment (if you aren’t sure what would work as proof, discuss it with your mortgage broker).

Many mortgage agreements also contain a clause saying you can’t ever put secondary financing on the property at all so read your agreement carefully before you do this to raise the funds for your down payment.

If you pursue secondary financing or a higher ratio financing option, it’s also important to stress test your portfolio to see what happens if interest rates rise quickly or values dropped overnight. Where will that leave your cashflow and your overall portfolio equity?

5. Joint Venture Deals (JVs):

When you lack the funds for a down payment and you do not qualify for financing with the bank, joint venture deals are a fabulous option. A joint venture agreement is basically where you and another party come together to pool your resources. There are many potential joint venture structures. In our case, we do the work, find the deals, and bring the expertise while our partner will bring the finance-ability and the down payment capital required.

Our first two deals in 2001 were versions of option #2 – high ratio deals on our own properties that eventually became rental properties.

In 2002 we sought out a lot of creative strategies, with a few VTBs and Private Mortgages to get the money for our deals. In 2003 we started to do Joint Venture Deals (JVs). From there, we’ve done just about every combination of the above that you can think of. The majority of the last 25 deals we’ve done, however, have been joint ventures. It was the simplest way to add great properties in good areas at the best financing rates available on the market.

There are a lot of options to fund your deals and grow your portfolio. No matter what strategies you use, there is no replacing your own hard work and diligence in saving money for down payments, taking care of your credit score and being good about the debt you take on (see 5 things every real estate investor should know about money and credit).

These steps will make you more appealing to banks, private lenders and even sellers who may give you financing.

Every choice has risks and costs to consider. Make sure every rental property you buy has strong positive cashflow, is well positioned to attract good tenants and has multiple exit options. There are also costs beyond cash flow, interest rates, repayment terms and leverage ratios to consider as well.

Elon Musk’s ‘All In’ approach to business takes guts, determination and belief. His high I.Q. and photographic memory probably don’t hurt either.

You don’t have to be just like Elon Musk to access capital for your deals. You just need to have some dedication and belief that there is a way to do what you want to do. Even when the banks are saying no – you have options. And, just because one person or bank says no, doesn’t mean someone else won’t say yes. The money is out there – now, go and get it.

Elon Musk: How I Became the Real Iron Man 

Where to Find People with Money for Your Real Estate Deals

finding people with money for real estate deals

Where to Find People with Money for Your Real Estate Deals

Raising Capital

Hey there, I’m Julie broad with Rev N You and today I want to answer the big question around raising money for your deals. Where are the people with money hiding? Well, if you haven’t found the super secret place where they all are. I’m going to explain how you can uncover people with money to help you fund your deals. So the first thing is you have to let people know that you’re a real estate investor. I have met a lot of people who keep it a secret from the people. They know that they have investment properties, that they’re taking training to become a real estate investor. You have to let people know! Now I get it at your job, it may not be appropriate, but your friends and your family, they can know what you’re up to and they should because they’re going to help you find those people with money.

  • Step one is to let people know what you do. When you meet people at social gatherings, you can say, I am an engineer by day, but I’m a real estate investor by night and soon real estate will be my full time gig, right? Or whatever the case may be for you. But you need to start letting people know what you do.
  • The second trick is that you can’t be boring about it. So find an interesting way to tell people what you do. I was just at an open house a week ago, just around the corner from where we live and it’s one of our investment markets. While we were there, some people come through to look at the home. One guy looked at me and he said, “how’s your guys’s house hunt going?” And I said “we live just down the street, but I collect old houses.” And he said, “Oh well that sounds like an expensive hobby.” And I said, “well other people rent them from us and they pay the mortgage, it makes it a more affordable hobby.” But I said, “yeah, it can be an expensive hobby.” And he started to ask me some questions and unfortunately his realtor dragged him away to go look at another house before we could carry on the conversation much. But you can see how quickly that engaged someone. Oh yes, I collect old houses. Right. It’s an interesting way to look at it. Be interesting!
  • The third thing, is it new? Because if they don’t hear something different then normal, you’re going to be ignored and it’s just going to go right over people’s head. If you say, Oh, I’m a real estate investor. I know this happened for us for years because people thought we were real estate agents! We actually buy the houses ourselves so we weren’t even being interesting enough. So you have to be new and interesting to people. You want them to remember you and think of you.

