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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 Questions to Ask Yourself Before Investing in Small Towns

houses questions

Nice properties in nice areas with good cash flow were getting harder and harder to find in my home town of Ottawa. Frustrated with the lack of inventory, I decided to look deeper into my native province, Saskatchewan, thousands of kilometers away.

At the time, a particular small town in Saskatchewan was hopping with work and had the highest average rent in the province. That really got my attention.

I realized years later that booming small towns can be a good place for investment, but you really need to know your market and what you are getting into.

It was 2011. I decided to invest in the small town of Estevan, Saskatchewan, two hours outside of Regina. It had a population of 11,000 people and the average house price was in the low 200,000’s. There was so much work in Estevan that housing couldn’t keep up and people were literally turning down jobs because there was no place to rent in Estevan. I was mesmerized by the inexpensive prices and the prosperity and growth of Saskatchewan. It reminded me of how Alberta started out a decade ago.

Estevan real estate was attractive because of its low vacancy and high rental rates, supported by various energy employment sectors. At that time, a two-bedroom apartment in the low $200K range could easily fetch $1800+ per month with no property taxes for five years.

The numbers were perfect and I knew the town well enough as it was close to where I grew up. Plus I really needed a turnkey investment considering I had other properties to manage, one year old twins and a career to juggle. I decided to pull the trigger and buy a brand new two-bedroom condo. It rented out immediately.

For two years, things were great. The market value of the unit increased almost immediately after I purchased it and the cash flow was excellent. The peak rent was $2400 per month and it was property tax free for five years. Even with the cost of an occasional $600 trip to visit the town, it was worth it. It still netted close to $1000 dollars in cash flow per month after all expenses.

Then things changed.

First, crude oil dropped. At first it was slow, then it fell 50% in just six months.

All other energy sectors followed and so did the housing market in Estevan.

The party had officially ended in Estevan.

The morning after a big party the last person you want to be is the one left holding the garbage bag in charge of clean up. But, that was who I was.

If you find a booming town is catching your eye like Estevan caught mine, make sure you do it with eyes WIDE open. During the oil crash, my tenants left due to changes in employment and the unit wasn’t attracting much interest in the rental market. I managed to come out losing only two two months rent to vacancy because I changed property managers and dropped rents substantially. Thankfully even dropping the rents, it still cash flowed.

It was a tough situation and not what I thought it would be, so here’s what you need to know before you invest in a small town.

The Good, the Bad, and the questions you need to ask yourself before pulling the trigger investing in small towns.

Let’s start with the ‘Good’ about Investing in Small Towns:

  • Low entry price. Properties can be significantly cheaper than in larger cities, which makes it very enticing to any investor. This can mean greater cash flow and return on investment, a win-win situation from a financial perspective.
  • Less competition. With a small town, you might not have a lot of competition with other real estate investors in town. For example, you could be one of very few rental properties that provide rental units to executives and transient workers. Additionally, you could benefit during the purchase of the property by not having to worry about multiple bids and losing deals!
  • High rental rates. Sometimes rental rates can be much greater than the average rents in bigger cities. In a booming small town, transient workers are given a lot of incentives to work there, including generous allowances for housing costs supported with high paying salaries. This drives the rental market, with incredible rents and generous cash flow in your pocket!
  • Rental property incentives. If the housing market is hot and there is a shortage of rental units, the City may be more flexible in their regulations or building permits and possibly offer tax incentives for real estate investors. For example, in some cities, property taxes are waived for five years if you commit to holding the unit for that time frame.

Sounds great, right? Be careful. Small towns can be a pain, too. So, let’s continue on with the ‘Bad’ about investing in Small Towns:

  • Slower appreciation. Property values typically don’t grow as fast in small towns as they do in larger cities, so you need to really think long term when investing in small towns, at least five years if not more!
  • Smaller employment market. When the employment sector is hot, rental demand is high; but when the employment sector is a bust, rental demand goes. All of the transient workers leave and the town becomes stagnant, which equates to higher vacancy rates and longer hold times between tenancies. This is coupled with a decrease in property resale demand, meaning you could be stuck holding a vacant and illiquid asset. This really hurts if you need your money back and that is your only exit strategy.
  • It’s a boom and bust town. Small town real estate can be quite volatile. Oil and energy rich cities are affected significantly by the volatility in commodity prices in the financial markets. Things can go south quickly with any economic change, as shown in the drop in the oil price over the last six months.
  • Limited services. There is a general lack of services in small towns. Property managers, home inspectors, lawyers, handymen, and realtors may be sparse or non-existent. If you need an appraisal to finance a property, the bank may require someone from a nearby City (that maybe a couple of hours away) because the one person in town is on vacation. This happened to me! Same goes for property insurance, home inspection and property management firms. These conditions can make upfront purchasing costs significantly higher.

Now that the Good and the Bad are out of the way, I encourage you to use your common sense filter and simply ask yourself these questions before considering investing in a small town:

  • Can this area grow in the future – adding jobs and creating demand for housing – or will it go down in value due to declining population, economic changes, and/or loss of jobs?
  • How long can these high rental rates last? Will it last for the time frame that you are looking to hold this unit?
  • What are the main employers in this area and what is the likelihood that they will increase in size or decrease in size in the future?
  • Do you have a big enough real estate portfolio to absorb any shortfalls when the market goes bust and/or do you have a generous contingency fund for this property?
  • Do you have multiple exit strategies if the market turns sour and you have trouble renting the unit out? Can you lower the rent, provide incentives like shorter term leases, furnished options, or rent-to-own options to give you an edge in a slow rental market?
  • If you are an out-of-town investor, do you have a team backing you up to make sure that your property is managed well and you can trust to do whatever they can to market your property in a downturn?

For an investor just starting out, ask yourself these questions. In fact, to make it easier for you, avoid small town investments and only buy ones that follow Rev N You’s Properties with a Cause Model.

If you are an experienced investor, it is important that you go into any investment with your eyes wide open. Investing in small towns can be attractive for cash flow, but as quick as that comes, it can go! Just be ready, and have your contingency plans in place.
Tracy Ma is a mother of twins, mentor, engineer, and real estate investor in Ottawa, Ontario. Connect with her at her website www.financialnirvanamama.com where she shares free tools, videos and articles on managing your real estate portfolio. Her mission is to empower women on investing to reach their financial nirvana.

What is a Sandwich Lease?

Julie Broad

It sounds more tasty than it is … a sandwich lease is a creative real estate investing strategy that you’ll usually hear about when someone talks about no money down and no bank required type deals.

The advantage is that you, the investor that puts the deal together, can earn a bit of upfront cash along with pocketing some monthly cashflow and profit when the final sale on the property occurs.

If you are able to pull it off, it really is a strategy where you can do real estate deals without going on title, without talking to a bank, and without having much money of your own.

Sounds pretty good … so what is it? And are they as tasty fun as they sound?

I had some fun shooting a video to give you an overview of what exactly is a Sandwich Lease and how does it work in Canada.

Bottom line – you can’t eat paper as I found out in the video – and Sandwich Leases are possible in Canada, but are they worth the work? You’ll have to decide for yourself. For us to create the life we wanted with real estate, we found that it was much better to focus on financing our deals with private money, joint ventures and vendor take backs. That allowed us to do deals where they fit our Properties with a Cause model, attracted great tenants and grow our portfolio with fewer hassles than we were finding with the creative strategies like Sandwich Leases.

If you liked this, you’ll probably enjoy the following articles and videos as well:

>> 7 Ways to Be a Mediocre Real Estate Investor

>> Someone You Must Add to Your Power Team

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

>> How to Be the Smartest Real Estate Investor You Know

>> How to Use RRSP Mortgages to Finance Your Real Estate Deals

What is a Sandwich Lease?

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How to Run the Best Real Estate Investing Club

Business people clapping

“I’m interested in starting a real estate investment club – what should I do?”

That’s a question I’ve been asked many times from realtors and mortgage brokers who want to create more business for themselves, and new real estate investors who want to create a place to network and learn.

Since starting the Durham Real Estate Investing Club in 2008, I have a few tips that will help you to grow your club and help you avoid some of my earlier mistakes. (Note from Julie … this will also give you an idea of what kind of clubs to look for when you want to find one to attend!).

I started the Durham Real Estate Investment Club in a coffee shop in early 2008. I didn’t have any friends or family that invested in real estate and I was looking to create a peer support group for the properties we had. The very first Durham real estate investor club meeting was four people that showed up, drank coffee, talked and shared information about real estate investing.

In December 2014, the Durham REI meeting had two amazing keynote speakers, a panel discussion of five full-time real estate investors that collectively owned hundreds of units, and local infrastructure and economic updates. We had close to 100 members and guests attend that meeting, and the club continues to grow every month.

The very first thing that you need to do is create a vision for your club.  By creating a vision, you actually help to identify the key goals of the club.  This is easy when you can answer a few questions.

  • What is the reason to have the club in the first place?
  • What do you want people to get out of coming to a meeting?
  • What are you hoping to help them avoid by coming to your meeting?
  • What do you want to get from giving many hours of your time each month?  Or will it be worth your time?
  • Why start a club in the first place? Are there other clubs you can help to grow?
  • How big do you want it to grow – be specific?

There are many different components of running a real estate investing club:

  • Advertising,
  • Finding, screening and organizing speakers,
  • Booking and organizing the facility,
  • Ensuring that the speakers show up and deliver a positive message,
  • Facilitating question and answer at meetings,
  • Welcoming members when they arrive, ensuring they have name tags and feel comfortable enough to network — the list goes on and on.

There are systems and processes that you can setup that help with all of these components.  But, one thing that will change how a person feels when they come to your club is based on your leadership style.

There are two main leadership strategies that I see people use – one is to lead from the front and the other is to lead from the back.  Both types of leadership styles offer good opportunities for members to learn but how you feel after going to the meeting will be a little different.

