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Expert Advice

The promise of low cost properties down south continues to lure Canadian investors. But Madeline Ficaccio and Patrick Gregan from American Multifamily Alliance Group share their secrets to ‘right’ investing in the U.S.

Investors must be aware that just because a property seems “too good to be true” with respect to price, this does not mean that it is a good deal within that particular market. It’s important to deal with someone who has experience in the particular market you are buying.

Secondly, investors must know enough about what they are considering purchasing. Investors have to have the ability to do independent research without wholeheartedly trusting the appraisal or comparable provided.  Just because someone with a license places a value on a house, it doesn’t mean it’s worth that price

From our experience, one of the difficulties that we have found purchasing houses in the U.S. is that we are have to landlord from a distance. When purchasing only a house or two, there is not the cash flow to be able to fly out to check on your property every so often. Therefore, you have to place your trust in management and “hope” that they are taking good care of your property.  We all know, as real estate investors, that our biggest challenge is always management, so be sure of what management company you are using. Investors should still expect and include in your costs the need to fly out and be checking on your houses as well.

This is a large part of the reason why we started purchasing multifamily properties.  It afforded us the opportunity to self-manage (although we realize this is not everyone’s cup of tea) and to be able to fly often to keep a close eye on our properties and not leaving it up to anyone else. All 818 units are located within 10 minutes of each other and therefore, we know the areas inside and out and do not compromise by going into areas we are not familiar with. It is important to be an expert in your area and not be purchasing all types of properties in all different markets.

Investors that live in the East of Canada are investing in Florida and those who live in the West are investing in Arizona and Nevada, partially for retirement purposes and the fact that they can catch a direct flight to those markets.  However, we have targeted an amazing market in Dallas, Texas. The Texas market is very strong, has strong consistent population growth, has employment from many different sectors and is in our opinion, much less risky that most markets in the U.S.

The opportunities are that properties purchased in the right market can significantly cash flow compared to many Canadian markets because purchase price can be lower with little difference in rental rates. There is also much room for appreciation as markets increase and recover from the recession.

Foreign investors need to take the time to learn different markets and decide where is the best place to invest.  It is important to note that in large centers in the U.S., where one street is a nice neighborhood, three blocks over could be a very rough area.  Therefore, research is imperative or invest with someone that you trust who knows the market well and is looking out for your better interest.

Real estate investor Oliver Limcangco is finally living the dream after achieving financial freedom through his property portfolio. In a new regular posting, the 31-year old shares his insights into how he acquired 26 doors and manages it all while travelling abroad.

As I write this, I am staring at the bustling Shanghai downtown in plus 35 conditions, with an ice cold drink in my hand. I've been on the road for the past four months, and in a couple of days, I fly to Poland for a week and then train all the way to Prague.

With 26 suites and more on the way, people always ask me how I can travel the world and manage our portfolio at the same time when most people struggle in managing one.  I'm here to tell you how to do this whether you have one or 26.

In order to manage your portfolio properly, you need to know exactly what you are managing. I have a tracker that has the following information which I update monthly:
•    Property address (per suite)
•    All monthly expenses (mortgage, taxes, insurance, etc.)
•    All income (suites, garage, etc.)
•    Mortgage details (mortgage number, lender, payment frequency, expiry, etc.)
•    Tenant details (term, lease expiries)

It's great to have all the information but it won’t be any good if you forget any of it. Get an online calendar to keep up with the expiration of everything from leases to utility contracts. In addition, put a reminder one month before these expiries as well to give you enough time to deal with them.

If you have more than five units, you probably have a property manager, and for good reason. You need to make sure you are fully connected with your PM on all aspects of your portfolio. You need weekly status reports with your PM - make sure you carefully analyze all your statements every month and discuss any discrepancies / unexpected expenses. When your reminders for expiring leases come up, make sure you follow up weekly to check the status. Your PM has hundreds of doors to manage, it is your job to make sure your issues are solved first.

You also need to understand that if you are on top of your portfolio, you are probably in the top 10 per cent of investors who are proactive about it.  This means that you will be asking your team to work harder on your properties - don't cheap out on gifts, lunches, and affirmative praise to their bosses.  You may think it is small stuff but when it comes to people, a little pat on the back goes a long way.

