Seeing ROI

by Shane Buckingham17 Aug 2011

Every real estate investor has a different reason for buying that first income property. For Kevin Engel it was tragedy. Engel, a successful optometrist who owns a practice with his wife, Angela Power, in Lacombe, Alta., was heartbroken when he found out his father, Ken, had cancer.


As devastating as this news was, Engel was even more troubled after learning his father did not have enough savings to take care of himself and his mother, Marg. That meant Ken had to keep working to pay the bills. "Seeing what my parents had to go through made me think that I never wanted to be in that position. I love my job and I continue to practise optometry, but I wanted financial security for my family. So I started looking into real estate investing."

Getting started

In June 2010, Engel attended a Real Estate Investment Network (REIN) meeting where he met CRE contributor and mortgage broker Peter Kinch. "Initially, I was looking at all sorts of real estate, but I wasn't really sure what I was going to be investing in. But after talking to Peter Kinch at that meeting, I was able to narrow my focus." Kinch advised Engel that he would need at least four fourplexes fully paid off to produce enough income to take care of his family in the event that he was not able to continue working.

With about $400,000 in equity already built up in his recreational property in Alix, Alta., and some professional guidance, Engel felt confident he was making the right decision for himself and his family when he bought his first property in September 2010.

Recreational line of credit

To get started, though, Engel didn't buy a fourplex. Instead, he bought a detached property that summer in Alix by taking $50,000 in equity out of his lakefront vacation home. Although the asking price for this house was $265,000, Engel purchased it at a substantial discount, paying just $195,000. Engel says he chose to begin investing in Alix not just because his vacation home was there, but also because the community is only about 25 kilometres away from a major chemical plant, one of the biggest employers in the area.

He knew the facility would attract many workers, and because of Alix's distance from Red Deer, they would be renters rather than buyers. His plans thus far have been a success. He hasn't had a vacancy in the property yet, and receives $1,200 a month in rent and $150 for the utilities. But he did run into a major problem with this house: he lives 40 minutes away in Lacombe. Not to mention, Alix is so small (about 1,000 people) that it's difficult to find a property manager. (See "Lessons Learned in Property Management.) Going forward, he decided he would need to invest in a much larger market with plenty of renters, as well as reliable, professional property management.

Sighting Red Deer

Engel first looked to purchase a fourplex in Lacombe, but after running into the same problem again - not being able to find good property management - he moved on to Red Deer. It wasn't long until Engel found a fourplex in the Riverside Meadows neighbourhood of this medium-sized Albertan city. Since the property was in foreclosure, Engel again secured a substantial deal, buying it in December 2010 for $450,000 - $200,000 less than the listing price. Still, Engel admits he was a little nervous about closing the deal.

"It was my first fourplex, so it was a little bit nerve-racking. I've never signed that big of a deal before," he says. "It was in foreclosure for about a year, so there was no cash flow when I bought the property." Engel soon went to work, preparing the property for prospective renters. He had new carpets laid, the walls painted, new cabinets installed and a few other minor repairs done within a month. Still, it took some time to find renters, since it was the middle of winter. But by getting a little creative, Engel was able to rent out his first unit in February, and by March, he had the whole property filled.

Idea of utility

Based on his experience in Alix, Engel knew it would be hard to organize a system so that each tenant could put their unit's utilities in their name. First off, tenants would need to make a $300 deposit to start a new account with the city's utility provider. Knowing that this expense could deter potential tenants, Engel decided to modify his strategy to give himself a competitive edge in the Red Deer market. In general, landlords in Alberta require their tenants to put the utilities in their name. So Engel, by contrast, chose to keep them in his name, while still charging each tenant a flat rate of $150 a year for the utilities. "The fact that they didn't have to put in that deposit is a big selling feature. At the time, there weren't any landlords that were doing that. So once I advertised my utilities program it was just amazing how fast the vacancies were gone."

Staying in Red Deer

Now with two more fourplexes in Red Deer, bringing his portfolio to a total of four properties (13 units), Engel is looking to add even a few more. "My goal was to buy four fourplexes in 18 months, and I bought three in the matter of four months. So I've been doing well as far as that plan goes, but I want to purchase one more in the next year, and two more over the next five years." Still, he says that real estate investing is never going to be a full-time job for him because he loves optometry and his family too much.

He works at his practice three days a week (Monday, Wednesday and Friday) while his wife, Angela, works the other two weekdays, so that at least one of them can be around to care for their children, Josh, 13, Caitlyn, 10 and Meagan, 8. Engel says he doesn't want real estate investing to become too demanding and take away from his family time, since that would defeat the purpose of why he started in the first place. "Right now real estate investing doesn't take time away any time from my family. And it shouldn't because the reason I'm investing in real estate is for my family."


Don't forget to pick up a copy of our September issue, on newsstands now.

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