Many real estate investment clubs are places where a person leads from the front. Usually, it is a place where a particular real estate investor, has established themselves as the expert in a particular area within real estate investing. They impart their wisdom to you as someone who is leading the charge. They present themselves as the ultimate expert in real estate investing and they or their associates will help you on your journey.  Their goal is to help you to learn and to grow by working within the business model or service they offer.

This approach isn’t ideal for all investors because it doesn’t clearly present the options that they need to achieve in their own personal objectives. It’s also often bias towards the experience and methodology of the speaker.  And sometimes, the person leading from the front is speaking about what the members should do without having the experience to back them up, and people can see through this.

My preference is to run and attend clubs where the leader does so from the back.

A club where a person leads from the back is organized a little differently. This is almost like what Stephen Covey would describe as servant leadership position. It is actually a leadership strategy that I learned while taking my principal qualification courses (I spent many years working for a School Board).

5 Tips for Leading a Real Estate Investing Club from the Back

  1. Leading Your Real Estate Club from The BackFocus On Helping Others To Develop Their Real Estate Business – The focus should be on coaching and supporting others, rather than controlling or pushing a sale.
  2. Listen To What People Want – Pay attention to what people are saying.  Really listen to them and find out what they want and need.  Then try to offer it to them through sharing some knowledge or inviting a specific speaker.
  3. Cultivate A Culture of Trust – Invite other experienced investors to share what they are doing by being open and honest about what you are doing.
  4. Act With Humility – Don’t think that you are better than everyone else, but act in a way that shows that you care for others.
  5. Develop Leaders In Your Group – Help others to lead in the community that you build within your club.

One important clarifying point needs to be added. Leading from the back does not mean that the people leading the club have limited real estate experiences.  In fact, the best clubs are run by someone that understands the most fundamental part of the rental house and apartment business. That person must understand that the business has nothing to do with bricks and mortar – it is about people.  And the relationships that we develop over time help us all to succeed a little better.

Many of those who lead from the back have a depth of understanding that supports the others in the club.

The idea behind this leadership strategy is almost to be in the background helping people to grow and as a result you improve the community that you serve. This leader shares the stage with multiple people, and helps others to rise.

One such organization that I think exemplifies this model of leading from the back is Rock Star Real Estate in Oakville. I’m not sure if they would refer to themselves as a real estate club, but Tom and Nick Karadza do a wonderful job running great meetings – helping their team to grow, and their members to flourish. Their events have grown to a massive size as a result (their last one had over 400 people in attendance!).  Here is just one simple example of what they do.  Most people refer to real estate agents as Realtors, but at Rock Star Real Estate, they are referred to as “Coaches”. In their day to day language they use the word “Coach”.  This simple change in title of the real estate agent to a coach, indicates the person is there to help you to grow, not to sell you a property.

In a club where a person leads from the back you will not hear about the hundreds of real estate properties that they have purchased or the myriad of businesses that they own in order to position themselves as an expert. They will often lead by sharing information that will help other people in their real estate investing.  The way that you hear about the leader’s expertise is from other people in the group, one on one conversation, and your own interactions with that club’s leader.

I hope to meet you one day at the back of a Durham Real Estate Investor meeting.  Or you can start your own club, where I hope you to, will lead from the back.

Quentin DSouzaQuentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club, Author of The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords and Co-Author of  The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.

 


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How to Set Up Your Bank Accounts with a Growing Real Estate Portfolio

Set up bank account for real estate invesing

How to Set up Your Bank Accounts with a Growing Real Estate Portfolio

Business Systems

We answer a submission from Gary around banking and what we do with our bank accounts when our real estate portfolio is growing. When you have multiple properties and you have multiple joint venture partners, there’s lots of different things going on. In Gary’s case, he actually has what I deemed as a fairly complicated system of sub accounts of the sub accounts. And it got rather confusing for me. So this is for anybody out there that has more than one property and in most cases, if you have joint venture partners that you own the property with. We will be following the system that we use and that we generally recommend to most people.

A disclaimer, this does not include anybody that manages other people’s properties. They are only for properties that you own or you co-own with other people. I just want to make sure that you’re aware of that its not for property management.

What we do with our bank account systems:

It’s a main business checking account with a bank. It could be any kind of bank that you can do checks with, email, money transfers, that sort of thing.

Then we set up specific property accounts for each property. Example; property one, two, three, four, as many as you want. Each of those property specific accounts are just basic personal checking accounts.

I am personally on the account and his joint venture partner is on that account. We both have access. The key is making sure you explaining to your joint venture partner that they’re not to do anything with that account without checking with you first because you’re the managing partner, I assume you are in most cases. It’s not an account for you guys to play around with to transfer money whenever. You want to specifically only give them access to it so they can see what’s going in, what’s going out.

Any bills coming in and money going out. Each property specific account you put your rent check into, transfer the money in or however it works for that specific property. The mortgage comes out of that account, whether the mortgage is in your name, a business name or your joint venture partners name. The money comes out of that account.

To write a check for a tradesman or some somebody that doesn’t take a a visa card, we’ll write the check from our main account. We’ll track what the bill was for, right on the receipt, which property it’s for, and then we will transfer the funds from that property back to pay ourselves back. And we just track that with, QuickBooks, Excel spreadsheet, whatever you use to track your expenses. For instance, if there was some job that had to be done at this property, say some plumbing went and I had to pay a plumber with a check, I’d write the check from my main business account that go to him or her, the plumber, and then I would just transfer the funds from our property that we did the work on to pay myself back.

I have a business credit card and that business credit card basically acts like this as well. So the business credit card, I’ll pay for any number of these things and then I just pay directly online from the specific properties account to pay back that credit card.

That is how the flow of money works. The key thing to all of this is that these are just personal checking accounts and you set them up, you get your joint venture partner added on with you so they have access to it too. When it’s time to pay them out, your  going to pay them cash flow from it, what I do, I don’t write them checks. I tell them how much money they can take out of the account and then it’s on them to take that money out. This is the system that works for us, we control everything, but our JV partners do have access to it.

In terms of banks, there’s no one bank that’s better than any others. We actually have several accounts with one bank. We have another several accounts with another bank. We have about four different banks that we deal with. There’s no one bank that’s better than any others, but that’s our system. That’s how we work. We found it works really, really well. It’s great for tracking purposes and I highly recommend you do something similar with your own system. I hope this gives some advice to a variety of other people that are looking for how do you do your banking when you have multiple properties and partners.

 

Business Systems Resources

Turn your business around with a business systems section in the Real Estate Achievement Program.

 

The Best Type of Home for Rent to Own Investing

house keys

The tenant ditched on me. Now I am stuck with this house 20 minutes out of town that I can’t find another tenant for. I guess I will try to sell it but the market is not very good.

Our client was pretty upset. Before working with us, he had taken some training around rent to owns. He was told that tenants who choose their house for a rent to own are more committed and more likely to buy. When this family asked him to buy this house for them, he thought it was the perfect opportunity to help someone and make some extra monthly income.

They were making a great income. Their credit was poor because a few years back one of them was injured on the job and they fell badly behind on their bills. They are all caught up now, and just need a bit of a hand to become home owners again.

So – he happily purchased this home for them and set it up as a rent to own.

Unfortunately, it’s just not true that a tenant picking their home is more committed than if you pick the home and 14 months into their contract, they decided to move out. Now our client was stuck with a house that wasn’t easy to get rid of.

Rent to own is when a tenant rents your property with the option to purchase it. They move into it with the intention that they’re going to buy it and they have a piece of paper that gives them the option – not the obligation – to purchase it. You can’t sell it to anybody else because they have the option to purchase it.

You set the future purchase price at the beginning. You charge higher than market rent with a portion of their rent building up over time towards their purchase and they give you a larger sum of money that serves as their option fee.

Rent to owns offer you a way to sell a home without paying realtor commissions. It is also easier to manage and gives you higher cashflow each month than a regular rental, but there are also some really good reasons not to make rent to own investing your entire business model.

The biggest issue, next to ensuring you have properly screened and educated your rent to own tenants, is what kind of property will work the best for rent to own investing?

If ANYTHING goes wrong with the house – you are responsible. The tenant can walk away.

If the tenant doesn’t want the house or decides the value has dropped too much, you’re stuck with a home that is worth less than you’d expected.

If the prices rise up rapidly, the tenant can buy at the predetermined price, turn around and sell the home, and keep all those extra profits for themselves.

You take on all the risks, and will not benefit if the market has a quick rise.

So – your first consideration should not be what your tenant wants – it should be what works best for a rent to own investment model.

What is the home type that is the easiest to sell, the most stable in value and generally the easiest to rent out?

In every single market in Canada, and probably in the world it is the STARTER FAMILY HOME. The home type that first time home buyers enter the market with. The only catch is that this is slightly different depending on the market. In Toronto and Vancouver, the starter family home is arguably a condo. Most people in Toronto enter the home market through a condo and later, as they can afford it, they move into a house.

In some other areas in Canada, like Surrey, BC or Brampton, ON for example, it’s a townhouse. In most average sized cities, it’s a 3 bedroom 2 bathroom house. The starter family home for your area may be different but it’s still the category that gives you the lowest risk for rent to own. (We only do rent to owns that follow the same model we use for Buy and Hold – Properties with a CAUSE).

The key to ensuring you make a great return and you set your tenant up for success is to buy a property for UNDER the average price in the area and ideally under their market value.

Why You Should Focus on Buying UNDER the Average Price for an Area:

If you stay just below that average price you’ll enjoy a greater demand for that property because it’s more affordable. If you go too much below the average, however, you’re probably just getting into rough neighbourhoods.

In Nanaimo, BC where we’ve done the majority of our rent to owns, the average price has been around $360,000. We’ll typically look at buying houses for around $280,000-$300,000 – so around 20% below the average. These homes usually need some cosmetic work which boosts their value before we find tenants for them.

By buying properties a little below the average price in a good, safe, family friendly area, we ensure that our product (the home) has more exit options for us if our tenant buyer doesn’t buy.