Remember, the harsh truth is that no one will care about your portfolio the way you do, and it is your responsibility to make sure you know what is happening in all your suites at any given time. Set it up properly, track your issues and risks relentlessly, and follow up constantly.  It may seem like a lot of work (and it is!) but with this, I am able to travel the world, manage my properties, and buy more properties through my cellphone and laptop – and there’s no reason why you can’t do it either!

The student market can be a lucrative business but landlords need to do their homeowork when selecting tenants as Tim Collins from Student Rental Investing explains.

When renting to a ‘typical’ tenant, the normal checks that I undertook were references, job credentials and a credit check. I could then take all that information and make an educated decision on whether to rent out to that particular individual.  I'm also a big believer in trusting your gut so if your intuition is screaming something’s not right, well then it's probably worth listening to. 

When it comes to students, things can be a bit trickier. Credit checks are irrelevant as students often have not had time to build credit check. As such, it may be necessary to do a credit check on the guarantor. 

By having a fabulous advertisement with great pictures and offering utilities for a nice affordable monthly price, you're likely to attract more than just students. It's not good practise to mix students with non-students and so you need to be explicit that it's a student only house. Ideally, you will attract a group of students that already know each other, and they will all be sharing common areas and bathrooms so this makes things much easier.  

7 tips for selecting great student tenants:
1. Ask for proof that they are a student - acceptance letter or student card.
2. Ask for a guarantor to sign the application form establishing that they have some financial backing.
3. Ask for a deposit before holding a room, many show interest but change their mind.
4. Establish start date and term of lease that they are looking for.
5. Get job and personal references.
6. Get details of most recent addresses for last three years.
7. Set expectations - No parties will be tolerated at this house.

The number one complaint I hear about managers isn’t that they do a bad job. It’s that they seem to cost to much.

Clients seem to begrudge their managers when a property has great tenants and is ticking along with no major repairs. There’s no real expenses. $1,000 worth of rent comes in and the only deduction is the management fee. Usually I’m seeing 10 to 14 per cent for decent single-family property management.

Sure, it sucks when there’s no visible costs and you’re paying $100-140/month for the pleasure. But when the property goes vacant, think of how much time goes into getting the property re-rented.

1. Receive notice
2. Confirm vacating date

3. Schedule out inspection

4. Conduct out inspection
5. Arrange repairs/renovations
6. Supervise repairs/renovations
7. Bill/invoice for repairs/renovations
8. Arrange cleaning
9. Supervise cleaning
10. Bill/invoice for cleaning
11. Generate/mail statement and cheque for tenant’s deposit
12. Advertise rental (1-2 newspapers and 3-7 websites)
13. Screen calls
14. Arrange showings
15. Evaluate applications
16. Conduct credit checks and background checks
17. Do move in
18. Process damage deposit and first month’s rent
19. Generate and provide statement to owner

 Every time a tenant turns over, it’s a cost of about $2,000. That’s both the costs above and the lost rent while it’s vacant. In the $1,000/month rental scenario, that suite has to keep running for over a year to make back what they just spent in time and hard costs.

Compare that to your lawyer who makes $800-1000 for a week’s work (most of which is done by assistants), or your Realtor who makes $5,000-10,000 per deal.

Property management is a nickel and dime business. It’s a hard industry to make money in and harder to do an exceptional job. You should hire the best people possible, overpay them and cut them some slack.

Chris Davies is a Realtor and investor in Edmonton, Alberta. Check out www.yegapartments.com.

 

With an increasing number of ‘professional’ tenants only willing to take advantage of busy and trusting landlords, investors need to be extra vigilant. Kayla Adrade from Ontario Landlords Watch provides some helpful tips on how to secure the best tenant.

Landlords are always on the hunt to find the best tenant. To achieve that, they need to ensure their rental units are well maintained, clean and in a good location. Unfortunately, such properties also attract the professional (bad) tenants so landlords need to interview each with caution.