If you just start doing these 3 things, your conversations will change and you’ll start to find people asking you questions about your deals and soon people will ask you whether they can work with you on one of your upcoming deals.

 

Finding Money Resources

Watch more videos about Finding Money on Rev N You’s Raising Money Playlist.

Finding Money Section in the Course Real Estate Achievement Program.

 

How to Create the Perfect Script for Raising Money

perfect script for real estate deals

How to Create the Perfect Script for Raising Money

Joint Venture Partners

I want to help you raise money for your real estate deals. And to do that, I’m going to give you the five questions that you need to answer in order to have an investor give you their cold, hard earned cash. So those five questions, get that pen and paper out.

#1 – Why me?

#2- Why now?

#3- Why this market?

#4 – Why this deal?

#5 – Why this strategy?

Now, there’s some key elements under each of those questions that you need to answer and you’ll also need to know that I’m not encouraging you to memorize a script to answer each of those five questions because the other person you’re talking to doesn’t have the same script. So if they don’t ask you the questions they’re supposed to ask you or follow the format that you’ve practiced to follow, then you’re going to be all messed up.

I recommend you get comfortable with the key points that you want to cover and know that those generally are the five key areas that you’re going to have to discuss. Somebody has a comfort level in what you’re doing. Now the key point and the point that a lot of people mess up is they memorize bullet points of facts and then they regurgitate them and… it’s not horrible, but it’s not a very engaging or a very influential way to communicate. Let me give you an example from a client that I was working with. Although I’m going to make up neighborhoods for the sake of protecting the hard research that she’s spent most of the year doing in the city of Toronto. She got on the phone with me to practice this cause that’s one thing we spend a lot of time helping our coaching clients do is refine their five why’s. If you want one on one coaching involving joint venture partners go to our coaching page. We would love to help you out.

She was working on these elements and one of the things was why this area, why this market? She picked the Albert area and how she’s picked Albert area after a year. She went on to tell me there’s 450,000 people working in downtown Toronto and they have high paying jobs in the financial industry, healthcare professionals and professional services. And those are good tenants because they have high paying jobs. This area is also mostly houses where as a lot of areas in Toronto are now totally condos. And she also said that it’s a 12 minute subway ride to downtown, so it’s really easy commute for people.It was a good family neighborhood. She gave me these facts and it sounds good, right?

Oh, I forgot one of the key elements, the price of houses in that area. It was still possible to find houses for under $500,000 and the layouts of them were conducive to adding a second and sometimes even a third suite so you could turn a single family family home into a duplex or triplex. So those were the facts and it’s good information but it’s not that engaging or interesting. So I made a little change and I basically said, okay, it’s good information. So now here’s how you want to tell somebody. You know what? I have spent all year finding the perfect area for investment. And for part of the year I was really excited about Lulu town and Francesca Ville because those two areas had the house layouts, they’re close to schools, they had good transportation. And I really thought that I’d be able to attract good quality tenants to those areas. But I wasn’t satisfied with the price of homes. I didn’t feel like there was enough opportunity there with the price of home that I wanted to buy and to be able to add suites. So I kept digging and I dug and I put hours and I’ve spent my Saturdays going into these areas and I finally found “Albert area.”