We know a few guys that focus on luxury homes for rent to own but when you buy an $800,000 house that will only get $3,000/month rent as a regular rental, what do you do if your tenant doesn’t buy it from you and the market is too soft to sell it without taking a loss? You can try to do another rent to own, but it’s a small percentage of the rental market that is a good fit so you might have to wait a few months while you find someone new. In the meantime, how large are the mortgage payments that you have to make?

We talk more about this as it relates to buying a home the tenant picks in What Comes First? The Tenant or the Property.

Always ensure your rent to own will at least break even as a regular rental.

A few years ago in Nanaimo the property assessments dropped across the city. Right after they were mailed out to the houses, we had several rent to own tenants say they weren’t going to buy. They were walking away. We suspect they took a look at the assessed value and thought there was no way they were going to pay the purchase price for the home. In most cases, their home was worth a lot more than the assessment reflected so this was really frustrating. Rarely does the assessed value accurately represent the market value of the home – (as I discuss in the video if you click this link). It’s in the ball park but it’s not accurate. Unfortunately our tenants made decisions without discussing with us and we received several move out notices all at once.

It was not a happy moment for us as we wanted the tenants to buy the homes from us.

We considered selling but the market was soft and after realtor commissions, we wouldn’t make our investment partners a good return. Thankfully, we had the option of renting each of the properties out as a regular rental if we wanted to. These homes, as regular rentals, are pretty close to neutral cash flow but at least they cover the costs. If you buy homes for rent to own where the numbers don’t work as a regular rental you create one less exit option for yourself.

Choose a Great Quality Property in Good Condition

You don’t have to buy it in great condition but when you offer it up to folks for rent to own it must be in good condition to get the best results.

The rent to own tenant is way pickier than your regular tenant because they plan to buy this home. It’s permanent in their mind. Tenants are often ok with not having a new roof as long as it’s not leaking or a less efficient furnace if they can use the fire place. They will put up with a lot more stuff because it’s temporary. They’re just renting and there’s an end to this situation. They also don’t have to spend money when it is time to replace the roof or put in a new furnace. A rent to own tenant looks at the house thinking that they will need to spend that money if it’s not already done (just like a potential home owner would if they were looking at buying the home).

Layout issues can really be a problem with a rent to own as well.

We bought one property for our rent to own program that rented in a split second, but we tried to fill it as a rent to own for a month without any interest. It’s in our primary neighborhood where we have had a TON of success with rent to owns and the house is adorable! We were shocked when we couldn’t find a rent to own tenant for it but it’s because the rent to own tenant is WAY pickier than a normal tenant.

The problem with this particular home, we came to realize, is that it has two bedrooms up and two bedrooms down. It also doesn’t have a garage. Tenants will put up with this layout and lack of garage if the rent rate is right, the place has charm and their kids are close to their school, but someone who is looking to buy the home, is much less keen.

We probably could have eventually filled it as a rent to own if we waited long enough, but we didn’t want to carry the costs longer than we needed to so
we turned it into a rental. As a rental it has filled and stayed full for many years. Lessons learned along the way but we share so you won’t have to learn the hard way.

There are many reasons that rent to own investing could be a good option for your next property (or as an exit out of a property you already own), but you want to make sure you’re buying homes that make great investments with multiple exit options. It doesn’t matter if you’re starting with a qualified tenant or an investment property – the most important thing to always remember is that you’re an investor and the deal has to make sense today and in the future.

Good luck!

And if you want more on rent to own investing – you should definitely check out these additional articles we have on our site:

Keep More Cash in Your Pocket with These Four Negotiation Tactics

cash in pocket

“Congratulations, they accepted your offer!”

Those are the sweet words that we all want to hear as investors.

Who hasn’t paced the room, checking their phone 20 times in 5 minutes, unable to focus on any conversation, just waiting for the seller’s counter offer?

Closing the deal and taking possession are exciting moments, but it is the negotiating of the deal that gets your adrenaline racing; The sheer happiness you feel as you jump for joy when the realtor calls with the news you have been waiting for. Or, facing the loss if a competing offer wins.

But, you can win more often – and get the best terms and price for your properties. Here are four ways to help your real estate negotiation:

Negotiation TIP 1: What’s the REAL Reason They Are Selling (Find their motivation)

Typically the more questions you ask, the more you will learn.

Get your realtor to ask some specific questions before you go to the house, and then again after your appointment.

You want to know things like:

  • How long have they owned the house,
  • Have there been recent upgrades,
  • Are there any issues with the house,
  • Why they are selling, and
  • What are the utility costs?

If you are negotiating directly with the seller, asking questions is a good way to build rapport and get information.

While you’re looking at the home, look for signs of seller motivation.

Bring a checklist of structural things you want to look for, and add “seller motivation” to that list. I look for things like 2 or 3 beds in a bedroom- maybe the sellers need more space for the kids. If the walls are bare and there isn’t much furniture, they could be moving out of province or there was possibly a marriage break up. Only two months ago I successfully negotiated an offer at $15,000 under fair market value because I knew, through asking pointed questions, that the sellers were highly motivated. They had already purchased another home and were under pressure to sell their current home.

Negotiation TIP 2: Create a Connection

As a realtor I get to hear the sellers side. I suspect most real estate investors would be surprised to know that one thing a lot of sellers say is “I hope a nice family moves into my house!”.

I’m selling my house right now and I actually feel the same way – someone with kids NEEDS to buy my house so that they can enjoy the play structure that my husband tirelessly put together over Father’s Day weekend 2 years ago!

Selling to a family often ranks higher in people’s minds than money.

Think about that one for a minute.

Sitting with a couple reviewing competing offers earlier this year, the couple was trying to figure out if one of the offers was from a neighbour’s friend. They didn’t even know. They just heard that the friend might be writing an offer and thought that those people should get that chance to buy their home. They were willing to take $10,000 less from those people than a higher offer we had!

Decisions are not always rational! So, what does this mean for you, the investor? When a homeowner sells their home, they are usually confused and disappointed if they see a corporate name on the offer. If that is how your offer will be submitted, I recommend including a letter that talks about you as a person instead of an investor. You may even want to include a picture of your family to really humanize yourself.

If you’re speaking with the seller directly, let them know that you purchase nice homes in good areas to rent to great families. Bring the softer side of the business to the table.

Negotiation Tip 3: Help the Seller Get What They Want (As Long as You Get What You Need)

Too many deals fall apart over the terms in the offer.

I have had clients say: “Can you write in the lawnmower, snow blower, and that pile of firewood beside the fire-pit? Oh, and I really love her china cabinet, I bet she doesn’t want it anyway anymore because it will be heavy to move. Do you remember if there was one freezer or two? I could use an extra freezer. And don’t forget to write in the offer that they take all their junk out of the garage.”

When the list of chattels gets too long, AND there are a lot of conditions, AND a small deposit- the offer starts to feel very unfair to the seller.

Everyone wants to think that they did a good job in negotiating their home purchase or sale. Be reasonable in your offers and negotiating.

Make sure the seller feels like they got a good deal too. Reputation matters, and you need to build good relationships in this business. A strong reputation will get you more referrals, more opportunities, and more profit.

Negotiation TIP 4: Know When to Fold ‘Em

When I was a kid, my Dad loved to sing that Kenny Rogers song “You gotta know when to hold them, know when to fold them, know when to walk away, know when to run”. It doesn’t just apply to card gambling- it’s true for negotiating in real estate.

Don’t fall in love with the house (or, the idea of doing the deal) and pay too much.

Negotiating is an emotional experience. It can be easy to lose site of your goals or stretch them a little in the process. Sometimes, you might feel like you’ve invested so much time you can’t walk away, or you’re worried you won’t find another deal quite so good, and you settle for terms that don’t make sense for you.

If it’s not the deal you wanted, walk away. So often that leads to an even better deal. Sometimes, the seller will call back days later and the investor then you can negotiate an even better deal because you’re back into a position of power and a calm rational state of mind.

Negotiating doesn’t have to be a stressful experience. Use these tips to make your next real estate purchase a successful one.  It does take practice to become a great negotiator. But by using the guidelines above, and remembering to use Kenny Rogers’ advice too- you can save a lot of money and create an abundance of the great deals that you want.

 

Candice Bakx-FriesenCandice Bakx-Friesen has been successfully investing in real estate for 13 years. She has diversified her buy and hold strategy to include duplex, single family, multi-family, and commercial holdings. She’s also a realtor in Manitoba. Her passion for helping others is fierce and she loves to see people succeed. Candice welcomes your questions or comments; contact her at Candice@cbfteam.ca.

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

How to Get It All Done as a Busy Real Estate Investor

julie explaining

Six years ago, on November 1st, I left my job to focus on real estate investing and building Rev N You.

It feels like a lifetime ago that I had to be at work by 8am. I don’t even use an alarm most mornings unless I am going to an early morning class at Crossfit.

But it really feels like yesterday that I was begging for extra vacation time, sneaking off to handle real estate stuff mid-day, working all weekend on a deal or a renovation, or meeting with Dave for hours at Starbucks discussing what our next move was.

I don’t remember feeling there wasn’t enough time, but I do remember feeling exhausted a lot. I was working hard – putting in a lot of hours but many of my hours were wasted.

The crazy part is that since leaving my job I actually work more hours than I did as a full time employee. There is no such thing as paid vacation time, so turning off completely is more difficult than it ever was when I was working for someone else. The big difference for me has been in understanding what takes energy, and what doesn’t. And, using the hours I am working as best as possible. I still waste time and procrastinate sometimes, but I am never just waiting for a day to end like I did when I was working for someone else. There’s too much to do and if I am not working smart, I could be doing something else!

That feeling of, if I am not using my time smartly right now, I could be visiting with friends or family, working out, or playing with my dogs keeps me focused. It’s never about putting in the hours, it’s about getting results.

And since every week someone writes us asking how to manage a full time job, a growing real estate portfolio and family obligations, I thought I would give you 4 ways to get it all done with the time you do have (And still have energy left for fun).

 

President Obama sits down for a family dinner at 6:30pm most nights. If the President of the United States can organize his day and his priorities so that happens, there’s no reason why you can’t create your ideal typical day using real estate while you hold down a full time job and a great family life. Yes, he has a lot more support than most of us do, but he also has a lot more obligations. It’s about priority and focus.

