One of the questions that we get most often around the Rev N You office is “How do I find a great real estate investing deals?”
Often the question is followed by a lengthy explanation including comments like:
>> I’ve searched on MLS for hours and there is never anything that cash flows,
>> All the homes I’ve looked at seem to be overpriced,
>> I’ve been focusing on For Sale By Owner deals but everyone seems to think their house is made of gold,
>> I live in Toronto (or Vancouver) and there’s nothing here that I can afford.
My answer to every single person is usually the same … you aren’t going to find a great deal no matter where you are. You are going to have to create a deal. The first step to creating a great deal is to become a market area expert. You have to get off your computer and hit the streets to check things out, meet people, look at houses and find out what’s happening. That is the only way to truly become an expert.
Once you’ve got that part figured out (and yes, it takes work and it absolutely requires you to get out and put some miles on your car and your sneakers – there’s no getting around that if you’re serious about getting good deals done), the next step is to start looking for opportunities.
That’s what I’m talking about in today’s video – finding great real estate investing deals in any market:
Great real estate deals aren’t found – they are created. The key to finding great real estate investing deals, as discussed in the video, is to figure out what kind of solution you can offer that gets you a great deal and solves a problem for the seller.
Hopefully you caught the MASSIVE tip about how we saved $10,000 on a deal and all it cost us was about 30 minutes of our time.
By the way – isn’t the artwork behind me cool? It’s mostly done on a sewing machine with thread!! Janet Cameron on Salt Spring Island is the artist of all the pieces I’m standing in front of … very creative stuff.
Here’s the really good news… when you know the signs to look for you’ll find that picking a good location for real estate investing is fairly simple. It takes a bit of leg work to research the locations and find one that meets all of the criteria on the checklist, but when you do, you will also find an enormous opportunity for wealth creation!
In an interview for Canadian Real Estate Magazine, real estate developer, investor and co-owner of Boston Pizza Jim Treliving said of real estate investing “The most important thing is to do your homework…You have to read a lot, find out about the areas you want to go into, where the emerging markets are. It’s often not the biggest ones necessarily; it’s a matter of where you see growth, go and find out, go into the markets yourself.”
The goal of the checklist is to have a barometer to use when locating a good area to invest in. Essentially you are trying to find out if the market is staying the same or is about to make a turn for the better or the worse.
The main elements in our checklist are:
Healthy Housing Economy
For some of the above items you want to see trends and where they are heading over a longer period of time for an overall market – like population growth for example. But, you will also want to find out what factors may impact that trend. In Vancouver, we are looking forward to the 2010 Winter Olympics. This has had a significant positive impact on employment opportunities and has likely contributed to a growth in the population in the last 24 months, but if you only looked at the employment or population trends you wouldn’t know that this trend could reverse or slow significantly after 2010. So, you need to take a look at the trend and then figure out why it is the way it is and what is likely to happen in the future.
Starting with an area you already know reduces your learning curve when you are starting out. Often this is not where we are currently living, but it’s somewhere we have lived or somewhere we visit on a regular basis. We do this to make it easier on ourselves. If we buy somewhere we don’t know anything about, it means we have way more research to do, and we have to start from scratch in building a network for that area. Then, we have to make an extra effort to stay on top of that market once we own a property in it. It’s possible, but it’s more work!
In my view, it is always better to buy locally, because you can do your due diligence easily and deal with a local realtor. If you live in Toronto and want to buy in Phoenix, however, get in touch with a Phoenix realtor, particularly if someone in Canada is trying to sell you a packaged deal. The local realtor has the property perspective.
He also says, of buying from a distance:
Go there, look at it, kick the tires. Once you get there, you might find an entirely different property that will be a much better investment. Also, you have to bear in mind that if you’re investing outside your area, the people who are presenting you with properties are going to show you only what they have in their wagon. They’re not going to go out of their way for a stranger unless they’re assured a piece of the deal.
