Archives for 2020

There are many small towns in Canada that investors generally ignore because they are “not in my backyard” and having a property in other markets tends to be scary. While there are certain risks to consider in any market other than the one you live in, it is wise to consider the market where you will get the best returns in real estate.

We do recommend that investors get educated and learn the rules of the game from an expert in their local area to develop the skills of analysis, property management, renovations, financing, and structuring before venturing afar.  Learning the lessons will be more difficult in an auxiliary market, and each market has its own economic drivers, cycles, and factors to consider. One of the factors to consider is the CAP rate – which is a measure of the real estate property cash flow performance.

For example, a 1,000,000 building in Calgary that has an NOI (net operating income) of 60,000 after all costs would be calculated as follows: 60,000/1,000,000 = 6% CAP rate.  The guideline for  US properties is a minimum of 7% cap rate, here in Canada it would be more reasonable to expect 6% cap rates for fully optimized buildings.  Property in large “sexy” markets typically perform much below this mark, for example in Calgary at the time of this writing buildings trade around 4-4.5% cap rates for larger buildings and Edmonton Multi-Family rates at around 5%-5.5% cap rates. Industrial/commercial office is a sector that can have higher cap rates, however, these properties in Calgary and abroad have a much higher price tag!

Smaller centers such as those 1-2 hours from a major center will have lower taxes, cheaper land prices, lowering the total cost of the building allowing for an average of a higher CAP or cash flow performance.  These properties will require a solid management strategy or a great property management company – which are hard to find in my experience, I would recommend partnering with a local investor in the area you are interested in or get their recommendation on who the best service provider is in that marketplace.

Because of these factors, the cap rate will be higher and the rent typically a bit lower – however with good optimization the building costs can be lower giving you significant cash flow, also CMHC financing can be used to structure the financing for longer amortization and lower interest rates – you have to pay a premium and work with CMHC experts, but the extra legwork is worth it.  There are many small towns in Ontario within a few hours of major centers like Ottawa, Toronto, Thunder Bay, Windsor where you can get multi-family for significantly cheaper than markets like Alberta/BC – these areas have good jobs growth/industry driving demand for rental units.

Consider looking outside of your backyard for deals, the pioneers looking for gold had to trek across this continent looking for the hills to dig under to excavate those gold bars – you might have to as well to find the great real estate deals.

Respect the hustle

Tim Reid

Can you buy real estate No Money Down? Most Realtors will tell you no – typically 95% of realtors will tell you that.  Not their fault, they just aren’t taught that in realtor school – also most lawyers are never taught the creative strategies in real estate either.  Most sellers want top dollar for their house and they want to cash out their equity, and who can blame them?!

However, there are sellers that are in a bind and are MOTIVATED to sell their properties.  Motivation comes in many forms: death, divorce, taxes, job loss, downsizing, vacancies, partner troubles, moving due to job transfer, bad management, and many others.

When a seller is motivated you can educate them, and show them that if they have little equity in the property after all the selling costs (realtors, lawyers, holding costs) they will be at risk of having to pay out of pocket to get out of the property! For Example:

House in Calgary is worth 450K, they currently owe 430K – after holding the property for 3 months and paying all the holding costs they would be left with 10K if the property sold for list price – ouch! Not very great for the owner.  They are also in a position where they can no longer afford the payments, the investor could show the owner that they could pay them 5000.00 upfront and not take the risk on the market and they could be rid of the property right away for 430 (what is owed on the mortgage by way of assuming with qualification) pocket the 5K and be done with the headache. Investor “buys” 20K in equity for 5K which is like buying a 20$ bill for 5$ pretty good ROI.

You could even sweeten the deal (depending on your exit strategy) by giving them a 15K prom note for 6-8% for a 5-year term and 0 cash down which is almost giving them all the equity in the property and creating a great win-win for both parties.  Solve a problem crate a profit the tenant of all entrepreneurs!

Respect the hustle,

Tim Reid

With the current state of the world with the COVID-19 pandemic rocking the world, the equities market has taken some wild swings in the last few weeks. That said if you are a day-trader that could have made you a boatload of money! For most investors, however, that is passively invested in mutual funds in their RRSP, TFSA, 401K accounts…that market drop could have erased a lot of your returns that have been built up over the last decade or more.

I strongly believe there are 3 pillars of wealth:

1. Stocks
2. Business Investments
3. Real Estate

Naturally, one would think I tend toward real estate and have a bias for that, and you would be correct! The reason for that is that I understand real estate the best – and warren buffet teaches us that you should pick things you understand to invest in.  While real estate is IMO the most reliable way to generate wealth is also the slowest and takes a lot of management to do properly (which is why most people don’t do it).

Stocks are a great investment over time if managed, unfortunately, a lot of RRSP investors do not manage their portfolios – and now they could be staring down the barrel of a retirement that is no longer certain.  I was recently on a webinar with Kevin Harrington and he has some great advice for those worried about their retirement: “if you have got your investments wiped out in the market and you are close to retirement, start a business. You can’t earn that money back you will run out of time”  Brilliant advice, I think everyone should have category 2 investments.