If you haven’t read the article on time management, you should check that out. As I mention in the video, I think time management sells a lot of courses (like the idea of passive income) but it isn’t really possible. There are, however, some things you can do to better use your time.

What’s your best tip for getting more done? Share it with us on Facebook or Twitter!

 

Source: http://blogs.hbr.org/2014/03/if-president-obama-can-get-home-for-dinner-why-cant-you/

What You Need to Know Before You Buy Your First Investment Property

keys first time home

Bad tenants, large maintenance bills, and insurance claims all piled up to over $90k in damages on my first investment property. It was not what I had planned.

When I started real estate investing, I went straight for the deals where the numbers crunched out perfectly. But, I soon learned numbers weren’t the only consideration.

Picking your first investment property can be a daunting task. I felt exactly like this when I bought my first investment property eight years ago. However, if you start by taking the time to build a solid foundation of knowledge, you’ll be ahead of many people who dive into real estate investing, including me.

After eight years in the trenches, I’ve learned a few things about choosing the right real estate investment. So, to help you, here’s five awesome tips on how to pick your first investment property.

1. Discover Your Motivation

No matter how knowledgeable or prepared you are, you will face challenging situations in your path through real estate investing. So, you need to understand why you are acquiring brick and mortar assets filled with tenants. Really knowing why you’re doing it will propel you through any sticky challenges and motivate you to continue investing. Also, knowing why you’re investing in real estate will guide your decisions, including what you are looking for in your first property.

Ask yourself “what is my motivation for becoming a real estate investor?” and “what do I want to achieve by investing in real estate?” Typically, I hear people say they are investing in real estate to achieve “financial freedom”, to retire early and comfortably, or to gain financial flexibility (i.e. a contingency plan). However, these are pretty broad responses without a clear reason why. To help refine this this response, I like to use a method known as The 5 Whys: simply ask yourself “why?” after each response, at least five times, or until you reach clarity. For example:

Why First Investment PropertyWhatever your reasons may be, once they have been clarified in your mind you can ask yourself at each decision point if that decision will bring you closer or further away from that envisioned goal.

Bottom line — clarify your motivation and goals before you begin investing in real estate.

2. What Financial Resources Do You Have?

Many novice investors jump straight into deals because it looks cheap and the potential rental income looks great, but they only worry about finding money after the property is conditionally sold. If financing falls through, not only do you risk losing an awesome deal, but also your credibility as an investor. I encourage you to sort out your finances beforehand and come up with a budget for your investment property. Ask yourself:

• How much can I afford?
• Am I pre-qualified for financing and are the terms in my favor?
• Do I have investment capital or do I need to seek joint venture partners?
• Are my personal finances in order so that I have access to contingency funds to cover unexpected expenses?

Work with a professional like a mortgage broker who caters to real estate investors to find out the best financial options for you. You should also read how to finance you real estate investments.

Bottom line — clarify your finances. What financing terms can you get and what can you afford?

3. What Kind of Property Should You Invest In?

When I bought my first investment property, I jumped into a triplex because the numbers look great and it was in a nice location. However, the triplex was high maintenance and I grossly under estimated the amount of time need to manage and renovate the property. I quickly realized that small multi-family units were not an ideal investment strategy for me.

How do you figure out what you should invest in? Here’s some questions to ask yourself:

  • How much time can I dedicate to real estate investing now and in the next couple of years? Even with a property manager, some properties require more frequent care and attention than others.
  • Can I handle renovating the investment property? You can find hidden opportunities by looking for a property that needs work. But if that’s not your thing, look for something turnkey (the work is already done), or budget for contractors to do the renovation.
  • What kind of tenants do I want to attract? Students, young couples, subsidized income, high income, … Each home and location will attract a particular type of tenant. Which can you most easily deal with?
  • Do I want freehold or condominium? There are benefits to both. However, if you want full control to modify your property and maximize its benefit, freehold is the preferred choice.

There are hundreds of ways to invest in real estate, so find the property that best fits your time availability and lifestyle. And, you may not get it right with the first one, but you have a better chance of finding the right strategy for you if you think about this first.

Bottom line — identify the lifestyle you want to live and the type of people you want to deal with while holding these investments. With this in mind, you can narrow down your ideal investment strategy. And, if you’re struggling, you should also check out this article on the 7 Ways to be a Mediocre Real Estate Investor.

4. Research Your Market and Define Your Target Areas:

Despite any reading or training you take prior to purchasing your first investment property, it will be a learning experience. And, for that reason, I recommend keeping your first investment close to home, i.e. either in your city, or a neighboring one that you know well. By keeping it close to home, you will be familiar with the area, and you will be able to easily take charge should anything not go according to plan.

To maximize your investment, I encourage looking for these factors in a particular neighborhood in your city:
• Population growth greater than the surrounding area average;
• Investments in infrastructure and transportation;
• Sustainable and diverse job growth;
• Low vacancy rates (<3%); and,
• Strong housing demand.

Julie and Dave have their Properties with a Cause Model which is similar. All of these factors in a neighbourhood encourages housing demand, giving you the largest probability of a nice return on investment.

Bottom line — research your market and define your target areas that will give you the greatest probability of success and a nice return. Remember to align this with your motivation and investment strategy.

5. What are Your Investment Rules?

Create rules to eliminate second-guessing and help you focus on finding your ideal first investment property. Rules may include features that a property must or must not have that could positively, or negatively, impact rental income and your lifestyle. Ask yourself:

  • What is the minimum cash flow I need to feel comfortable with the property?
  • How long do I want to hold the property?
  • How far am I willing to drive to the property?
  • What features in a property do I want to avoid (e.g., electric heat, low ceilings, condo fees, oil tanks)?

The previous four tips will help you define these questions. As you gain experience, you’ll have more and more investment rules.

Bottom line — develop your own rules to keep you focused when screening through deals and to help you gain confidence in your decision making when you pick your first investment property.

Take the time to build the right foundation rather than jumping into deals or only focusing on returns. If you follow all of these steps diligently, you will be ahead of most new real estate investors out there, you will fast track your process, and you will gain confidence in picking your first investment property!

Tracy Ma is a mother of twins, mentor, engineer, and real estate investor in Ottawa, Ontario.  Connect with her at her website www.financialnirvanamama.com where she shares free tools, videos and articles on managing your real estate portfolio. Her mission is to empower women on investing to reach their financial nirvana.

Still want some advice? Julie has an entire stream of videos dedicated to getting started in real estate, including this one:

You might also like to check out these articles:

>> How to Be the Smartest Real Estate Investor

>> How to Become a Full Time Real Estate Investor

>> In Pursuit of Passive Income – The Passive Income Myth

>> 5 Steps to Rent Out Your Property

>> How to Find a Great Real Estate Agent to Work With as an Investor

 

 

Image Credit: © Dolgachov | Dreamstime.com

One Strategy to Find Tenants Faster, Negotiate Better Deals & Raise Money More Easily

light bulb brain

“Don’t play hard to get. Be hard to get.”

How do you sell a $20,000 purse? You keep it in short supply and only sell it to people who meet certain criteria. Once only a few people can have it, everyone will want it.

Of course, it is a lovely looking bag. And Grace Kelly reportedly fell in love with it when filming Alfred Hitchcock’s To Catch a Thief, eventually leading to it being named the Kelly Bag by Hermes.

There’s more to this than just being hard to get, of course. Few people can afford such a huge expenditure on an accessory which also makes it a status symbol but Hermes understands what makes people desire something to their core.

A big part of what drives our desire for something is not a rational need. Knowing other people want something, not being able to have it easily and fear of missing out, all drive us to want something more than we would otherwise. It also drives us to make decisions and take action. It’s the foundation of the simple principle of persuasion called the Law of Scarcity.

Understanding this law and putting it into practice in your real estate business can help you sign the tenants you want quickly, negotiate better deals with sellers and have your potential investors say yes to your deals faster.

Here’s how to use the Law of Scarcity in your real estate business:

The Law of Scarcity is a powerful tool to use in your real estate business. But there are many ways to do better deals and find great tenants. If you are looking for other ways to do better deals, here’s another video tip for you: https://revnyou.com/how-to-find-great-real-estate-investing-deals/. 

Have a question or a topic you want us to cover? Send us a Tweet or sign up for our newsletter and send us an email.

 

 

5 Ways to Handle Communication in a Growing Real Estate Portfolio

communication

“Hey ya Tim, just wanted to let you know that the city didn’t pick up our garbage on garbage day.

It was a tenant at one of my student rentals calling me.

“Huh? Well did you put it out at the curb before 8am?”

“On the curb? No. It’s at the back of the house. They don’t go and get it from there?”

It probably would have been pretty funny except my phone was ringing non stop. I was in high demand!

Now, if I was a single guy with a dating profile online, this probably would have been great news. But instead it was my tenants interrupting my precious family time with my wife and 3 boys.

I only owned five properties at that time, and was about to add several more to my real estate portfolio. Something had to change. I didn’t get into real estate to have it run my life. I got into real estate so I could have more control over my time.

One of the challenges with student rentals is that this is often the first time away from Mom & Dad … Since the majority of my real estate portfolio is student rentals, I really had to find a way to handle the incoming communication. I did not want to explain to students how I to change light bulbs or do a load of laundry.

This is how I got control over the incoming communication … and how just about any real estate investor with a growing real estate portfolio can do the same:

1 Property Manager

I managed my own properties for some time and all was going well till I added my 4th or 5th house. Then, it just all got a bit too much. It also meant that I was critical to the process.

What if I wanted a vacation? Who’d manage the houses then?

