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No Money Down Real Estate Deals

Manslaughter & a Crack House: No Money Down Real Estate Deals

No money down“, “100% Annual ROI”, and “Positive cashflow” are all catch phrases commonly used by real estate investment gurus. It’s hard not to get wrapped up in the hype. I certainly did. After participating in some investment seminars and reading several no money down books, I decided to go after my dream of quitting my job by age 35.

Find foreclosures in your area - Free TrialFrom what I learned, it seemed the only way to do this was to buy several positive cash flow properties with little or no money down. After some searching, I was able to find two of these “gems” in Las Vegas North; Niagara Falls, Ontario. I bought a total of nine units for about $5000 of my own cash.

I have now learned there is usually a reason that you can buy a property for no money down. It is because no one else wants it!

The first clue that these properties were not a real bargain should have been when the only one who would manage them was a shifty character I’ll call Bob. I became aware of Bob through the seller of the property.

To begin with there was an occasional fire code issue and frequent police presence on the property. And, of course, my tenants always paid in cash which made it easy for Bob to skim some extra for himself. These issues were small compared to what I would face though.

The real problems began when Bob killed a tenant in another property. In an altercation where the victim was harassing other tenants, Bob delivered what ultimately was a fatal punch to the head. The death of this person sent Bob into a drug induced pit of depression. He slowly turned one of my properties into a crack house, while letting everything run into the ground at the other.

All of the crack use and prostitution in the buildings attracted the attention of the fire department. Several substantial orders against each property were filed, and $25,000 later (including a $5000 court fine) I am finally in the clear with the violations.

No money down, doesn’t mean it won’t cost you!

Properties such as this can make you decent positive cashflow, but they are very stressful. You also need an outstanding hands-on property manager, and access to a lot of cash. Property issues often arise because of tenant abuse and property defects.

We both have very busy full time jobs and several other properties to oversee. Having a run down stressful building was not a good fit for our goals, even if there was sometimes positive cashflow.

We are no longer completely focused on cashflow, and let’s face it, 35 isn’t too far away. I am not going to be quitting work just yet.

We want the numbers to make sense, but that isn’t the only factor we consider in our purchases. We now look for properties in good or improving locations that have features that will make them easy to rent, easy to resell and that we can proudly say we own. These properties aren’t on every street, and it takes more money to buy them, but it is a property type we can handle.

Published:May 15, 2006

Real Estate Investing Goals

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

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

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

Your Five Year Plan – Goal Setting

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

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

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

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

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

Article Archives: Property Managers, Real Estate Agents, and Tenants

What to Bring to a Tenant Showing

Tenant Screening Checklist

How to Deal with Tenants: Taming Tenant Turmoil

Succeed as a landlord

Property Management isn’t for everyone

Tenants, Toilets and Other Rental Property Repairs

Dealing with Late Paying Tenants

8 Ways to Know if You Should Hire a Property Manager

Five Steps to Rent Out Your Property

Real Estate Agents: Whose Side Are They On?

Preventing High Tenant Turnover in New Construction Condos

Five Ways to Protect Yourself from a Bad Property Manager

Playing the Real Estate Insurance Game

We Were Robbed

Manslaughter and a Crack House

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