Even if you are not the business type, you can partner with someone who is experienced in business and gain all the advantages of starting one yourself. Something to consider for sure, also this could be a time to look at your portfolio and re-balance for the longer-term into real assets such as real estate or others like precious metals.

To your success,

Tim Reid

Respect The Hustle

One of the common challenges we see when investors are getting started is they do not know how to price their properties so they will sell quickly – after all that is why they call it a FLIP to make a short term sale and then roll those profits on to the next deal.

1. You need to research the market to find out what the “Fence Posts” are for the community your property is in.  There are a lowest-priced comparable sale and a highest priced recent comparable sale for all neighborhoods, find out what these numbers are so you can price competitively.

2. Make sure your ARV (after repaired value) is between the median price and the top end price for your area (the higher priced fence post) this way your property will be positioned competitively for the area, and ideally, you will have a nicer product than all the other houses for sale at that time for a lot less than your competitors.

3. Realize that someone in your target area could have a house that they own free and clear with 0$ mortgage owing on it, and they can sell the property for drastically less than the market value which could in turn make your newly renovated property look VERY expensive by comparison.  Most realtors search for properties in a certain price range for their clients and due to this fact your property may look out of place for the area compared to that owner that sold for cheap just to cash out of their house. Be prepared to hold your property for a couple of extra months or sell for a lower price when this happens.

4. ALWAYS have a healthy contingency in your budget – this includes for a few areas: holding costs, renovation budget, price discounts.  There are a number of things that could go beyond your initial estimates even if you keep your costs under control – the market could shift, someone could sell too cheap as mentioned above, or you might have to drop your price if you aren’t getting any offers.  We suggest a 15% contingency in your budget to be prepared to adapt to all of these areas.

5. VERIFY your targeted renovations are actually going to raise the value of the property by the amount you think it will.  This will take some detailed research by you or your real estate team, for example adding a new hot water tank and furnace will not add much value to the home (owners expect a house to have heat and water!). Windows are a very attractive feature to upgrade, however, it’s very expensive and the value lift will generally not cover the price you pay.  Make sure you look at the comparable homes for your ARV and look at what they changed compared to the old listing for your area, this will give you a much more accurate number based on WHAT actually raised the value of the home in the area your working in – buyers can value different things in different areas so keep a close eye on making apples-apples comparisons.

The flipping game is a profitable one if you keep your numbers accurate and your project is managed successfully.

To your success,

Tim Reid

Respect The Hustle

In business, the old adage states that “the customer is always right” I disagree in fact the customer is often wrong, both are service-related scenarios and wrong for your business. Customer service is key, however, if someone is being unreasonable ….they are just that unreasonable.  When a customer complains it is actually a valuable opportunity to evaluate your systems, create goodwill by solving it, or determine that a particular customer is not the right fit for your company.

Keep the 80/20 rule in mind here: 20% of customers provide 80% of the revenue for any business – you have the right to choose who makes up that 20% – if you fill that category with as many ideal clients that you can and turn them into raving fans, the other business from tough customers that will drain your resources/margins will be insignificant over time.

There is a metric in sales that states:

1/3 of customers will never buy your product no matter what you say to them

1/3 of customers will buy based on what you say

1/3 of customers need what you offer right then and there and will buy no matter what you say

I suggest that the same guideline be used in choosing your customer base, do don’t want category 1 customers above getting into your organization, this will only created stress and heartache for both customer and service provider. Aim for quality clients more often than quantity – unless you using the Walmart business model and working on being the cheapest in the marketplace, which is a tough act to follow!

To your success,

Tim Reid

Respect The Hustle

The happy new year everyone! This is the time of year where many people will make resolutions on what they will change this year to make it a better year than the last – this will be things like losing weight, finally starting that business on the side (hopefully a real estate business haha!) or calling their mother more often this year. (you should do that too gosh darn it she loves you) However, the elephant in the room is that often the choices that were made by YOU the person staring back at you in the mirror landed you in the life situations that you are currently facing.

The economy has nothing to do with it, the downsizing of the company has nothing to do with it, the government has nothing to do with it.  A person has to take 100% responsibility for their actions – not an overly popular concept in this overly politically correct world. Now, there certainly is something to be said for “you don’t know what you don’t know” – the first step to learning is acknowledging the fact there are things you may not have known that caused some outcomes that could have been more in alignment with your goals.  That is a positive feedback loop, blaming outside factors and not accepting responsibility will not change the scenario you are in.  Taking action having accountability will – not just at the beginning of the year but ALL year.  Where you ARE is YOUR fault, we all struggle with this sometimes but it’s the cold hard truth.

Start this year off right not by making resolutions – set some goals for yourself and your family then create a plan to accomplish them once a step at a time.  What are your goals for 2020?  Contact us and lets us know – we would be excited to help in any way that we can.

To your success,

Tim Reid

Respect the hustle