Albert area is perfect. I’m so excited about the area. I can find houses for under $500,000 I can put a little bit of money into it, $85,000 – $100,000 to turn it into a duplex or triplex and that house now has the potential to be worth $700,000 but I won’t go too far into the numbers I want to tell you about this area and why it’s so cool because it’s a 12 minute subway ride to downtown. There’s people commuting an hour or two hours into downtown Toronto for work and these folks, they can live in a house, not a condo, which is what a lot of people want, a lot of professionals want and they only have a 12 minute commute. The areas, the sub pockets of Toronto always get discovered. So I’m certain there isn’t that much time to act on this area because it won’t be too long before people realize that there’s still houses for under $500,000 that we can make a lot of money on.

She still has more information to convey, but she’s going to stop, right? You’re not going to do your whole spiel. She’s going to stop there and see if they have questions, comments, and then she’ll engage a little bit more. Maybe ask them if they’re familiar with the area and go from there. So it is a conversation you don’t want to get too enthusiastic and get too carried away and talk too much, but you also really want to turn it into a bit of a story. So I tried to turn it into a story of how she found the area, and I haven’t even gotten into the fact that she has a killer team that knows this area, that has insider access to city of Toronto information and a few other key details, which she would then work the rest of the conversation.

It’s a big subject and something I love working on. I love taking the facts that people have and helping them create an influential and story with impact that will help others raise money too. But for now, start thinking about your answers to those five why’s so that you can start crafting your own stories and creating your own conversations to raise money for your real estate deals.

 

Joint Venture Resources

One on one Coaching with the Rev N You Team

5 Things Every Real Estate Investor Should Know About Money and Credit

Money and Credit Lessons Learned at my Parents MotelIs your Mom or Dad here?” customers would say when they walked in the office of the Motel and saw me, all of 14 years old and just tall enough to be above the check in desk counter.

I can help you. Are you looking for a room?” I would reply.

Most of them would shrug their shoulders or smile and then we’d get to business. I’d find out what kind of room they needed, take their cash or credit card, set their wake up call, offer them ice and send them off to their room.

I was very young – younger than 14 – when I started working in my parents 19 room Motel in rural Alberta. As soon as I was big enough to remove pillow cases, that was my job. Then, when I got older, I was in charge of the office when my Mom and Dad were out (don’t worry – there was always a babysitter or my Grandparents in the other room beside the Motel office in the event that something happened – thankfully nothing ever did). I also had the pleasure of cleaning a lot of toilets and making 50+ beds each weekend as a teenager (who knew I was getting such good training for being a landlord because those toilet cleaning skills have come in handy at times…)

Taking a role operating my parents business from such a young age opened my eyes to a lot of things around business and money. My parents also taught me about saving and credit cards, but I still had a lot to learn when I moved out at 17 to go to University. My biggest issue was that I didn’t use enough credit, so when I went to buy my first property my score wasn’t as good as it should have been for the simple reason that I didn’t use credit much at all. I only had a student loan and a $500 limit credit card that I barely used.

Based on all the credit checks we did in August to fill seven units – and the sheer volume of people in their 20’s and 30’s who have major issues with their credit – I know I was fortunate to know a lot more about money when I graduated from high school and set out on my own than most people seem to know.  And, considering you’re investing in real estate, your credit score and how you manage your money should be a critical component of your plans.

5 Things Every Real Estate Investor Should Know About Money and Credit

#1 Good credit scores matter for more than just applying for loans.

Many people think that the  only people who check their credit are banks and landlords, but there are an enormous number of companies that check your credit score for varied reasons. Everyone from a  mobile phone company to a potential employer could be checking your score. If you are going to be taking a job where you’re touching money it’s fair for a company to ask for permission to check your credit. If you’re not responsible with your own money, should you expect a company to trust you to take care of theirs?  And, of course, a savvy money investor is right to ask you for your credit score before they enter a joint venture or lending agreement with you too.

# 2 Good Debt vs Bad Debt.

All debt comes with a price – and I am not just talking interest rates.

