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'Investment Opportunities' Category

How Do You Make Money When You “Buy & Hold” An Investment Property?

3 Ways To Make Money From An Investment Property

I have had several conversations recently with people who believe that the only way to make money from an investment property is if the price goes up. NOT SO.

In fact any increase in value is the icing on the cake.

As well as appreciation there are 2 other ways that investors make money even if the market falls:

1. Cash Flow- on a $200,000 single family home the mortgage, property tax and insurance costs in the region of $1,100 per  month. This figure can vary depending on the size of the down payment and type of mortgage but $1,100 is at the upper end of the range. Rent will be $1,250 to $1,300 per month. Resulting in a positive cash flow of $150 or $200 per month.
2. Mortgage Paydown- the rent pays off some of the principle each and every month. Even if the home’s value stays the same an investor is realising appreciation as the mortgage is being paid off by the renters, by using “other people’s money.”

Several clients with income generating properties in Wasaga Beach, Collingwood and Barrie and would be more than happy to provide actual, real life figures. The example above is  a fair reflection and even a little on the conservative side but does highlight the 3 ways to make money.

There are also very favourable tax advantages to property investing but this post is more about the basics.

ALSO with a mortgage the return on actual investment can be substantial.

Our $200,000 example would require a down payment of $40,000 and say $5000 closing costs

Over 2 years there would be $4,800 from the positive cash flow. Working on a 25 year mortgage with 4% interest after 2 years $7,798 would have been paid off the principle.

The investor has made $12,598 ($4,800 + $7,798.) This is a return of 28% on the $45,000 invested. How many banks will give you that sort of return Plus the investor still owns the house and it continue’s to make money even when she is a sleep!

Barrie Still One Of “Ontario’s Hottest Towns” For Real Estate Investors

“Barrie Has Shown No Signs Of Slowing Down As A Top Investment Choice” According To “Canadian Real Estate Magazine”

The cover of the August 2010 issue headlines “Ontario’s HOTTEST TOWNS” with a flag in Barrie marked “VERY HOT.”

I have posted before on the reasons Barrie is such a good place for property investors. Clients have purchased in the South End near the GO Station and the student area. All are very happy with little or no void periods and a positive cash flow; very positive with the student housing

The new government regulations earlier this year have understandably made first time investors pause and maybe reconsider; 20% down instead of 10% can seem like a big jump.

If you are using a Line Of Credit for the down payment the reality is 20% of the LOC and 80% mortgage rather than 10% LOC and 90% mortgage. Both in effect cost the investor nothing and the rent pays both loans , taxes, insurance pus cash to spare.

Anyway the population in Barrie is expected to double over the next 15 years from roughly the present 120,000. “Supply and Demand.” Population growth is one of the main drivers to look for when investing. And as the magazine states:

“A hotbed for families with at least on Toronto commuter, Barrie has shown no signs of slowing down as a top investment choice.”

For the first 5 months of 2010 the average sale price for MLS® homes sold in Barrie was up 8% year on year. BUT the numbers still WORK! The average price is still nearly less than 40% of the Toronto average.

If you want to have a very informal discussion about property investment please do contact me.

Treat The Renters Of Your Investment Property Like Gold Dust

Renters Make Income Generating Properties Work

Below is a very basic view of property investment but none the less true:

1. Buy a property.
2. Rent it out.
3. Pay down the mortgage and all bills with the rental income.
4. The excess income is positive cash flow.

Wash, Rinse & Repeat

Very simplistic and there are other considerations such as where to buy, tax benefits and depreciation.

However it is obvious the whole business would not work with out tenants. Treat them like Gold Dust. Courtesy and professionalism are essential. One of the best ways to to keep your costs down and stress levels low is to ensure a good and professional relationship with your tenants. People tend to reciprocate good behaviour, so be nice.

This will really bear fruit when the time comes for them to leave for whatever reason.