Landlords should not only require credit checks and personal references, they should also personally (or others) interview the tenant. Find out who they are , where they are from , what are their hobbies , who are their friends , what do they do for work and do they like it etc. These are simple friendly questions that can tell a landlord what that potential tenant is capable of.
Keep the unit empty for a few months until the right tenant comes along because it can cost landlords a lot more time and money if they make a rushed decision and accept the first person that comes to view the unit.

Follow these four steps :      

1. Phone interview (ask as many questions as possible
2. Interview them at the rental property  (ask more questions )
3. Have the potential tenant meet with your (partner or consultant)
4. Meet the potential tenant at their current property to sign the lease

Is your tenant not paying rent? Do not fall prey to the sad story, not everyone tells the truth. Give the N4 notice on the second of the month even though the tenant agrees to pay a week later. The landlord and tenant board eviction process is long, costly and tenant friendly which means the tenants already have a head start.

Kayla Andrade is from Ontario Landlords Watch. Call or text for further information at 226-972-0563

One of the biggest obstacles investors face is finding properties that cash flow.  The solution is not to buy cheap properties or put more money down.  There are better ways to create cash flow. Rich Danby from Rich Ottawa Investments Inc. outlines his five key strategies...

1.    Start with you…
Before you buy more properties review your existing portfolio.  There are likely many things you can do to save money and increase cash flow.
A.    Clean house… Tenants will pay more for cleanliness.
B.    Be aware of current market rents in the area and what other landlords are writing in their ads to attract tenants (padmapper.com).
C.    Review your bills to see if there are any spikes or patterns.  Compare against other properties in your portfolio.
D.    Visit the property at least twice a year and do a thorough walk around with notepad in hand.
E.    Maintenance today saves money tomorrow.  Cash flow will suffer in the short-term, but real estate investing is a marathon, not a sprint.
F.    Shop for better mortgage and insurance rates a few months before renewal.
G.    Talk to experienced investors for advice and referrals to help you build your team and learn from their experiences.

2.    Buy more units
Just like shopping at Bulk Barn buying properties with more units lowers the cost, compared to buying individually. Typically the more units you have the higher the potential for cash flow.  Having only one roof, one furnace and one property to manage significantly decreases your expenses and lowers your risk.  If you own a fourplex and one unit is vacant, you’re still collecting 75 per cent of the rent. If you’re not financially in a position to buy multiple units on your own you may want to consider finding an investment partner to help you fund the deal.

3.    Create more units
Another popular strategy to create cash flow is adding secondary suites in single- family homes. For example, if an entire house rents for $1,600/month and you’re able to divide it into two apartments renting for $1,200 (upper unit) + $1,000 (lower unit) you’re now cash flowing an extra $600/month.  I highly recommend working with the city to ensure you’re renovating the property legally.  All it takes to get shut down is one complaint from a neighbour. Also keep in mind that every city has different rules. Make sure to obtain a professional opinion on the subject property prior to waiving conditions to ensure you can legally add a secondary suite.  

4.    Pick a different city
Would you continue to eat at the same restaurant if the prices were always going up?  Some would if they really loved the food; while others would try the new place their friends have been raving about.  The grass isn’t always greener on the other side, but it could be depending on where you live.  If your monthly rental income isn’t enough to cover the expenses and you have to manage the property yourself, it may be time to consider a different city.  Most people invest where they live because it’s familiar and they want to be able to get there quickly if there’s an issue.  That’s totally understandable, but could be extremely limiting depending on market conditions in your area.  There are many real estate professionals that can help you manage an out-of-town investment.  In fact, with the right property you’ll have enough money to pay a property manager and still have cash flow left over for you.

5.    Change strategies

If you’re not willing to change cities maybe it’s time to change strategies?  A traditional rental may not be producing enough income to cash flow.  Student rentals is a great way to increase monthly cash flow because you can charge more per room, although it’s still recommended to have everybody on the same lease.   Adding Mom and Dad as guarantors is a great way to ensure the rent is paid every month, but expect a little extra wear and tear.  Rent-to-Own (RTO) is another fantastic strategy to increase cash flow and help others live in their dream home today.  It’s designed for people who are unable to secure a mortgage, but will be able to in the near future, typically one to three years.  RTO is similar to leasing a car.  You put down some money up front and have the “option” to buy the car in the future.  The tenant pays market rent, but the cash flow is higher because the tenant is also saving additional money for the future down payment.  That money goes directly to you to ensure the tenant will have enough money to buy the house at the end of the term.  Basically, you’re collecting some of the profits along the way in the form of an “option credit” in the event that the tenant decides to buy the property.