For my properties that are further away it doesn’t make sense for me to drive all that way to do showings. So, the property manager is very important. Make sure they have experience with the type of strategy you’re working on, get referrals, ask at your club meetings, get them to show you some of the houses they manage, tag along when they do a showing. They are going to be the main gatekeeper between everyday goings on and your freedom. (Read this for questions to ask a property manager before you hire them)

2 Texting

The millennial generation likes to text. It’s not a bad thing. Texting can be an efficient way of communicating especially when setting up showings. Your online ad will get lots more responses if you include a number to text. I’ve tried it with and without and I’d say the numbers of inquiries are about 3 fold with a text capability. But, there are a couple of important distinctions to make. You don’t want to give them your personal cell number and you don’t want to be ON 24/7.

My solution? A free service called textnow.com gives me a local Canadian cell number, which I can then give to students or put on an online ad. A great feature of this is that it has both an app for my iphone but also a web browser interface. Instead of responding to texts all day long you can then log into the web page and check them a couple of times a day. To take it a step further I’ve also given access to my virtual assistant so they can respond to texts on my behalf as well.

The last thing about texts is that you’ll ideally want some way of keeping them, as conversations need to be tracked so that they can be referenced in future if necessary.Textnow has the ability to send a copy of text messages to you via email. In my gmail account I then auto archive any messages coming in from the textnow domain. This way I am essentially archiving every text conversation I have.

3 Phone calls

Similarly to texts, students will likely want to phone and talk to you. You can utilize the textnow number and you can answer that directly on your smart phone if you’d like to. Clearly if you’ve taken on a property manager this will become less relevant over time, but I still remain involved and therefore this is a useful tool.

When accepting phone calls and messages from tenants, it’s important to make a distinction between different types of issues. We advise students to phone us if it’s urgent, for example a flood, leak, electrical issue etc. But if it’s just a general question or request (which it often is) we ask them to send us an email. That way it can be looked up in the future if necessary. Lastly have a clear voicemail reiterating this and providing instructions on what you’d like them to do.

4 Educating Tenants

We provide a binder in each student house, which has all the appropriate contact details and instructions of key things they may need to get involved with. The binder includes important information like what day the garbage needs to go out and who to contact in which situation. We also provide some fun things such as Pizza delivery phone number and other local amenities. You could include a bus timetable or a map of the city anything you think would be useful.

5 Not responding immediately

Our natural response to getting asked questions is to answer them. I remember when I started out I tried to respond as fast as I could. I wanted to be the best landlord ever. I’d phone people back straight away or respond to texts to make sure everyone was happy. The problem I found with this strategy was the quicker I responded, the more questions I got.

Some of this goes back to being away from mom and dad for the first time. But it’s not just students. A lot of people are just used to instant gratification. I learned the hard way that communication needs to be carefully managed. Urgent things can be dealt with quickly but outside of that I encourage people to send an email and let them know that I’ll respond within 24 hours. Delaying a response to “the internet is down” often means that by the time you’ve respond they’ve unplugged the modem and plugged it back in again and it’s working! Educating tenants with the best way to communicate from day one is best as they’ll hopefully respect that and act accordingly. Trying to change behavior once it’s established is a harder prospect.

It’s possible you can handle everything on your own and not have to use any of the tips and strategies I’ve talked about above. But I believe the sooner you start getting help and put systems in place as you’re growing your real estate portfolio (especially with your student rentals) and putting some tools in place the sooner the sooner you can move on to buying another property, going on vacation or just spending more time with you kids. At least with these things in place you’ll have a choice!

[plain]Tim Collins has been investing in real estate since he was 20 years old. Tim is the authority on student rentals and is regularly featured in Canadian Real Estate Wealth Magazine. He focuses on building his student rental portfolio with joint venture partners, whilst also helping others with advice and guidance through speaking engagements, workshops & studentrentalinvesting.com.

On Oct 29th Tim is kicking off his 7 week Student Rentals for Maximum Cashflow course. Go to studentrentalcashflow.com for more details and to sign up. Early bird pricing for Rev N You readers is available now until Oct 10th. [/plain]
1st Image Credit: © Artofphoto
2nd Image Credit: © Dolgachov

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

How to Find a Great Real Estate Agent for Your Investment Business

for sale with realtor

“It’s impossible to find a good real estate agent. Nobody wants to do any work! They just send me garbage – if they even call me back”

My new client was really frustrated. After making several phone calls and going on one property tour with an agent, she felt strongly that there just wasn’t the right agent out there.

I get it. We’ve worked with a few dozen real estate agents over the last 13 years. Sometimes it feels like agents make a lot of money for doing very little. Other times it feels like all your agent is doing is making your life difficult by not returning your calls or taking forever to set up an appointment.

Many real estate investors become realtors because of the challenges working with some agents.

But, if you have the right agent, they are an important part of your real estate investing team. They will help you understand a market area by providing comps, market information, and insights. They will send you deals you may have missed. And they will save you a lot of time setting up showings, chasing other agents for information and handling paperwork (something few investors enjoy).

If you invest in a town you don’t live in, a great agent is your eyes and your ears on the ground. They are essential.

While I do believe that some agents aren’t very good (just like not all investors are good), I also don’t believe that is the real issue facing most investors looking for this important team member.

There are a few problems that get in the way of a great agent – investor relationship.

The first is that all Real Estate Agents are not the same. Some don’t want to work with investors. They have had a bad experience or heard investors are a pain. It doesn’t matter to them that investors provide far more repeat business than home owners. For some, it’s just not a category of client they want.

Second, as an investor, you are looking at a home differently than someone who wants to live in it. A real estate agent’s training is based on working with home buyers who plan to live in the property, not based on someone that needs to generate revenue from a property.

Many realtors think a property makes a great investment just because it has a secondary suite or because it’s beat up and needs work. It’s usually just a lack of education in the investment business that leads them to believe that. It doesn’t make them a bad agent.

Real estate investors care about the numbers. If it has a big bathtub, it only matters if a big bathtub gets a higher rental rate or will attract tenants easier than a regular one. At the end of the day price matters to an investor, but things like rental income relative to the price, type of tenants, ability to qualify for financing or get other financing options, and timing of the deal are more important than just price.

If this isn’t clearly communicated and understood, the agent AND the investor will get really frustrated with the work they will try to do together.

Third, many investors do a really terrible job of communicating with their agents. They aren’t focused enough to start with which makes the agent’s job next to impossible. Or, worse, they excitedly contact agents to do deals that can’t really be done. Many real estate investing courses geared towards GET RICH QUICK have very tricky and sometimes questionable strategies that agents are right to question! Some of the techniques work on one side of the border but don’t work on the other. Others are just risky and bordering on illegal.

So, what can you do? Here’s my recommendation to find great real estate agents for your real estate investment business:

First, get clear on what you are doing as an investor.

My client who was frustrated with the lack of quality agents out there was the source of the issue, not real estate agents in general. She wasn’t clear on what her investment strategy was. She wasn’t even certain she had found a good market to invest in.

She was calling really great agents that had been referred to her, and was blowing the initial contact because she wasn’t confident, clear or concise about what she wanted.

How could she REALLY expect to get the great real estate agents to work with her when she was going to take up so much of their time just figuring out what she wants to do?

It’s easier to blame the agent than to realize you are the issue.

Before you contact a great agent, get clear on your goals, your plan and your resources.

To Do to Find a Great Real Estate AgentA good agent is busy. They will usually be happy to take on a new client, but they will be selective about who they give their time to.

It’s important to show an agent that you are going to work hard to get what you want, you know what it is you want, and you have already taken steps to collect resources to reach your goal.

If you can’t tell them about your experience because you’re new, you can show them the steps you’ve already taken and the steps you will take. This way, they know they won’t be wasting their time. Because, remember, they only make money when you buy!

Don’t worry if you are short on resources. You shouldn’t pretend to an agent that you have a bucket of cash under your porch waiting to drop it on a deal. Our agents know we don’t buy most of the properties alone (not sure how you’ll fund your deals – check out this article on the 5 Ways to Finance Your Deals).

If they don’t like your plans, you’re better off to find that out now then when you’re knee deep on a deal. But by this point you should already have some idea of where you are going to get money. Make it clear that for the right deal, a deal that meets your criteria – you will be able to get the funds to close on the deal. And commit to yourself that you will do everything it takes to do just that.

Second, start asking around. I believe that the best realtor for an investor isn’t the one who helped your best friend buy their house. It’s the realtor who is already working with other investors. Go to your local real estate investing club meetings. Ask other investors.

Do a search on Realtor.ca or Realtor.com for listings in the area you are looking to invest in. Find properties that are similar to the ones you want to be involved in and see who is actively listing the majority of them (or, even better, drive around and make note of the signs). We would probably lean towards finding someone that only has a few listings, vs the one that has every other listing. But I love to work with someone who is already active in my target neighbourhood as they will likely add a lot of value with information they learn while doing open houses, showings and comparable research.

Stop into local real estate offices. They usually have a lot of listings on the windows and you can poke your head in and ask about the different agents. Maybe you will even meet one that you hit it off with. We found the agent we work with in Whistler this way and she’s awesome.

You can also use the internet to find good agents. We’re not talking about google searches here… you are still trying to get recommendations. Look on forums or review sites.

Who Makes the Cut?

Once you have a few names of potential agents, make appointments to meet them in person (or over the phone if they are far away). You want to get to know each other. It’s not just about you finding a good agent to work with – it’s also about finding a good agent that wants to work with you. As mentioned, not every agent wants to deal with or knows how to deal with the special needs of a real estate investor.

Ask good, well informed questions. Be careful of agents that seem to commit to being able to do anything you want. Remember you’re an area expert and you want to work with agents that also are focused and specific. If you’re buying condos don’t hire a single family luxury home expert.

Here’s a few questions to ask a potential real estate agent:

  • What is their experience with real estate investing?
  • How do they know a property makes a good real estate investment? What criteria do they use to judge properties for investment purposes?

What you are looking for is someone that understands real estate investing. If they are an investor themselves that can be an asset but it’s not a requirement as long as they understand what makes a good investment.