• You want to have them on-side so they will be willing to show the residence and cooperate with the marketing and re-renting.

• Give them plenty of notice if you will be visiting. Let them know your plans are so your tenants can plan accordingly AND prepare your property for viewings. A clean, tidy, and uncluttered place takes time to prepare and tends to rent more quickly.

Want To Invest In Real Estate But Worried By Inexperience Or Lack of Time?

A Joint Venture Agreement Could Be the Answer

We all know people who believe that investing in Real Estate can lead to Financial Freedom but never actually become an investor. You may be one of those people. The first step is the most difficult to take and easiest to put off; there is always something more pressing or an “expert” (who has never invested themselves I might add) telling you now is the wrong time.

Andrew Brennan is a smart cookie and a successful real estate investor both on his own and with partners. Here he talks about the upside of a Joint Venture Agreement. Please do contact him if you want more information or talk to me if you prefer. Andrew is quite happy to produce actual examples for those who wish to look in to this option for owning an income generating property (or 2) more seriously.

“Want to get the benefits of investing in real estate without the hassles of dealing with tenant issues, repairs and maintenance? Too busy to commit the time to find the right cash flowing property? Not sure how or where to get started with investing? Consider entering into a joint venture agreement.

Joint ventures are a common occurrence in real estate investing today and have been around for many years. Many new and veteran investors use this approach to strengthen their investment portfolio by leveraging other people’s talents or resources to get results. The success of the joint venture occurs when two or more parties bring different skills or resources together to achieve results that couldn’t be obtained individually.

A popular structure for a joint venture agreement is when one party (known as the equity partner) contributes the financial resources required for the property acquisition in the form of the down payment, closings costs and repair funds. The other party (known as the managing party) commits resources such as their time managing and repairing the property along with their expertise in real estate investing. With this type of structure both parties can benefit from the cash flow and mortgage principle reduction while the property is being held. Upon the sale of the property, the equity partner’s original investment is returned to him/her then the remaining profits would be shared equally.

New equity investors within joint partnerships often wonder how safe their financial investment is. Several steps are taken to ensure your money is not at risk. A signed joint venture agreement should be used and reviewed by a lawyer to establish the terms and conditions of the venture. Terms can range from a dual signature bank account being required to manage the financial expenses of operating the property, length of the joint venture, cash flow payments, to buying the other partner out. The equity investor should also get financial updates periodically. Depending on the property and the financial transactions against it updates should be provided by the managing partner every one to three months.

With today’s historically low interest rates the opportunity for cash flow has never been greater. A $45,000 investment in a single family home could return 16% in cash flow annually. Factor in mortgage reduction with your regular monthly payment and the return could be as high as 20%. Do repairs on the property to force appreciation and the annual return on investment drastically jumps to much higher amounts after selling the property. Use borrowed money from a line of credit to make the original investment and the return on investment in infinite!

It’s easy to see why real estate investing has created so much wealth for thousands of people and why joint ventures are used to create win-win situations for both parties.

If you are interested in exploring the possibility of being an equity partner within a joint venture to build your real estate portfolio you can contact me at brennanproperty@rogers.com

Andrew Brennan”

Are You Thinking About An Investment Property To Flip? What Are The Fixed Costs?

“Flipping” a property can be profitable but you must be aware of ALL the costs you will incur

What are “fixed costs.” I think of them as all the costs involved with a project apart from the actual renovation costs; these will include the purchasing and selling costs, various fees and holding costs.

For ease these can be broken down into 3 categories:

Purchase Costs

Purchase Costs refer to those fixed expenses that contribute to the purchase of a property. These will include Home Inspection, Closing Costs and Mortgage Fees.

Holding Costs

Holding Costs are the ones incurred between purchase and sale. Typically an investor will look at Mortgage Payments, Utilities and Insurance:

Selling Costs

Selling Costs are the flip side ( please excuse the pun) of Purchase Costs. Real Estate Fees and Closing Costs.
This all effects the bottom line.