As you research all of the elements on the checklist, think about prospective tenants. Where will they work? How will they get to work? Where else would they live, if not in the area you are looking at? And, of course, think about an exit strategy. Julie wrote an article for the popular online e-zine Early to Rise called The Biggest House Buying Tip Ever about buying any property with the end in mind. It doesn’t matter if you plan to live in the property or rent it out … before you buy, envision yourself selling it.
You are making an investment only if there is a reasonable probability that you will make money on it while you own it and that you will be able to make money when you sell. Good location research BEFORE you buy the property will increase the likelihood of making A LOT of money from the property!
In our most recent purchase, which is to be our new home in Burnaby, I told Dave I wanted a home in an area with a Starbucks factor. I don’t go to Starbucks everyday. In fact, I don’t even drink regular coffee. But, I do walk our dog everyday and I like to have places to walk to.
I have watched Starbucks pop up all over Calgary and Toronto, and they always choose the areas I would live in. It seems they pick the emerging or emerged trendy spots. Typically it’s a street with plenty of foot traffic, good shops and nice restaurants. All things I look for in a neighbourhood right now. (Recently, the Globe and Mail read my thoughts, and featured the Starbucks factor and how a new Starbucks impacts house prices in an area).
A Starbucks area may not be what you are looking for in an investment property, but think about who your most likely or most desired renter is and think about what they would want in an area. If you are renting to young professionals like Dave and I, you may want to find the Starbucks area. If you are renting to families, look for close proximity to schools and grocery stores. If you are renting to students, being close to public transportation, entertainment and university/college would be beneficial. More on these considerations next month when we talk about evaluating your potential purchase.
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.
Ozzie Jurock tells his readers to Forget about Location, Location, Location that it’s actually about value, value, value. Other experts have said to buy the worst house on a block regardless of where that block is located. We think it’s best to combine the search for value with the search for a location that will help you achieve your goals.
It’s still about location, location, location! Finding the location that is right for you and your goals
I would rather own a well built home that requires little to no work in a slightly rougher area, then the worst built home in a good neighbourhood. That doesn’t mean location isn’t important, it just means location isn’t everything in a purchase.
Last month we went over why knowing your real estate investing goals is a key step before choosing and locating your property type, and this month those same goals will come into play as you consider location for your investment.
If your goal is to “flip” a property (buy it cheap, renovate it, and resell) then you really do want to find that beat up house in a great neighbourhood. If your goal is to have a lower maintenance property that will attract good tenants, appreciate over the years, and you aren’t as worried about the amount you have to invest today, then you are looking for a great location and a good house. If you want good cashflow without putting much money down, you are likely going to have to look in the lower demand areas to find the motivated sellers.
You see how goals are important in your choice of location? Your personality and risk tolerance also come into play. If you need to see your real estate investment on a regular basis then you will want to look in your neighbourhood. If you prefer not to be involved at all, then you may want something further away from you.
If you aren’t sure where to look to find the properties that meet your goals, it’s time to begin your research. If there is one thing I know, it is researching real estate. Another day we can talk about my addiction to the Multiple Listing Service (Realtor.com and Realtor.ca), but for nowhere is how I find properties to buy:
Go to open houses (usually 2 – 4pm on Saturday and/or Sunday)
Look at local listings in your newspaper and at MLS or CLS (for more than four units)
Drive by your desired areas regularily, or better, go for walks along the streets you want to buy on
Speak to neighbours (walk by on a sunny day and people will be in their yards) or ask questions of the agents at the open houses.
Once you determine what properties are selling for and if they are within your price range and goal objectives, your next task is to figure out rents. To do this I usually:
Browse online classifieds offered by newspapers across the country
Review Viewit.ca on a regular basis as they take photos of each listing as part of their service
Read CMHC published information
Speak to the real estate agents at open houses and ask them what they think their listing would get in rent, and ask about other properties in the area.
Quickly you will identify areas where you can buy something and rent it out at prices that meet your goals. And, if you have done your research well, you will be able to act quickly and confidently on opportunities when they do arise. You also may be able to grab them before they get on the market, like we did in our most recent purchase in Vancouver. We have to save some stories though, so I will tell you more about that another month.
Now, you have found your location, and maybe you have even been lucky enough to find a property that meets your goals. Are you sure it is the right one?