  • How long have they been a real estate agent? Are you full time?
    Ideally you get someone that is a full time agent and has been for at least two or three years. A brand new agent will potentially lack the contacts and experience that you likely need. Someone who has been in the business 20 years should have excellent contacts but may lack flexibility. It depends what is most important to you … so you’ll have to think about who is your ideal agent and what you’re looking for. Every person is different – so don’t rule someone out just because of their length of time as an agent – but take it into consideration. My preference, however, is to only work with agents who are full time.
  • What is their specialty?

Some agents will specialize in a small market area, but will do everything in that area. Others will focus on condos, or larger single family homes in a wider area. Some agents take anything they can get. And some agents focus on working with real estate investors. Ideally find one that is a specialist in your market area and your home type. The more focused the better but it can be difficult to find someone with a serious focus.

  • Have they worked on deals that were financed by the seller?
    Some agents get skittish when you mention VTB (Vendor Take Back) financing or second mortgages. There is NOTHING shady or underhanded about VTB’s. There are a lot of advantages to VTB’s, for both the seller and the buyer. The seller’s loan is secured by the property, and you pay them interest. VTB’s just aren’t as common in residential real estate as they are in commercial transactions, so some realtors haven’t done a deal using VTB financing. Often what we aren’t familiar with scares us. Not being familiar also means they could struggle to explain them clearly to other agents they may have to work with.

Once you’ve found a great agent, the communication process really begins.

Be clear and specific about what you expect from them. Let them know your preferred mode of communication and the frequency.

Typically, most agents will work the hardest for you at the start of the relationship, and if you don’t do anything to show you are serious or to maintain that relationship, you will fade slowly onto their automated email list never to be thought of again. And if they don’t think of you, you won’t see the REALLY good deals.

Not all agents are the right ones for you. It will take some work. You probably won’t find the best one for you on the first call, but please know there are excellent agents out there. Many will work really hard for you. Many will really try to understand what you want, and bring it to you. The trick is that you have to know what you want and communicate that clearly. You have to figure out what is most important to you in an agent and a real estate deal.

If you’re finding it impossible to find a good agent, take a look at what you’re doing. It just might be fixed with a simple tweak of your own goals, plans and conversations.

 

How to Analyze Your Real Estate Deal (& Why You’re the Only One that Can)

Kid with magnifying glass

I can’t analyze your deal for you.

It’s not even because it takes a ton of time to do properly (which it does, by the way!). It’s also not because you sent me absolutely no information that is useful in the analysis (although, that is often the case).

I can tell you if the numbers make sense. I can ask you if you’ve considered a few potential risks. But, ultimately there is only one person who can really figure out if the deal is good for you or not … and that is you.

Here’s an example of an email I received this week with personal details omitted:

“Hi Julie, I am 1/2-way through your wonderful book! You have such an earthy, non-slick, trustworthy personality. I have a question: We are just about to sign a commitment letter with a bank on our first investment/property in one city. We live in another. We paid $573,000 for a 3 units with 25% down. $2900/month rental income. Are we crazy?”

When you just look at the numbers on this deal, it’s not that great. These folks are likely hiring property management as they don’t live in the same city, so that will reduce their net income as well. Before you even consider maintenance, which will definitely be costly as it’s almost 100 years old, it will likely not cashflow much at all.

Does that make her crazy? Should she look for a better deal?

I have no idea. It could be the perfect deal for her or it could be a terrible idea.

To help her figure it out, I would need to know more about her goals, resources and risk tolerance. For example:

  • Why she is investing in real estate in the first place. What does she need this deal to do for her and her family?
  • Why she chose that city. If it’s because, in the future, they plan to retire or send their kids to University there, this might be perfect. If it’s because they go there on a regular basis for other reasons then it’s not a bad idea. If she chose that city because it was more profitable than the city she lives in currently, I probably would have picked a different location.
  • What resources does she have to work with? My guess is that this property is not a legal 3 unit property. At best it is probably is legally allowed 2 units. Is she financially able to handle the risks that come with an illegal suite? If it won’t kill them financially to handle this issue or maybe she has connections to a contractor who can help make it legal for a lower cost, then this might not be a big issue.
  • What other options were considered and why were they eliminated?

Then, once I had that information, we’d have to dive into all the property expenses, expected maintenance, and, of course rent and income. Even with that information I still couldn’t tell you for sure that it’s a good deal because I would need to know all about the area, the comparable deals that have been done lately, the layout of the property, the target tenant type and what options exist for different exit strategies from the property.

It’s a lot to cover … and if you haven’t already read More than Cashflow, I highly recommend you start there. It’s the absolute best real estate investing education you can get for less than $20!

But over the last six years we’ve covered a lot to help you in our Rev N You with Real Estate newsletters to help you choose where to invest and how to analyze your real estate deal. There are a lot of things to consider and I just want you to make the best decision possible for you. Below we’ve highlighted some of the most read articles on choosing a market and analyzing your real estate deal to help you.

There’s a lot more to cover but that should keep you busy for the rest of the summer and fall. 🙂 Happy analyzing. And remember, you are only doing a good deal if it moves you closer to the ideal day or ideal life you want to live. Numbers are only a small part of what you need to consider before you buy a new investment property.

What Market Should I Invest In?

One of the biggest reasons people lose money on renovation projects, especially flips has almost nothing to do with the actual renovation process at all. It has everything to do with the selection of property and it’s location. Here’s what you need to know about the price you’re paying and the cost of the renovations you’re about to do:  The Neighbourhood Price Ceiling and Why It’s Critical to Understand.

One of the biggest stumbling blocks for real estate investors (new and experienced) is where to invest. What market will be the ideal location for the next investment property purchase? Read this post to learn exactly How to Choose a Great Real Estate Investment Market.

Think location doesn’t matter in real estate investing? Location impacts the rents you can get, the tenants you attract, and the problems you can encounter. It also impacts the appreciation of your property and the opportunities you may have in the future. Real Estate Investing Is Still About Location, Location, Location.

A couple of days ago my Twitter feed was alive with talk of several real estate related subjects that caught my attention: Confirmation of Canada’s Housing Bubble. It doesn’t matter where we are in the cycle, that headline pops up so do you really know what the Driving Factors Behind the Real Estate Market?

Oh glorious summer! It has arrived early or at least a taste of it has arrived early. I’m getting out to enjoy it as much as I can. But I’m still finding time to keep an eye out for properties that fit our model. In fact, I looked at one yesterday and we’re running the numbers to see if we want to make an offer. How do I know if I want to make an offer? Here is a  Simple Model for Buying Rental Properties.

We get the short end of the data stick in Canada when it comes to residential real estate information. I’ve spent many hours drooling over the information you can gather on Zillow, Trulia and other US real estate sites. But things are improving for Canadians and here’s a few new resources you might like to check out: Shopping for a New Construction Home? Market Research Just Got a Little Easier.

How To Analyze Your Real Estate Deal:

There’s a lot involved in evaluating properties for their cashflow potential and a simple rule of thumb only gives you a way to eliminate bad deals quickly, but here’s one little rule of thumb we use. Learn how to  Evaluate Properties in 60 Seconds or Less.

You need a lot more than a computer to analyze real estate deals. Read how: How to Analyze Real Estate Deals

If you think real estate is risky or you’re worried about certain risks and how those will impact your investment, then it’s time to understand just How to Analyze Risks in  Real Estate Deals.

 

What Every Real Estate Investor Should Know About Being More Interesting

Imagine sitting around shooting the breeze with your University Alumni hockey team after a game. Somehow a local jail is mentioned and your goalie says “Oh no boys – you don’t want to go to that jail. It’s pretty rough.”

Do you think that this guy had the attention of the room full of MBA guys? Heck yes he did.

My friend Mike, who was telling me about this guy, said “he really could be the poster boy for Dos Equis’ most interesting man in the world”.Interesting Real Estate Investor

That got me thinking, what makes someone interesting? More importantly, are YOU interesting?

Think about the last time you were telling someone a story. Did they check their watch or glance around the room, or did they lean in and listen more carefully?

I like to blame the listener when I am not getting the attention I think I deserve, but it’s not always Dave’s fault. 🙂

This is not to absolve my husband (or anyone else) of their responsibility to actually be present and participate fully in a conversation, but it does mean that the only person you can control is you. If you want more attention, you need to be more interesting.

If you want to have any influence and impact on others in your life and business, you need to pay attention to what makes you interesting to others.

Guess who gets to be the topic of many conversations (free promotion!) and who will be remembered after a networking event? Think about who will get the phone call about the great deal or who will be called when someone meets someone who wants to invest their money in real estate without doing the work?

The person who was interesting and therefore memorable gets the attention and opportunities.

So what works? Here are 5 ideas for being more interesting:

1 – Tell Great Stories

Dad in ItalyYou probably don’t want to go to jail to get people’s attention with your next story but, maybe you’ve done something else that was pretty unique. The story of me surprising my Dad with a trip to the Ferrari Museum to drive Ferrari’s around the Italian countryside is a story people remember and always listen to.

By virtue of being a real estate investor, you will have great stories that will interest people. How many times have you witnessed something crazy at a house you own or a house you were looking to buy? When was the last negotiation that had a surprise twist? When did your tenant do or say something totally shocking? These are stories, when told concisely and pointedly, that people will pay attention to.

Just remember, it’s about quality not quantity. Tell ONE good story and you’ll be remembered for a long time. Tell many mediocre stories and you’ll lose everyone’s attention.

 

2 – Being Different

Last weekend when I was playing poker at the Venetian, I sat at a table where there were 3 other women. With one other seat vacant, my arrival meant the table was now evenly split between men and women. I often am the only female at my table so I asked the dealer if he’d had very many tables that were half ladies. He laughed and said “only when it’s a women only tournament”.

I played with a total of 5 women in 15 hours. 3 of them were at that one table. I remember 100% of the women I played with and could describe each of them to you but I only remember about 20% of the men. The women stand out because they were different.

Being different than the norm has challenges but it can also be an enormous advantage because you immediately stand out. While there are a growing number of women real estate investors and women real estate investing experts, being female and an investor is still unique. If you are standing out and you are a confident expert it’s likely you’ll be easier to remember than the typical male investor.