Inexperienced investors can have a tendency to just think ‘ I can buy for “x”, spend “y” and sell for “z.” Fixed costs have to be included or the would be “Flipper” may loose money rather than make any.

7 Tax Deductions To Help Real Estate Investors Increase The Bottom Line

Tax advantages are one of the most positive aspects of investing in real estate.

An investor can make a profit on rentals but legitimately make a loss on paper. Every Canadians dream

Always, always take expert advice on tax matters just like legal issues.

Here though are 7 general ways to save money on your real estate investments.

1. Purchase Costs. These costs can include loan fees (origination fees, mortgage costs, title charges, appraisals, insurance premiums), title and escrow costs, as well as pre-paid taxes and items such as home warranties.

2. Interest. Interest payments are tax deductible.

3. Property expenses such as taxes and insuranceare tax deductible.

4. Maintenance and Repairs. These costs are inevitable if you wish to maintain and improve your property. You can deduct these costs.

5. Property Management Fees. Investors who use a management company to look after the property can deduct these costs.

6. Depreciation. This is one of my favorite real estate deductions. Despite being one of the best assets to invest in, there is a tax “loophole” called depreciation.

7. Legal and Accounting. Smart investors hire professionals to help protect their assets. Any costs you may incur with legal or accounting can also be deductible.

Property investing offers many advantages over other investments. Purchasing assets that produce passive income is the best way to become financially free. Taking advantage of the tax benefits is not only smart but will increase your bottom line.

Do You Recognise The 7 Sets Of Statistics That Show What Areas To Invest In? Part 4

Enough of the theory. Barrie Ontario is the real thing.

Barrie use to be a sleepy town on Kempenfelt Bay. Not anymore. A population of 132,000 is expected to rise to 180,000 by 2031.

The local natural beauty of the surrounding resort country including ski hills and lakes make Barrie is a “want to move to” city. Additionally  the cost competitiveness of Barrie as a location for industry  has seen a positive migration of companies and skilled workers into the area.

In the May 2008 “MoneySense Magazine” article ” Where To Buy Now“, Barrie was the only city awarded A+ in the Economic Strength category appealing to real estate investors.

Barrie ticks all the boxes on the list of 7 sets of statistics and is a city any property investor should consider?

1. Population Growth
2. Spending On Infrastructure
3. Retail Sales
4. Employment Growth
5. Employment Makeup
6. Demographics
7. Average Income

Do You Recognise The 7 Sets Of Statistics That Show What Areas To Invest In? Part 1

Do You Recognise The 7 Sets Of Statistics That Show What Areas To Invest In? Part 2

Do You Recognise The 7 Sets Of Statistics That Show What Areas To Invest In? Part 3

How Do You Make Money Out Of Investment Property?

4 ways to make money from an investment property:

1. Passive income.

2. Equity.

3. Tax advantages.

4. Appreciation.

Passive Income

Or more normally referred to as positive cash flow. It’s quite simple to work out:

Gross Rental Income
Minus: Vacancy rate
Equals: Adjusted Gross Income
Minus: Operating costs
Equals: Net Operating Income
Minus: Debt Service Payments (mortgage)
Equals: Cash Flow

What do you need to do to achieve a positive cash flow. Get the best rent possible whilst keeping vacancy periods as low as possible. Don’t be greedy. Holding out for that extra 50 bucks a month could result in a month’s vacancy and minus say $1200 that year.

Keep the money going out, the overheads as low as possible. Obviously the lower the price you pay for the property the less the mortgage payment will be. Again though don’t be greedy when purchasing. If the figure on the table is acceptable then pay it. Letting an ego get in the way, focusing more on the deal and the need to have the last word could let an excellent income generating property slip through your hands. Work with a mortgage broker to get the best rates and or possible.

Shop around for insurance or build a relationship with an insurance broker who you can trust to find you the best deal. I use Brent at Murphy Insurance ( 705 737 3630)   and no I don’t get any kick back for referrals.

