"Opportunity is missed by most people because it is dressed in overalls and looks like work." - Thomas A. Edison

"Get off that couch and go buy that rundown duplex" - me

Wednesday, November 26, 2014

Ain't no housing bubble here...

As housing affordability increases, we are reminded that the real value of something is what people will pay for it...


November 2014: Housing affordability predominantly improved
across Canada in the third quarter of 2014
Despite generally increasing home prices, home ownership became more affordable
in most of Canada (albeit slightly so) in the third quarter of 2014.
Carrying the costs of ownership became a little lighter for the majority of
housing types thanks to small reductions in utility costs in many parts of the
country, low and steady interest rates, and broadly rising household income.
Even markets such as Toronto, where affordability eroded persistently in the
past four years, saw some relief. The same could not be said for Canada’s
other currently ‘hot’ markets, Vancouver and Calgary, however—although in
the case of Calgary, housing affordability remains quite attractive. At the national
level, RBC’s affordability measures eased in two of three housing categories:
decreasing by 0.2 percentage points to 47.8% for two storey homes and
0.3 percentage points to 27.1% for condominium apartments, and inching
higher by 0.1 percentage point to 42.6% for detached bungalows (a decrease
represents an improvement in affordability).

And another thing to keep in mind about rising house prices: the cost of a 2x4 ain't gettin' cheaper!

Monday, November 17, 2014

Careful of free advice, sometimes its worthless...

I just read a post on one of the leading real estate organization's forum. A poster was asking for feedback on his 5 year investment strategy. It was to buy cash-flowing income properties, with "gross income of about 10% and cap rate of 7%"

The responding posters indicated that this plan was flawed, as cash-flowing properties were impossible to find, save in "high risk, resource dependent small towns in (the north) or low growth US towns".

First of all, these numbers aren't that good, and I probably would pass up those kind of deals, unless I knew I could significantly raise the income (ie adding another unit).  

There are tons of great, cash flowing properties just about everywhere you look. And exactly what is "high risk"? Some of these "towns" are our best cash cows, and have been for years. They have also been for years before we bought the buildings as well. In some cases for over 100 years!

Sure, there are some one horse towns that are too far for commuting and have no local jobs, but for the most part, those are already ghost towns. As we recommend investing locally, you already know which towns are good and which are bad.

People need places to live, even in "towns"!

Tuesday, November 4, 2014

...but it beats working for a livin'!

Here's a great article by Robert McLeod, CEO of McLeod Project Marketing:

As someone who’s interested in investing in real-estate, you probably spend a lot of time thinking about all of the wonderful things that owning cash flowing real estate can do for you. 

Maybe you want it to provide you with some passive income that you can use to pay for vacations. 

Maybe you want it to supplement your retirement savings and CPP so that you can really enjoy those golden years. 

Or maybe you even want it to replace your income entirely so you can walk away from work and disappear to some island in the Caribbean. 

But here’s something you should spend more time thinking about: What you can do for it.

Why? Because, to be blunt, real estate investing isn’t as easy as it looks - not, at least, if you want to do it right. What do I mean by doing it right? I mean, if you’re the kind of person who isn’t just interested in buying a property here or a property there, but instead believes in its ability to change lives and build wealth. And it can - but there’s a quid pro quo there, and it’s one that a lot of newer investors haven’t grappled with yet. 

Real estate rarely is a set-it-and-forget-it proposition. It’s a labour of love - and trust me, if you’re not blessed with a paid-off mortgage, a trust fund or a spouse that works as a neurosurgeon, there’s a lot of labour involved.

When I started buying real estate more than a decade ago, I didn’t have any of those things going for me. In my first few years as a Realtor® I was making $45,000 to $50,000 - no more than anyone else, and probably a lot less. I was definitely making less than some other investors that were around back then. 

But it didn’t matter, I wasn’t used to more; I used the little bit of money that I’d been able to save, I bought cheaper units and I poured in a bunch of sweat equity to make up the balance. 

