Edmonton Real Estate Investor: how to be a real estate investor

"The West Coast actor turned real estate guru says investors should concentrate more on what is happening in their backyard than what the mainstream media has to bemoan about the property market.

The RE/MAX agent says when he purchased his first property in Vancouver in 2000, the media then was also giving buyer pause for thought."

“Based on the media reports then, I was convinced I bought it for too much,” he says. “The same is happening now with all of the negative press with people unsure whether to buy or not.

“I do read all the news reports, but I concentrate more on what is happening in my own backyard and locality. You need to make your own decisions and not base decisions on general reports.”

I'm not supporting the source, just the comment... It's not a Canadian Real Estate market, it is a local market. We've said that for years.

You should rely on economic data, local data, your city's local politics and of course the property to tell you what is a good buy and what is not.

I'm from Vancouver and what the news (negative) is saying and what the market is telling me in certain target neighbourhoods is don't buy outside of my specific niche or don't buy at all.

There are good deals in bad markets and bad deals in good markets. Read More

We did a three part series for NuWire Investor - it's a really good read full of crucial information for new and even experienced investors.

When you start anything there are always moments when you say "Why didn't anyone tell me about that?" These articles cover THAT stuff (some of it anyways).

Take a look

Reach your real estate goals with filters that clarify your targets Jump

Devil is in the Details - The Numbers Go

Devil is in the Details - Finding the perfect tenant - Read

What Does The Future Hold For Canadian Real Estate in 2012–2016?

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I'm in the middle of this book now. It's a very good book to read before you start investing. For me it's a way to get motivated to buy more cash flow real estate.

Before you buy your first house you need to decide how real estate is going to help you become financially free. This book breaks it down to exactly what you need per door to make the income you dream about now.

If you aren't a big reader Peter also offers webinars. Click here to enjoy the latest!

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Gary Lamphier of the Edmonton sun recounts 10 Lessons to Learn from the Great Recession. It's focused reading and informative and he does a great job of summing them up.

I have 5 things I learned from the global recession of 2008:

1. Keep a cash reserve - you need a reserve that can be accessed whenever you need it. Hopefully it will be large. A line of credit is the obvious choice it should be set up long before you need it because we all know banks don't give out money to the needy. You have to prove you can pay it back.

2. Keep your costs as low as possible - Don't spend on anything superfluous. Unless it's improving property value or reducing tenant turnover - you don't need it. I think this way for my own home too! It's comfortable but I'm not getting into consumer debt without seriously thinking about it.

3. Expect to pay more than you are - We ride the variable and can handle the thrill. Mortgage rates went to historical lows but if I buy my properties expecting to pay 5, 6 or 7% they are able to survive any rate fluctuations and consistently produce cashflow. These low rates are not here to stay bank on them being higher and give your portfolio an excellent buffer. Do this with every expense you have related to your investment - build a buffer (see number 1)

4. Never over leverage - Leverage is what makes real estate an incredible investment but if you get too leveraged you're on thin ice. You can easily find investments that will produce well with 80% loan to value. Sure it's great to save some cash and get a 90% or 95% LTV but if rates go up and your mortgage payments are higher than your rental income you'll have some serious trouble with negative cashflow.

5. This too shall pass - You might get wiped out - it does happen but what are you going to do? Give up? Robert Kiyosaki said 9 out of 10 businesses fail. Be prepared to fail and try again. The knowledge you learn in a economic crisis is what makes you an expert. You'll know how to protect yourself in the future. Failure is the best education you can get.

Brian was one of my first international partners. He'd been based in Japan for four years working for a large software company from the U.S. We met on the 42nd floor of the Tokyo Park Hyatt , where the view was so stunning you'd think the city never ended, during a small international investment seminar where I was one of the guest speakers. The event was real estate specific and the primary content was targeted at international property purchases. I hadn't yet presented and was taking in the other speakers, many of whom were selling sunsets, seascapes and glitzy downtown London high rises.

Between delicate bites of bluefin tuna—which arrived fresh from Tsukiji market that morning—and sips of Shizuoka iced matcha, Brian asked me what I thought about the event. He commented that the Thailand land offer looked good and asked me my opinion on whether it was a "good deal" or not. I wasn't surprised by Brian's direct question. But what does shock me is how arbitrarily some folks can make their investment decisions.

