Real Estate Investing

From 2020 to 2030, when the older baby boomers will be 64 to 74, America’s elderly are projected to face an income shortfall of at least $400 billion, including at least $45 billion in 2030 alone. This shortfall will affect every aspect of these retirees’ lives including their ability to provide adequate shelter, food, clothing and the basic necessities of life for themselves in their so-called “golden years”.

Many people believe that just blindly turning their life savings over to their bank, financial institution or financial advisor will produce the results they so desperately need to live their desired lifestyle as they age. This seems to be a very popular view with very contrasting results as many of these institutions choose to pour client investment capital into well diversified mutual funds.

However, one can find plenty of statistics that support the fact that approximately 75 to 80 percent of mutual funds under-perform the stock market returns in a typical year. Of course there is no such thing as a typical year and the real performance of funds varies greatly.

The other night I attended the year end meeting for the Real Estate Investment Network (REIN). There was one presentation in particular that really stood out for me.  It was based around 10 habits that a select few successful REIN members have in common.  These successful investors were not interviewed but rather spoken with casually by a REIN expert to determine what has made their business accelerate over the past few years.  There are 10 shared common denominating habits that have set these investors apart from the rest of the crowd.  These heavy hitters implement that extra 10% into their business that most people tend to overlook.

Note: If you only apply only 3 of these habits you’re well on your way to accelerating your business venture.

1) SLOW DOWN!

I know, this doesn’t sound like a habit that will lead to success, but it most certainly is.  The first year as a real estate investor or in any new business venture is a year for learning the basics and setting a solid foundation.  The foundation can include a team (accountant, lawyer, realtor, home inspector, etc.) but also involves learning the fundamentals of your business.  It’s awesome to be excited and enthusiastic about a new business venture but it’s too easy to set yourself up for failure without laying the groundwork in the first year.  Don’t try and buy as many properties as you can your first year as an investor because this is when you WILL make the most mistakes.  Honestly, do you really want negative cash flow, angry tenants, wasted joint venture capital, or any other mess that can taint your reputation?  I know this is hard, but don’t compare yourself to other investors who may be buying properties at lightning speed.  The only person that you can compete with fairly is yourself because you’re only in control of what YOU do, not what someone else does.  Real estate is not a race. 

Let’s talk cash flow for a second…

Well, maybe this will take a little longer than a second, but definitely a worthy topic to understand as a real estate investor or business owner in general.  When most people think about cash flow, a good majority of the time people relate that idea to money flowing into the business; which yes, cash flow IS money coming in.   One of the biggest aspects of cash flow not taken into consideration when determining its value (especially when analyzing a potential real estate investment) is expenses.  When I’m talking about expenses, I’m not just taking into consideration a mortgage but rather ALL expenses that COULD arise and should be budgeted for before actually determining the true incoming/outgoing cash flow of your monetary investment.

Note: This example can also be used for a townhouse or condo, just add the extra condo fees onto the monthly expenses.

Depending on the deal with the tenants, the landlord may be paying heat/water and electrical, heat/water, or the tenant may be paying all utilities but for this example I’m going to go with a common split of landlord paying heat and water and tenant is paying electrical bills.

I’m going to use a simple example of a typical real estate investment; a single family home that is currently rented out.  So let’s say  the property is renting for $1,500 per month to some lovely long-term tenants.  The mortgage payments are $850/month, taxes are $140/month, and insurance is $90/month.  There are also payments of $65/month for water and $150/month for heat.

Now I know people spend less during a recession; however, most recently I was quite surprised to come across this article published in the Edmonton Journal here are a couple of the highlights I found.

•  A record trillion dollars of cash sitting on the sidelines in Canada!
• 10 trillion dollars of cash sitting on the sidelines in United States!
• The worst thing to do is: leave money in cash balances that pay LESS than 0 after inflation and taxes!

Enjoy!

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With a record trillion dollars of cash sitting on the sidelines in Canada, and 10 times that much in the United States, it’s arguable households aren’t taking enough risk to get a decent return on their money.

Derek Holt, vice-president of Scotia Capital Economics, says the worst thing to do is to leave too much money in cash balances that pay less than zero after inflation and taxes.

Holt and colleague Karen Cordes startled Bay Street Monday when their Capital Points letter revealed Canadians are sitting on a trillion-dollar mountain of cash, or $635-billion if you don’t count less-liquid term deposits. Either figure is “astoundingly massive,” Holt says, and in line with the US$3.5-trillion to US9.6-trillion parked in cash in the United States.

Most people never get what they really want because they don’t know what they really want. The reason I say this is because your actions can be totally opposite of your thoughts, and you’re not even aware of it.