If I had to work nights to paint the unit, clean the grout or replace the light fixtures, well, so be it. And while I could easily pay someone to do that work today, it’s still something that I find myself doing now and then. 

It’s a habit. When it comes to investing in real estate, you have to be willing to sacrifice something in order to get where, and what, you want.

It’s not a habit that many people have, either. I run into a lot of people who say they’d like to invest in real estate but can’t scrape together the money for the down payment but still own two cars, travel to Cuba ever year and have the super-premium cable package. In other words, they want the benefits of investing in real estate without paying the costs. And let me tell you, there are always costs. 

For the first six years that I was buying investment real estate, I didn’t travel. I drove the same car. I moved once. I worked seven days a week. I blew through several relationships. Those are the sacrifices I made. I paid the price. Heck, I even got fired from the job that was, at that point, giving me the ability to do what I was doing. Oh, and work-life balance? Forget about it. If you have balance, either you’re not working hard enough or you’re not challenging yourself. People don’t grow in positions of balance. You grow when you’re at the extreme. 

And for those 10 years that I was building my portfolio, I was at the extreme - either making a bunch of money or barely able to pay my bills. But I was like an addict when it came to real estate - I always had to have more.

With prospective investors, few of them want to pay a price. But isn’t that what you have to do when you’re buying something of value - pay a price? I often hear people say that they want to buy something that’s “guaranteed.” Well, friend, that’s called a GIC. 

In real estate, there are no guarantees. As my grandfather told me, if you want a guarantee, buy a toaster. More importantly, nobody that is a sophisticated investor or who takes risks and is successful says, “I want a guarantee.” They understand the risk, and figure out whether it justifies the reward.

And here’s the thing: if you think that you can put in the time and make the sacrifices for a little while and then ride off into the sunset with your spoils, you are sadly mistaken. Well, I suppose it’s theoretically possible - but I’ve never seen it happen. 

I don’t know a single investor that’s able to shut it off and walk away. I know a lot that are successful and slow down, that go on extended holidays and that have more fun. But I’ll tell you this: while they’re on those holidays, while they’re away, while they’re golfing, the first thing they think about every morning and the last thing they think about before they go to bed is: will the tenant pay this month, or will my unit be okay? 

It’s what makes you money, and you take care of what makes you money. If you have good employees who make you money, you take care of them. If you have equipment that’s key to your business, you take care of it. And it’s the same with your real estate. 

People who say they want to be in a position where they can ignore it? Well, they just haven’t been there, and they’re kidding themselves. 

It’s always going to take work.

That’s the tough talk. 

Now, here’s the good news: if you’re willing to put in the time and make a few sacrifices, you can be a successful real estate investor. As hard as it can be, it’s also not nearly as complicated as some people make it out to be. And boy, do some of them make it seem complicated - before you know it, you’ve spent $20,000 on books, seminars and boot camps without having bought a single property. 

Just remember: some educators are in the business of selling books, seminars and boot camps - not educating you on creating wealth through real estate. 

Real estate isn’t as hard as some make it out to be - but it’s not as easy, either. 

Monday, November 3, 2014

Monkeys Running The Zoo...

The triplex looked good.  Decent location, solid building, new roof...but we offered 25% lower than the asking price, which was also very low to begin with. Why? Well, besides the deferred maintenance, fire code issues, smell, and layout (one of the shower stalls was in a bedroom closet!), the reason we needed a further discount was the tenants.
This place was obviously run by them. Don't let this happen to you! Not only will they give you a management headache, but when you sell, if you can at all, the buyers will want deep discounts.
You don't have to be a tyrant, but set rules and enforce them. They may not like you, but they will respect you. You probably didn't get into real estate investing to make new buddies!
Inherited tenants can be tricky. They are used to running the place, and you probably will have some issues. We find a businesslike, firm approach works well. Setting rules, and enforcing them may turn some of your inherited tenants into keepers!