I am not a fan of thinking there is ‘good’ debt. There is better debt, but debt creates stress and can be a significant burden even if it’s for ‘good’ reasons so take on debt carefully. If you choose to change careers or go back to school, your debts will weigh heavily on your decisions. In fact, many people will avoid doing the things in life that will really truly make them happy because of debt burdens so choose wisely.

Good reasons for debt, in my opinion, include training, education and other expenditures that will lead to an income. Buying an investment that will generate enough income to pay for the debts (and leave you with a cushion aka positive cashflow) can also be a good reason to take on debt. Bad reasons for debt include taking expensive vacations , buying a bigger home than you need just because you can qualify, new vehicles, boats and toys.

Just because you can afford the monthly payments does not mean it’s debt you want to take on. If something changes with your job or your income drops these are the kinds of debts that will choke you and your credit score.

#3 Use Your Credit.

Money and Credit Score FactorsThis was the biggest surprise to me. When I applied for my first mortgage in 2001, I expected that my score would be 800 (the highest number possible). I don’t remember my exact score but I think it was much lower than that – maybe 680 – not because I’d been bad with credit but because I didn’t have enough credit history and had not used enough types of credit.

When I graduated from University, I kept living like a student (no cable tv, no new furniture, bagging my lunches for work) so I could hammer my debt down as quickly as possible. I did not spend money I didn’t have. I barely used my credit card and when I did, I paid it off immediately. My problem was not credit abuse, it was that I needed to show more responsible credit usage. Getting a mortgage and line of credit made a big difference (part of your score is based on the credit you have available so if you have lots of room on your line of credit that is a great thing for your score, but the more you use it and the less room you have on it, the worse it will be for your credit score). Bottom line, don’t be afraid of credit, as you need to show responsible credit use of different types in order to have a strong score, but make every payment and use far less credit than you have the capacity to borrow.

#4 Create a Budget and Stick to It.

My parents laugh whenever I talk about budgeting. When I moved out of home to go to school, I called my parents, rather upset, and said “I did a budget and it won’t work – I need more money. Can you help?” I had worked two jobs in the two summers before University – working in their Motel and as a lifeguard – and my Dad had helped me trade in Gold stocks to make a good return on the ‘pop bottle’ money from the motel they’d saved for us, but my monthly living allowance was too tight with the high cost of books, tuition, rent, and food.

Mom and Dad helped me cover the short fall, but they still make fun of Julie’s budgeting and how I just find more money when the budget is too tight. It’s sort of true – I’m a conservative spender but I’ve always looked at how I can make more money rather than focus on cutting back too many expenses. At the age of 17 with a full course load ahead of me, my solution was to ask my parents for money. 🙂 These days I still try that route but usually I’m better off to find a way to increase revenues in one of our businesses.

As much as my parents make fun of me for that, they will also tell you that once I made that small but important upward adjustment to my cash inflow, I stuck to that budget. When you have a limited income you have two good choices, spend less or make more. The other lesser option is to dig into a deep whole of debt and that is a hard one to climb out of.

#5 Have a rainy day fund (or as we call it in real estate – a reserve fund).

The Wealthy Barber is a great read for all students and adults alike. It inspired me to keep living frugally when I was done University and starting hammering on my debt AND saving. I didn’t quite achieve a 10% savings rate but I did set up a system where a certain amount of money came straight off my pay cheque every month into a savings account. That way I never saw it. After two years of doing that, and of saving half of every sales bonus I earned, I had $16,000 which is what I used to get into real estate investing at the age of 24. I chose saving and investing over buying a bed, cable tv and other things that weren’t getting me where I wanted to go (yes, I spent two years sleeping on a foam mattress on the floor).

Seven years ago a friend of mine was asking me about my real estate investments. At that time the only thing she owned was her car and she is a year older than me. She was a sales rep like I was out of University so she was quite puzzled about how I’d managed to buy so many properties before I was 30. She asked “What were you making as a sales rep back then?”  When I told her my salary she was shocked because she actually had made more than I did, but she’d spent it. She didn’t know me then, but she probably would have been a little shocked to see how bare my apartments were back then too!