Many investors are unsure of the real numbers are they should be calculating.  To find out if your property is truly cash flowing send an email to This email address is being protected from spambots. You need JavaScript enabled to view it. for a free property analyzer.

Let’s face it. Buying your first investment property is often an exciting experience.

In between property inspections and speaking with real estate agents, it’s easy to get caught up in the moment and overlook the financial aspects of their purchase. Luckily, some financial consideration is a good way to temper the impulse when buying an investment property. After all, a financial misstep could set you back for years.

Consider the following tips before you sign the contract to buy an investment property:

1. While the real estate agent may recommend that you to put down the ‘standard’ deposit of 10% of the value of the property upon signing the contract, this is not absolutely necessary and you should try and negotiate a lower amount to free up your cash flow.

2. Even if you do not need it, always include a ‘subject to finance’ condition in your offer, which will allow you to secure finance that is most suitable to your needs and circumstances.

3. Do not sign the contract until you have made the decision on the ownership structure of the property, eg, you may want your discretionary trust to buy the property instead of owning the property in your own name.

4. Upon signing the contract, speak with your insurer and take out insurance on the property.

5. If you are selling a property and need the proceeds to buy another property, never commit yourself to a purchase contract until your sale contract has gone unconditional and the cooling off period, if applicable, has expired. Otherwise, you might find yourself painted into a corner if something goes wrong with the sale contract!

6. For commercial properties, make sure that you check the GST clauses and determine if the contract price is GST-inclusive or GST-exclusive. Ask your accountant to review the contract because the purchase may be GST-free under a specific exemption in some circumstances.

Finding a home or investment property with “value-adding” or renovating potential is a great way to increase your equity.  For each dollar you spend on renovating you should aim to increase the property value by a minimum of $1.50 to $2.00. The key thing to keep in mind is to not over-capitalise and it’s important to renovate to a standard that is suitable for the suburb.

Here are five sure-fire ways that you can rapidly increase the value of your property.  As with any renovation project, make sure you scope out the costs and benefits first before jumping headfirst into a project.  Your time spent planning up front will pay handsome dividends at the end.

Add a Bedroom

This is one of the best methods to increase rental yield and increase the property’s value.  Look for properties where a flexible floor plan enables you to move a couple of internal walls or enclose a large balcony area within the roofline of the house.  This way you can avoid having to submit a DA to council, reduce your costs and speed up the renovation process.  I recently added a bedroom to a 3 bedroom investment property we owned.  We enclosed part of the rear balcony area and created a 4th bedroom to the house.  This enabled us to increase the rent by $100 per week.  Our only challenge for this reno was to find bricks that closely matched the original 1960’s red brick (which we were able to achieve)!

Add a Granny Flat (mini-home)

Since the state government introduced more flexible rules for allowing granny flats to assist with providing lower cost housing, this has been an extremely popular and effective method to create a positive cashflow investment.  However, there a couple of key tricks to look out for when selecting a property that might suit the construction of a granny flat.
Although the minimum size block for a granny flat is just 450sqm, this size block does not allow sufficient space for outdoor areas for the existing house and the new granny flat.  You need a block size of around 600sqm to adequately fit a reasonable size flat and allow sufficient setbacks from side and rear boundaries. The maximum size granny flat is 60sqm and this allows a good sized two bedroom flat. Watch out for the position of sewer lines and drainage and ensure there is the ability for adequate parking.  Our team of specialist buyers’ agents has completed over 400 of this strategy for our clients whereby we have negotiated builders’ discounts.