My examples are all gender based so far but that’s far from the only way to stand out. You can also be different by branding yourself consistently. From the social media world, Mari Smith always wears Turquoise when she is networking and speaking. It’s been five years since I’ve seen her speak and I still think of her when I see that colour. In the real estate world, Erwin Szeto has built himself up as Mr. Hamilton by always wearing a Hamilton Tiger-cats jersey when he networks. Despite the fact I know many people who are real estate agents and investors in Hamilton, he is ALWAYS the first person I think about when it comes to Hamilton real estate because he made himself different through branding. What can YOU do to be unique and memorable?

3 – Focus on what’s interesting to others

How do you know what is interesting to others?

Ask them.

Don’t ask and tune out though. Watch to see if they light up and want to keep talking about it, or whether they shift around and kind of look bored. Keep asking questions until you find the thing that lights them up. If it’s something you know nothing about say “Wow – really. I know nothing about playing kick ball, how’d you get into that?”

Note that the typical question everyone asks, “what do you do?”, rarely creates any engagement unless you happen to have some connection there. However, “how did you meet your friend/your wife/your business partner?” can often be a great start. Or, “what did you do that was interesting on the weekend?” or even “what brought you here?” can be a good one depending on the context.

If you don’t have crazy fun stories and you aren’t standing out from the crowd easily, being interested in others and watching for signs of true engagement will make you very interesting to talk to. Plus, now you’ll know what stories of your own to share because you’ll know what they are interested in.

talking when someone is distracted4 – Wait for the right time to tell your story

It’s easy to get mad at someone for not listening to you but when did you try to talk with them? Were they in the middle of something? Was the hockey game on? Were the kids running around the house creating a lot of distractions when you began the conversation?

If you want people’s attention you need to tell your stories when there is a lull in the conversation or when there aren’t other things going on that will take away from what you’re saying. It’s not always a good time to speak if you want to have someone’s attention.

 

5 – Choose Concise and Clear Language

I actually think I am pretty good at focusing and yet I’ve been using the app anti-social to stop me from randomly clicking around to some of my go-to distraction websites (Twitter, Facebook, Huffington Post, Amazon and a few others). It scares me how many times the app has stopped me from mindlessly exiting from my task at hand to click around. Our ability to focus on any one thing for a long period of time is lower than ever before. We are training ourselves to be as distracted as my dog on a walk.

You have to know that you’re up against a very short attention span when you are trying to communicate any message at all.

Keep your messages short and to the point as much as possible. But, in keeping them short, make them easy for your listener to picture and be a part of.

Think about these short sentences that began movies: “As far back as I can remember, I always wanted to be a gangster.” ~ Goodfellas

“A long time ago, in a galaxy far, far away….” ~ Star Wars

““I was 12 going on 13 the first time I saw a dead human being.” ~ Stand By Me

““Mmm. I look good. I mean, really good. Hey, everyone! Come and see how good I look!” ~ Anchorman

These starting lines make you lean in and listen. You might be ready to laugh, you might feel nervous or a little concerned but you’re into it with only a few words. You are interested.

When someone starts looking at their watch or glancing around the room while you’re telling a story, it doesn’t mean your story is bad, it might mean you need to practice telling it so people want to listen. The best stories can be ruined with unnecessary detail. A great movie can be made boring by extending the fight scenes on too long or spending too much time in any one scenario.

Practice telling your stories so can maximize your impact with the fewest number of words. The best public speakers have this mastered. You should too for a few key stories so you always have something to share to get people’s attention and help them remember you.

With a little attention to what works and taking the time to practice, you can be interesting even if you’re putting your dog to sleep when you speak right now. Take note of what makes others engage with you and what has them looking for the exit. Start testing out new ways of delivering a message and pay more attention to what the other person wants to speak about. Before you know it, you’ll be remembered as the interesting real estate investor and people will be calling you to discuss a deal or an investment opportunity.

First Image Credit: ID 42478786 © Gstockstudio1

How to Determine the Rent Rate for Your Rental Property

money and a house

What the heck should you charge for your monthly rent?

Charge too much and you’ll struggle to find great tenants.

Charge too little and you’re leaving money on the table AND you’re probably going to have to sift through a ton of applications.

There’s a lot of work that has to go into figuring out what a fair rent rate is … and at the end of the day you won’t really know what you can charge until you start advertising it and evaluate the response (Want more on my process around renting out your property? Check out this article on troubleshooting a vacant property).

But, there is a lot of research you can do so that when you first post a rent rate, you’re in the ball park. Plus, figuring out rent rates for your area and what is happening with the rental market is always going to be a critical skill as an investor – not just when you’re renting out a property but also when you’re evaluating a property to buy! So, let’s spend a bit of time discussing this important piece of the puzzle.

Questions you want to try and answer when you are researching rental rate trends include:

• The specific rent rates for different bedroom sizes. What is the average two-bedroom unit renting for in my area, for example? What is the range being offered for 2 bedrooms? Can you identify why there’s a difference (whole house versus basement suite, apartment versus carriage home)?
• What is the average rental rate for the area and where is it trending? What was that rate last year? What about 6 months ago? Is it more, less or the same?
• What government controls exist on rents? Some areas have rent control, and that poses artificial controls on the market rents; so when you’re evaluating the numbers, you’ll want to know if that is the case.

Website resources to use (for Canadians):

• Rentometer (http://www.rentometer.com/)
• Craigslist (http://www.craigslist.org/)
• MapsKrieg (http://www.mapskrieg.com)
• Kijiji (http://www.kijiji.com/)
• Local newspapers
• Search for landlord/tenant legislation for your area to find out about rent controls.
• CMHC (http://www.cmhc-schl.gc.ca/).

A caveat about using CMHC: Please note that if you buy single family homes that CMHC is not the ideal source of information for you. They survey properties with at least 3 units. They ask for market rent, available and vacant units. They do this via phone and site visits. It’s always done in April and October so reflects that time of year as well as properties that are not the same as single family homes. Generally they will get more data on the larger buildings than any other property. This is why you’ll almost always find the rent rates they say apply to a 3 bedroom are much lower than what you can get for your properties. It’s useful for trend analysis but our rents are always higher than what they report. The one bedrooms are only a little higher but as the unit sizes increase the difference between what an apartmnet gets versus what we get for rent grows dramatically. For example, their 3 bedroom apartment was reporting a $1,011 a rent rate in their Spring 2014 report. The lowest we’re getting for a 3 bedroom suite is $1,300 and most are getting $1,400. If it’s an entire house we’re getting $1,550 or more.

Website resources to use (for Americans):

• Rent.com
• Craigslist (http://www.craigslist.org/ )
• Local newspapers
• Search for landlord/tenant legislation for your area to find out about rent controls – many states do have very strict landlord legislation to be aware of.
• http://www.letstalkpm.com/ – a great resource to find just about anything you need to know about rentals in the U.S.
• Bigger Pockets Forums (http://www.biggerpockets.com/).

Offline rent rate research:

Drive around your chosen area, and call the numbers on the FOR RENT signs that are not those of professional property managers (you know – the homemade ones or the signs bought at Staples). Get a sense of what’s available, what they are asking, and what amenities or features they emphasize (if any). We don’t need to call the professionally managed properties because a quick look on their website usually provides us with all the details we need.

Also, take a look at housing starts and how many of them are condos, apartments, or other properties that may impact the current rent stock and rental rates.

In 2009, we bought a couple of properties in Kelowna, BC. Prices were down and we saw a few opportunities to buy in fabulous areas with growth potential. The single-family home we purchased as a rent to own did fabulously and we sold it to the tenants a year later. The two-suited home near the lake, however, has been a struggle for us. While it’s in a stellar location and in good condition, the challenge has been the large number of condos that have been built in Kelowna. Because the condos didn’t sell, the builders rented them out, dramatically increasing the rental stock in the area. We’re only just now able to raise rent rates. We really underestimated the impact of the extra supply on the rent rates.

It’s economics 101 to know that when supply goes up without an increase in demand, it puts downward pressure on rents. Our rents dropped several hundred dollars a unit – killing our cash flow.

The good news is that rents pop up almost as fast as you feel them go down. And, in every market across Canada, we’re hearing reports of rents going up. We’re raising most of our rents by $50 – $100 per unit when the tenants vacate. But first, we always do some refresher research to see what else is on the market that we’ll be competing with today and in the near future.

If you have a favourite resource for researching rent rates in your area send me a Tweet by clicking right here! I will update this post with your Twitter ID and suggestion!

 

Rental Rate Resource Recommendations From Other Investors:

>> From Debbie in Alberta: Another website I’ve been using a lot is Padmapper.com. I’m not sure how it works in other areas of the country, but it’s been great in Calgary so far. In terms of time efficiency, I like it because it combines ads from Kijiji, Craigslist and a couple of others into one site. One note of caution though, it also lists B & B rates which skew the numbers a little. You just have to read each listing carefully to weed these out.

>> From Wade Graham in Alberta: Rentfaster.ca has amazing stats for Alberta. Helps me every time.

When Should You Sell Your Rental Property?

dreamstime image

Our tenants just gave us notice on a property we’ve owned for almost three years. The original plan was to turn it into a rent to own but we weren’t able to find a good tenant buyer for it, so we just rented it out.

Our investment partners were mostly interested in doing this deal for the cashflow that a rent to own can generate so they have expressed a desire to get their capital back (see things that can suck about doing rent to own deals). When the tenants gave notice, we pulled market comps and brought our realtor in to see what homes were selling for this year in that area.

The current market is not ideal for selling as things are just starting to improve, but we feel comfortable that there is enough value in the property for our investment partners to exit and get their money out plus hopefully a little bit of additional profit. We won’t make much money when we sell, but cashing in on a giant profit is only one of the many reasons you will sell a rental property. There are other situations where selling really is the best option, even when you thought you would hold the property for the rest of your life or you’re not maximizing profit to exit right now. An investment partner that wants out can be one situation where you’ll sell.

Selling a property is a huge subject. Are you selling it yourself or hiring a realtor? Do you stage the property or do you save money and sell as is? What is the right price to list at? Is the current market at the right phase in the cycle to list the property or is it really better to wait it out with whatever options you have to do that?