In the past, I noticed that often when I was attended seminars or networking events, I found myself ‘zoning out’ and not paying attention. Whether out of laziness or boredom, I would drift off and not fully receive the value of the seminar or miss the whole point of the topic or conversation. Now I make certain that I have a clear overview of what I want out of every seminar, conversation or meeting every time. I do this by making a list of 3 things I intend to accomplish that are completely out of my comfort zone. This sets my thought patterns into a positive direction, where I now have a mission to accomplish rather than sitting around getting bored.

Clarity also creates a strong sense of leadership. If I were currently renting and wanted to get into the real estate game, I would want to attract someone who has a clear vision of how to get me there, rather than someone who hasn’t any experience or proven results to offer me. This person is most likely going to get me there faster and with less effort due to their own sense of clarity. Their clear sense of direction will always prevail in any situation, as compared to the person who has problems figuring out what it is that they want to do.

Dear Professional Real Estate Investor:
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As someone who’s developed a business that continuously purchases one, two or even three properties a month with joint venture partners and has done so for the past 4 years – I understand the enormous challenges you face every day “in the trenches.”
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You’re under constant deadlines, your workload and paperwork is overwhelming, you have enormous responsibility and maybe not enough money or access to credit – and everyone thinks all you do is buy a house or two.
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Sound familiar? Sure it does. I’ve heard those frustrations time and again from the literally hundreds of professional real estate investors who do joint ventures like you that I’ve had the privilege to coach and talk with over the years. And there’s yet another stressor that comes along with your position: Even a single mistake on your part can cost you and your partners thousands of dollars. Holy smoke, talk about pressure.
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Carrying personal debt can be a scary and intimidating financial tool to many people mainly because most of the world does not understand how to use debt to their advantage. There are actually two types of debt: good debt and bad debt. Most people are scared of debt because they only know about bad debt and do not understand what good debt means.

Bad debt comes in the form of credit cards, lines of credit, loans on automobiles, and other ‘things’ that over the long term become a liability on our financial score card. I consider a personal residence mortgage a bad debt because it takes money out of your pocket each and every month

Good debt comes in the form of credit cards, lines of credit and loans that are used to purchase investments that over time put money in your pocket and increase in value. This additional revenue in turn becomes an asset on your financial score card. I consider a mortgage on a rental property that produces monthly cash flow a good debt.

The HST will hit right when the recovery is slated to be in full swing

For Immediate Release

Vancouver / July 27th  - The Real Estate Investment Network (REIN™), a Division of Cutting Edge Research Inc. is Canada’s leading real estate research, education, and consulting organization. 

On July 1, 2010 the provincial governments will be instituting the Harmonized Sales Tax (HST) to replace the separate PST and GST. Although this is deemed by many to be a boon for the provincial economy and most business owners, it will have a severe impact on the real estate industry.   "The Lower Mainland is already the least affordable housing market in Canada and now, with the additional costs of the HST added on top, home ownership becomes out of reach for even more" says Don R., Campbell, President of the Real Estate Investment Network and author of the best-selling books Real Estate Investing in Canada 2.0 and 97 Tips For Real Estate Investing.    

Good for “Most” Businesses but Real Estate Investors and Renters will Lose

Searching for positives in the current debt-ridden economy seems almost hopeless. Everywhere we turn, markets are falling, people are losing their jobs, and companies are filing for bankruptcy. Will the financial bubble that seems to have burst over our heads leave some legacy of lasting value? Realistically speaking, we are witnessing the worst global economic slowdown in a generation. <--break->Markets of all types and sizes around the world have sharply contracted. The question to ask ourselves is this: Is this really happening, or do we just think it is? Or, perhaps more importantly, have we been led to believe by the media, those around us, and our financial advisors that what is happening is all bad news?

The massive growth of the hedge fund industry from $39 billion in assets at the end of 1990 to $1.9 trillion at the end of 2008 indicates that the industry far exceeded itself. Clients have been disillusioned, as the average hedge fund lost 17.7% in from January to November 2008, according to Hedge Fund Research.

The Canadian housing market appears to be on the mend, with affordability measures returning to or near long term averages. Aggressive policy action by the Bank of Canada and the Federal Government to create confidence in the financial markets and jump start the economy are generally responsible for the markets improvements. The Bank of Canada has put in place a rate cutting campaign alongside the Federal Government’s active support of the mortgage securities market which have caused meaningfully reductions to the cost of homeownership and resulted in three consecutive quarterly improvements in housing affordability. This has improved the housing affordability measures to near or at long term averages, which is consistent with more solid market fundamentals. These strong discounts have proven to be powerful incentives in drawing buyers back in to the market. 

Monthly mortgage payments in the first quarter had generally decreased by approximately 17% nationally from Canadian payments a year earlier with large major cities such as Calgary and Edmonton seeing decline rates of 24% and 20% respectively. However, property values recently have been showing signs of stabilizing after having been under severe pressure for some time.