Kitchen

The hub of the home is the kitchen.  This is where all the action happens every day, so it makes perfect sense to upgrade the kitchen to a modern day standard. Fresh clean cupboards and benchtops, new appliances, good storage and lighting are essential.  An island bench can add wow factor and glass or mosaic tile splashbacks can add style. However, be careful not to go overboard.  Don’t install a stone benchtop in suburbs where laminate will suffice.  You can source discount appliances online and there a loads of kitchen companies keen for your business.

Bathroom

Another important room in the house that creates an impression is the bathroom.  “Daggy” and “out-dated” bathrooms do not impress valuers or tenants so it is important to get this room to the right standard to maximise rent and value.  Renovate the bathroom with light and bright clean colours.  You are better off choosing light tiles that reflect light rather than heavy dark colours that make the room feel smaller.  Larger rectangular tiles laid horizontally make the room look larger. If the budget allows, full height tiling looks great.  A free-standing bath can create an amazing wow factor if there is enough space, along with semi frameless or frameless glass shower screens.

Subdivisions

One of the ultimate ways to increase equity is to find a property with subdivision potential.  You need to find a large block that can be split into two or more blocks. The local council will have a DCP (Development Control Plan) that specifies the minimum lot size for subdividable blocks.  Be sure you understand the entire subdivision process before embarking on a subdivision strategy.
While there are handsome profits to be made, there are plenty of traps for the unwary – these include dealing with issues like subsidence, stormwater run-off, easements, covenants, sewerage, water and electricity access. And don’t forget the council will holding out their hand for the section 94 contributions as you are creating an extra lot. Finding a profitable subdivision site is hard work which takes countless hours of searching, calling agents, talking to council and negotiating.  You will also need some expert help creating a team of consultants including town planners, surveyors and agents.

After the subdivision process you have several options to either sell and take your profit or retain the new lots (build) and revalue to extract equity.

Whatever your chosen strategy, I recommend you get independent and expert advice to help you along with each step.  Pick a strategy that works for your situation and helps you move toward your property goals. Ensure you have your finances in place and create a buffer in case of delays or over-runs.  

This article was written by Rich Harvey, founder and Managing Director of propertybuyer, Sydney & Australia’s most awarded Buyers Agents. Propertybuyer helps property investors and home buyers search and negotiate the right property at the right price, everytime.  For further details please visit www.propertybuyer.com.au or call +61 2 9975 3311 or 1300 655 615.

Making mistakes is part of just about everything – that’s how life works. No one ever said it’s going to be easy, or that you’ll glide through on waters that are as still as a mirror. Of course you’re expected to stumble, to make occasional lapses on your judgement, to fall on your face at least every now and then.

But when it’s about something as major purchasing a property, it would definitely put you in good stead to make a conscious effort to know what to avoid in the first place. That way you don’t waste time and, just as importantly, your hard-earned money in the process. So what are the financial property mistakes you can do without? Here are some of the most common.

Choosing the wrong mortgage

It’s no secret that with the plethora of home loans out in the market today, you have more than enough choices on your hand. That being said, the last thing you want is to end up saddled with a loan that’s not a good fit for you – even in a short amount of time. Do your homework and investigate all possible options, and then gradually filter out your choices as you go along. To make an educated decision, determine important factors like interest rates, both initial and future, and the probability of prepayment penalties.

Confusing “pre-approved” with a “pre-qualified” loan

They may very similar, almost the same, in fact, but they’re not. When you are pre-qualified for a loan, it means the lender is making an educated guess on how much you can borrow, based on the details you provided. Now, if you’re pre-approved, that means that the lender has already confirmed and verified the details you have provided, and is offering to lend you a certain amount at current interest rates – under a set of certain conditions, of course.

Whether you’re pre-approved or pre-qualified, it’s best to remember that the final clearance – your loan commitment – is still subject to an appraisal that’s satisfactory to your lender, a good title, and any last-minute credit checks and verifications that may arise. In order not to be left in the dark, make it a point to ask your prospect lenders to explain clearly about each term or step needed to make a successful loan.

Having too much credit

Anything in excess is bad, and the same goes for too much credit. Even if you have a good credit standing, lenders will still pay attention on just how much bills you have — even if you pay on time. The best course of action is to be mindful of your loans and avoid major purchases until after you bought your house.