I’m not going to get into all the considerations around selling, but here are a few quick and lower cost ideas to help you prepare a rental property for getting maximum possible value in a reasonably quick time frame.

My biggest piece of advice is that it is usually better to have the property vacant.

I know you don’t want to be out a few months of mortgage payments so it’s really tempting to list your property while you have tenants living in it, but it’s much harder to set up times to have the home toured when you have to give a tenant ample notice. In many cases the tenants will refuse because it clashes with their schedule. Why should your tenants bend over backwards to help you sell your property? They don’t benefit from the sale. In fact, it is a big inconvenience for them and they might have to move.

As much as you might think people can see past dirt and junk, very few people can. It’s the biggest goldmine for you as a buyer … you (hopefully) can see what a clean up and a little updating can do to a place. Few other buyers can. Homes look best empty or staged. You will get a much better price for your property if you stage it, or at the very least, have it empty and clean.  Finally, you should prep your property for showings. To do that you want to have it clean, freshly painted, little things fixed like those closet doors that won’t close and that sink that always drips, and the curb appeal maximized. These are low cost things to do that can increase the appeal of the home by thousands of dollars. While it’s possible to do this while a tenant lives there, it’s more difficult. It’s also hard to ensure the tenant doesn’t just bang up the new paint job or mess up the freshly cleaned unit before anyone can see it.

Finally, many investors, like us, often do not want to inherit other people’s tenants so we’re going to ask for vacant possession if we can get it.

A little caveat on this advice: it only applies to homes with suites where your market of buyers is home owners and investors.  If you’re selling a trip-plex or any multi-unit property where your ONLY buyer is going to be an investor, I would not want it to be vacant unless it really needs a lot of work. Even if it needs work, I would probably try to do a lot of the work while tenanted or wait until the worst units are vacant, complete the work required on those units and then begin advertising while simultaneously seeking new tenants. The investor will be looking for the place to be tenanted so they have income coming in from day one.

There are a lot of reasons to sell a property. It’s not always going to be the right time in your market to get the maximum value for your property so if you do decide it’s time to sell then you must be ready to do what you need to do to make the property as appealing as possible.

5 Steps to Hire a Property Manager (And Questions You Should Ask!)

Julie black background

If you’re ready to hire a professional, here’s how we recommend you do it (and some questions to ask and what you can expect to pay)

I think it’s a great idea to manage your first investment property for a while, so you can get a solid understanding of what’s involved. You’ll know what makes a great property manager and have a better appreciation for how challenging the job can be. That said; managing your own properties may not be the right thing for you.

To find out if you could handle the pressures and challenges of property management, you’ll want to do a bit of a self-assessment. Are you a reasonably tolerant person? Do you have any knowledge and experience with doing minor maintenance and repairs? Or, do you at least know who to call for what issue? Can you visit the property on a regular basis? Are you capable of keeping good records? This is not usually an enjoyable part of the job, but it is absolutely necessary!

There is so much involved in managing properties … the best thing I can suggest to you is that you imagine the busiest possible day, and then imagine having to handle a call from one of your tenants about a frozen pipe or a broken door lock. Are you going to be able to handle that situation?

If you answer “no” or “I don’t know” to three or more of these questions, you should seriously consider hiring someone to help with your property management.

So if you know you need a hire a property manager, you’re probably wondering how you can find a good one to work with.

Most importantly, when you’re considering hiring a property manager, read the contract before you sign it! I’ve had a few too many coaching calls with people who actually have no idea what the property manager services they’ve signed on for actually include.

Other Articles You Might Like to Check Out:

>> Someone You Must Add to Your Real Estate Investing Power Team

>> Troubleshooting Your Vacant Rental – Why You Can’t Find Great Tenants

>> Renting Out Your House: How to Live For Cheaper

 

Why Can’t I Find Good Tenants? Troubleshooting Your Vacant Rental

Vacant room

Over the last thirteen years we have worked with many different property managers. Whenever we’ve had a property that was slow to fill the property manager would tell us “It’s just the market – it’s slow.

The property managers weren’t lying when they have said that to us. Vacancy rates were high and properties were taking quite awhile to fill on average. However, after investigation, a slow market was not really why our property was vacant. In one case, the property was run down and really needed some money spent to give it a good cleaning and updating. In another case, the ad was placed in the section for apartment units when it was the top half of a house. Fixing these issues resulted in finding good tenants fast.

But maybe you’re not sure what the issue is? Here’s how I troubleshoot my vacant rental properties to uncover the reason it’s not filling … whether we’re managing them or we work with a property manager.

1. Is the phone ringing with interested tenants?

We direct all interested tenants to CALL US to set up a viewing. I have three main reasons for this. The first is that I have wasted a ton of time in my life going back and forth over email answering questions from people who get an answer to a question only to have two more questions. Second, close to half of the people who set up appointments via email do not show up to their appointments. This wasn’t just one experiment where I tested this … I have periodically tested this over the last five years and this is consistently the case. Finally, not getting to speak with them on the phone means missing an important step in my tenant screening process.

If a tenant is interested enough to call about the property I find we’re well on our way to finding the right person for the property. And with this process firmly in place, I can now properly judge how many truly interested people are contacting us about the ad.

If the ad has been up for a week and I have had less than 5-10 calls (that’s my typical number but this number does depend on the target tenant type, price range, condition of the rental market and the time of year), I will go back to the ad.

Is Your Rental Ad Working For You?

How does the ad compare to the others on the market right now? Is the ad interesting and appealing? Do the pictures look great?

If everything is ok, the next thing to do is to change your ad headline and change the lead picture. The first picture people see when they are scrolling through ads can make or break your ad response so make it the best image of the exterior of the house, the kitchen or some other outstanding feature of the home.

Maybe It’s The Rent Rate?

If you think your ad is great then it’s time to reduce the rent. Typically we’ll drop it $50 to see if that gets the phone ringing. We’ll also look around to see what we’re currently competing with. Maybe there’s a bigger issue we need to pay attention to like lots of new product on the market or everyone else has a garage or some other feature we don’t have.

2. The Phone is Ringing … But People Aren’t Showing Up to the Showing

If you’re getting calls but people aren’t showing up—review your process. If you set up appointments by email or text message – stop. Only set up appointments via the phone (See above). Next, review other things you’re doing.

How long are you taking to return calls? If you take too long there’s a good chance they will be far along the process with another landlord by the time you set up your appointment. Your place becomes the back up property.

How much time passes from the time you talk and the time you show the property? We find that if people have to wait two or three days to see the property they often find another place to live before we can show it to them. Same day or next day showings are ideal if it’s possible.

When you’re on the phone with the person ask them to commit to coming to the showing and require them to take down your phone number. Have them confirm that they will call you if they can’t make it.

TIP: If a tenant doesn’t do what they say they are going to do at the beginning of the relationship—they never will. In other words if they don’t show up or they don’t call when they say they will—that is not going to change just because you have a lease. We give people one chance to redeem themselves but if they consistently don’t do what they say they will then they aren’t going to be a good tenant.

Our best tenants have always arrived for showings 5—15 minutes early. That doesn’t mean if they show up late we don’t rent to them but 99% of the time the indicators you get when you’re first speaking with someone and showing them the property show you what to expect throughout your relationship.

3. Tenants Are Viewing the Property But Not Applying

If you are showing the property but not getting applications—take a look at your unit and your rent rate again.

We’ve had to face the harsh reality a few times – sometimes a place doesn’t look as nice as you want to believe it does. Usually a good professional cleaning will do the trick to make a property show well but other times you just HAVE to do a little work to replace the stained carpet or paint the room that you tried to just touch up.

If you’re getting calls, the rent rate seems competitive, and people are showing up to see the property but nobody is interested take a hard look at the property. The other thing … and this is a big one for us now … if the unit is currently occupied and just doesn’t show that well you may have to wait until it’s vacant. It sucks to guarantee yourself missed rent but if it isn’t looking good, you are wasting your time showing it and you could be attracting the wrong kind of tenant showing a rougher looking property.

Finally, check your suite décor and features against other suites. Is yours outdated? Simple changes like upgrading the hardware on cupboards, changing light fixtures and paint can often update a unit cheaply and quickly and make it appealing.

Making sure the inside looks good is important, but curb appeal is critical. If there is junk in the yard or the yard is not maintained, this can make potential renters walk away before they even look inside. A lot of renters find their new homes by walking or driving around an area they want to live and looking for signs. If they see a run down exterior they probably aren’t going to be too anxious to check out what’s inside!

We’ve been through some really slow rental markets in the last 13 years. We’ve suffered from several vacant rental properties and these steps have always helped fill our properties within a few weeks of making adjustments. Sometimes it does mean putting in some time, effort or cash to make your property look better but it’s always worth it to get a great tenant in there paying rent again! If you have a place that has always attracted good tenants in the past or it’s in a great area, these simple steps will solve most of your rental challenges. In slow markets you do have to be a little more patient and you have to take special pains to make your property shine compared to the competition but again, it’s possible to keep your places rented most of the time.

We have plenty of videos and articles to help you manage your properties well. Here are a few others you might like to check out:

>> How to prep for your rental property showing

>> 5 Steps to Rent Out Your Property

>> Tenant Move Out Inspections – Things Tenants Never Remember to Clean Out

 

 

 

7 Ways to Be a Mediocre Real Estate Investor

Average check box

Do you like wasting time?

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

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

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

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

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

7 Things Real Estate Investors Do that Make them Mediocre

1. Squirrel Chasing

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

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

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

2. Buying Property Because It’s “Cheap”

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

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

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

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

3. Only Shopping for Deals Online

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

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

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

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

4. Focusing Only on the Numbers of a Deal

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

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

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

The numbers:

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

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

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

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

5. Choosing Team Members for the Wrong Reasons

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

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

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

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

6. Not Investing in Training & Coaching

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

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

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

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

7. Quitting When the Going Gets Tough

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

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

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

 

 

 

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