I replied in a lighthearted way that spending my money on sunsets and sandy beaches is what I do when I'm on holiday, not when I plan and weigh out an investment option. Sunsets sizzle, and when we imagine the lifestyle associated with them, emotion takes hold and reason leaves the room.

Now, that's not to say there aren't great places to invest that are also visually appealing paradises; there are. However, they require the same kind of homework that I do on my property investments, target towns and provinces.

Read more - why sunsets don't equal big cheques

Wherever your real estate investment is located—provided you bought it at the right price and terms—there are many ways to keep your property profitable. If you analyze your real estate, update and improve your investment team, review your long- and short-term investment plans and stay focused on the end result; your real estate portfolio will be a rock solid fortress that can weather any storm.

Analyze

The first and most important thing is to carefully analyze your portfolio.

What properties are doing well?
Are there properties that are slowly leaking dollars like a dripping tap?
If so how can you fix them?

If you don’t know the hard numbers on your properties, then you are risking everything that you have worked for. Keep your budgets in line and carefully evaluate every purchase and renovation. Once you have a better idea of where you stand, you can start to recession-proof your properties. First, your customers are your tenants, so learn how to keep them happy and decrease vacancies. For example:

Provide Internet or free cable
Give lease incentives or rewards for rents paid on time, or even the best garden.

Increase your revenue by adding rental units to your properties or other moneymaking add-ons like renting garages separately, extra parking spaces or coin-op laundry facilities. You can also refinance your mortgages with longer amortizations, increase rents where reasonable or rent your properties furnished.

Evolve and involve your team

Is your property management up to par?
Are you getting discount rates for a big portfolio?
If you have few properties are they being managed in a way that will help you grow your portfolio?
Are their rates competitive and are they keeping your property in excellent resale condition?

Streamline your team. I don’t mean fire everybody and do it all yourself, but rather make your team out of the best players available in your area. Once you have the all-star team, get their input and advice, use their knowledge and experience to protect and improve your assets and your position in the market. Accountants can help you lower your taxes, lawyers can protect your assets, bookkeepers keep you aware of money liquidity and property management can up the cash output of your investment property.

Be aware

Be aware of longer-term trends and statistics. Don’t get caught up in the moment—especially when making decisions. There are both positive and the negative things that are happening in headlines. Take both sides into account and be realistic as you evaluate what’s really going on. Review your business plan both short-term and the long-term and adjust it as necessary. Don’t knee-jerk react, but also don’t drift back and forth without any solid goal in site. Have multiple investment strategies all with a clear exit in place.

This is not the first economic downturn the world has seen nor will it be the last. What is important is to mind your business and your properties to make them profitable no matter what comes your way.

In a recession it's easy to see that buying for cash flow is the only way to go. In a hot market everyone banks on equity. Which can be a very tenuous thing.

The most important thing is how much cash flow you are getting at different rates. We are seeing the lowest interest rates in history but when they rise how will your investment perform. Will it still cash flow at 6% interest? How about when vacancy rates increase and you get a drop in rents?

This is called stress testing your property. Although many people see cash flow at one point only - today's rates and today's rents the income will fluctuate leading to some unfortunate surprises.

What to do:

1. Do your property's income and expense numbers at a range of rates and of rents
2. Know the scenario your property will and won't cash flow
3. Have a good reserve fund to cover the skinny times.

You don't retire or get rich by owning property that takes money out of your pocket every month.

Cashflow. Cashflow. Cashflow. What happens when it stops? As Rich Dad Kiyosaki says the minute an asset starts taking money out of your pockets it's no longer an asset. It's an alligator that will eat you.

Not literally. But cash draining out of your pockets, bank accounts and piggy banks every month is every investor's nightmare. Chris Davies' - Two Ways to Stop Bleeding Cash helps you determine how serious the bleeding is and possible ways to staunch it. It's excellent advice.

One thing I've learned and forgot and then learned again is to buy positive cash flow properties. The constant flow of income is crucial to the health of your investment's bankbook and can be used to purchase more assets in the future or improve the assets you have.

If you have negative cash flow on an otherwise good property MAKE SURE your cash reserves are big. You'd be surprised how one big repair or a few months vacancy can eat through your cash reserves.

This is SECOND to trying to make the property cashflow by:

1. Extending amortization - this will lower you monthly mortgage payments
2. Increasing rents
3. Adding value - i.e. rent out the garage or put coin laundry in
4. Convert a garage to rental space - extreme, lots of permits

Whatever tactic you use make sure the cash starts flowing back in and not out of your investment.