To this day I spend very little on stuff. I invest a lot of money on training, education and mentoring. I also put money into experiences like our trip to Africa last year and my upcoming trip to Italy with my Dad. I also save money every month for the rainy day fund. Just like every property needs to have extra cash on hand to handle problems that come up, so do you. Or, maybe just so you can take that trip you’re dreaming of and do it without borrowing any money to do it.

Too many of our tenants have giant flat screen tvs and garages filled with junk yet they struggle to pay us rent sometimes. Many people are left renting the only homes that don’t check their credit scores because collection agencies are haunting them. And others are wondering why they can’t get the best rates on a mortgage because they have never used a credit card in their life.

Maybe you weren’t as lucky as I was to grow up cleaning toilets and giving customers buckets of ice, but now you know and now you can share what you’ve learned with your kids. Getting control of your money and your credit young will help you tremendously as a real estate investor AND it if you take the time to teach your kids these lessons, they’ll be ahead of their class when they leave home to start their own independent lives.

 

1st Image Credit:  Julie Broad
2nd Image Credit: © Alain Lacroix | Dreamstime.com
3rd Image Credit: Amazon.ca

 

 

 

 

 

What is the Right Split for a Real Estate Joint Venture?

What is the right split for a real estate joint venture deal?

What is the Right Split for a Real Estate Joint Venture?

Joint Venture Partners

Today I got a question coming in from one of my followers. They asked what’s the right split when you’re looking to someone to do a joint venture and they’re putting in all of the investment capital. My answer is that there is no right split. There are many ways to do a joint venture. It’s one of the reasons why we love raising money, not just joint ventures but private money, vendor take-backs, RRSP mortgages. The world of real estate is pretty phenomenal when you understand how to get the investment capital you need to do the deals you want to do. Specific to joint ventures, how we do it is we look to our partner to put in the initial investment capital, usually somewhere between 65 and $80,000 for the houses that we did in 2013. NOW it will be higher then that around $250,000 plus in 2020!

Then we have a reserve fund in place, which is usually two or three months of expenses. And we buy the property as we own it, they put in the initial investment capital. We own it 50 50 because my husband, Dave and I are doing all the work. We find it, we negotiate it. We’ve been working in the area for, well we’ve been buying in our main investment market for 12 years now. So we have area expertise in the team. We oversee it, we make sure it’s making as much money as possible every month for the life of our holdings. So that’s what we do in exchange for our 50% going forward if any money is required. So sometimes a tenant moves out and you think it’s time for an upgrade. Sometimes something goes wrong.

You might have to put a few thousand dollars in. When that happens, we split that 50 50 so 50% of whatever the expenses comes out of our pocket and 50% comes out of our partner’s pocket. When we sell, our partner gets their initial investment capital out first. Whatever’s left over, hopefully there’s lots leftover, either way it is split 50 – 50. Cash-flow that comes in is split 50 – 50, or goes to build up a further reserve fund depending on what’s going on in the property. So that’s how we do it. However, you can do it in all kinds of ways. We have joint ventures where our partner owns 25% and we own 75%. They didn’t put much money in, they just qualified for financing. We have partnerships where our partners own 60% and we own 40% or vice versa. Today we don’t deviate from our model, but in the past we weren’t as sophisticated.

We would work with whatever came our way and try to come up with a deal that everybody was happy with. So there isn’t a right way to structure it. And if you’re brand new, this is one of your first deals or your first joint venture deal and you’re trying to build a track record, you may want to give up more. You may want to put in some money, whereas in the future you might not want to or you may want to give up a higher percentage just to make it appealing to somebody to work with you when you don’t have an established track record. The only caveat I’ll put on that, or a word of caution is that you can pretty much expect they’re always gonna want that deal going forward. Even if you clearly communicate that this is a one time thing, I’m just doing it to build my track record.