Equity

The renters are paying down your principal. Even as you sleep your equity is growing. Use that positive cash flow to pay off more principal, pay less interest and see the equity grow even more quickly

Tax advantages

There are 2 certainties in life: “death & nurses taxes.”  The good news is that property is a very tax efficient investment. Get expert advice as tax laws are continually updated.

Appreciation

Historically property has always gone up in value. There are ups and downs but in the medium to long term the value will always increase.

“Flipping” Houses For A Quick Profit

“Flipping” a house can be a great way to earn cash fast

A family I work with need to raise capital for investing in more long term rental properties They made their initial investments last year and were very pleased with the positive cash flow, good tenants and receiving rental income before the first mortgage payment.

They have decided to look for a house to flip: a property bought at below market value (BMV), that needs some tender loving care and can then be sold quickly at a decent profit. We have found a home in Wasaga Beach available at less than $200,000, that with some cosmetic work and a new roof should sell for around $250,000. The work will take less than 4 weeks.

What do investors need to remember when considering a home to flip?

• Ensure the house is bought at BMV. These homes often look in a state of disrepair but an investor can see past this as it won’t be their “home”, they won’t move in to it.
• The art of flipping a home is to spend as little as possible on the purchase and the renovations. Make sure the repairs will not prove too costly or take too much time.
• Research the area and find out what the average price is. Don’t base your figures on the highest price possible.
• Save on costs by doing as much of the work as possible yourself. Make sure the work is of the highest standard.
• AVOID houses with plumbing problems and or electrical faults. These are expensive to fix and can eat away at profits.

How Come Everyone Is An Expert On Investing In Real Estate?

Even though “they” own no investment properties

I know I often repeat myself on one particular issue when talking about investing in real estate to friends, clients, experienced and new investors; be prepared for everyone who knows you are or thinking of becoming an investor to be an “expert” on the subject and inevitably tell you now is not a good time to invest.

Then be prepared for these “experts” to contradict themselves and tell you how much they made on their last sale. They forget to mention that all this profit was immediately spent on a new home!

I bet that the “profit” in their possession for that split second before shooting out again on a new home was the most cash they ever had.

Imagine if the profit didn’t have to go towards a new house

The media are not immune to this negative bias against investing in real estate and I have found tend to be more pro the stock market.

I recently read some articles that support this view; admittedly it is USA based but I believe the sentiments carry over to the Canadian media as well.

From the CNN money web site entitled:

“10 years…no gain in home prices”

It starts “Taking into account inflation, home prices are actually lower than they were 10 years ago . . ..”

Further on though explains  that there was “no gain in home prices” in inflation-adjusted dollars. In fact homes prices increased by 25% over the decade.

A very pro stock market article in USA Today does not take into account the effects of inflation but still the S & P 500 was down almost 25% during the same period.

Now where would you prefer to invest? Real estate UP 25%, stocks DOWN 25%.

This does even take into account the tax advantages and leverage.

Finally I would like to relate a recent experience of a client. The couple bought their first two ever investment properties early last year. Both in Barrie, both rented out before the first mortgage payment and both have positive cash flow taking into account everything including the interest on the Line Of Credit used for the down payment. I set of tenants have asked to leave at the end of February due to financial difficulties , a few months before the 12 month contract ends. With out going into too much detail the owners have advertised for new tenants and been overwhelmed by the interest. I offer to advertise the house on Craig’s List with a high profile advert but was told :

” If you don’t mind I will hold off posting( on Craig’s List) for a couple of days, as we may have it rented out. Had a couple of viewings on Sat and have a completed app. form but am just working on the references, so will let the potential tenants know if they have been successful by tomorrow. Have also had a couple of enquiries today as well.
It gives you the bug to do this ten fold when you realise the interest out there!!!”

To paraphrase from the movie “Field Of Dreams”:

“Buy it and it will rent.”