Lying on your application

It won’t do you any good to exaggerate on your income when filling out your mortgage application, so best that you don’t. You should also be very careful that you don’t sign your name on a loan application that hasn’t been completely filled out. Loan officers tend to stretch the truth to get a loan approved, but remember that it’s your name on the line. The last thing you need to be at the receiving end of a loan you can’t afford to pay.

Hiding if you can’t make your payments

Whatever you do, do not ignore phone calls from your lender – yes, even if you’re lagging behind on your payments. Lenders actually have quite a lot of options to help you from losing your house to foreclosure, but they won’t be able to assist you unless, of course, they know the difficulties you’re going through.

Skipping a home inspection

Failure to go about a satisfactory home inspection can quite easily spell out a costly mistake. You can opt to hire independent home inspectors; they can aptly let you know if the basement or roof leaks, whether the mechanical systems are functioning, and how long the appliances are expected to last. They may not be able to report on everything, but their trained assessment will still be much better than yours. So consider that $300-400 an investment well spent.

Hiring just about any agent to sell your house

Real estate is a specialized field. That means you can’t hire just any random person and expect him to do wonders with the property you want to put on the market. To get favorable results, look for agents who specialize in your neighborhood, and those with excellent track record. If you’re not satisfied with your prospect agent’s plan on marketing your house, move on. You need to hire the best possible candidate to get the best possible result. And no, opting for relatives don’t count – unless they happen to be reputable agents.

Failing to properly check out a remodeler

Do not even consider hiring a contractor who knocks on your door, or one who claims that his discounted rates will only be valid in the next few days. First of all, notable contractors do not make it a habit to advertise their services on door-to-door basis. Nor do they slash their prices just because they happen to be in your district. Check the credentials and references of your prospect contractor to get a good idea of his professional credibility – or lack thereof.

Paying too much upfront

Be careful if you’re contractor asks for more than a third of the agreed contract price as a down payment; there’s a very good chance that something is wrong. He can be a scam artist with no intention whatsoever of returning once he cashes your check, or on a slightly less comforting scenario, he could be seriously underfunded and can’t afford to buy materials on his own.

Burning your mortgage

You may be tempted to hold a mortgage burning celebration after you’ve paid the last instalment on your loan. And it is quite tempting to do so. After all, the house is yours – finally. The sensible thing to do, however, is to make a copy and burn that instead – not the original. Make sure to keep your loan documents in a secure place, even after it has been fully paid.

 

Jarek Bucholc is founder of Canada Real Estate Investos Club.

You’ve got a house on your hands that isn’t quite a diamond in the rough. It’s got a modern-ish kitchen, some hardwood. In short, it’s nothing special. What can you do to attract long-term renters?

Jazzing up the exterior of the home will attract renters looking for a place to call home – before they even set foot inside the house. And many of the fixes outside the home won’t cost nearly as much as those inside. Here are a handful of easy renos that can enhance a property.

1.    Doors
Doors are one of the first things a person notices about a house. Changing the front door can change the entire look of the home. Add a door with more windows for a light and airy look, or try a steel door for better security. Plus, lots of doors are customizable, making it easy to set your property apart from other rentals on the block.

2.    Gates and Fences
Just as there are several different types of doors, there are a slew of different styled fences and gates that your clients can choose from. And like doors, these fences can be used to compliment the style of the home. A quaint property might benefit from a traditional picket fence, while a large stone house might be completed with a wrought iron gate.

3.    Front Yard
You don’t need us to tell you how important curb appeal is to a home. Simple landscaping can go a long way. Lay new sod, if necessary, or add colourful plants to a flowerbed. Ensure the front of the property is well-groomed: the lawn is mowed, the weeds are pulled, the plants are watered and the walkway or porch is clean. Potential renters should feel proud of the house they can call home.

4.    Back Yard
Canada’s wonderful summers make outdoor living spaces almost mandatory. There are several ways you can play up the house’s backyard space. Again, ensure the lawn and flower beds are well-groomed. If the property has a pool, clean it of any debris before showings. Show potential renters what their summers can be like if they’re lucky enough to live in this house.

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