It’s what you’re going to be happy with, what you’re comfortable with and what works for the resources you’re bringing to the table versus the resources that your partner is bringing to the table. It’s kind of a complicated subject, but hopefully that all makes sense and helps you a little bit. If not, we will be happy to get back to answer your questions.

 

Joint Venture Resources

Rev N You with Real Estate Watch on YouTube

No Money Down Deals – 3 Things You Must Know

How great does this sound: “No Money Down – No Bank Needed”?

No Money Down There have been so many times in our twelve years of real estate investing that we’ve been drawn to that phrase. Banks are impossible to deal with sometimes – asking for everything but your Blood Type to fund you. Raising money is always an option, but it’s a lot of work. Working with private lenders is possible but it can cost you more than you want to pay and you’ll usually still need money for a downpayment. If only you didn’t have to qualify for financing or need a big downpayment, right?

We’ve invested almost $40,000 into learning the no money down and no bank needed investment strategies. The first time we went down that road I was in school – so not only did I not have a job; I also didn’t have any money at all. I was living on loans. The second time was after the bank rules changed in 2009 and we were self-employed (aka, not financeable in the eyes of most banks).

We learned a few lessons that I’d like to share with you now.

The biggest lesson is: Just because you can do deals with no money down doesn’t mean you won’t need money.

In this video, I explain that lesson and two others.

 

Real estate is a way for us to create location and time freedom. We always expected to work for the money, but we wanted to be able to work when we wanted to and wherever we wanted to. We found that when we did “creative” deals, we ended up with problem properties and challenging tenants. In other words, we basically created a full time babysitting job for ourselves. The kind of deals you can do “creatively” are generally not the good properties in good areas. They don’t attract the best caliber of tenant and they don’t have minimal maintenance requirements.

The creative no money down and no bank needed strategies can work, but for us they weren’t an effective way to create the life and business we wanted. (Read More about the Costs You’ve Never Considered as a Real Estate Investor)

Image Credit: © Stokkete | Dreamstime.com

 


More Than Cashflow BookDid you get your copy of More Than Cashflow? Christine Michaud posted a review on Amazon stating “Best Canadian Real Estate Book. Period!”

She said: “An absolute must read for anyone with an interest in real estate investing, this book is in a league of its own. Finally someone who paints a complete picture of what it means and what it takes to be a real estate investor….in the real world! I didn’t think it was possible to learn so much from a single book. It packs so much info, yet thanks to Broad”s clear and simple writing style, it is a really easy read. Very highly recommended.

How to Use RRSP Mortgages to Finance Your Real Estate Investments

Do you want to access a massive amount of money to fund your deals?

I believe this is the largest untapped source of funds available to us because very few people actually know this option exists.

It doesn’t always make sense for you to use RRSP funds to finance your deals, but it can be a fantastic option for you.

Master this and you’ll always be able to find the funds for your deals. A mortgage can be held in a self directed RRSP account and when you tell your potential investors this they just might be surprised to find out they could be making money like a bank with funds in their RRSP account. 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.

How many people do you know that have delayed retirement plans because of a sudden dip in their retirement funds thanks to a swing in the markets? When holding a debt obligation in your RRSP fund you have a lot more control over the risk, you have a say in the return you get, and you actually have recourse if you aren’t making the return you were promised.

Today, Dave’s put together a couple of videos to help you understand how to use RRSP mortgages to fund your investments.

7 Steps to Use RRSP Mortgages to Finance Your Real Estate Investments

Now that you have an idea of how they work, here’s when you might want to use them and how much you will likely have to pay a lender if you borrow their RRSP funds.

When To Use RRSP Mortgages

Have questions or comments? Posting them below the videos in YouTube or popping over to our Facebook Page are the best places to ask and get answered!

Want the only resource you need to use RRSP Mortgages?

Get Greg Habstritt’s book called The RRSP Secret:

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