Don’t Count on Pickles When Real Estate Investing

One of my first investments was a rental property with my brother, Nick.

Nothing too complex, not a flip or a foreclosure or a short sale or anything of the sort.

A rental.

And I almost quit real estate investing because of it.

Let me explain…

When we closed on this property Nick decided it was a good time to go to Europe on vacation.  And that’s another GREAT story for another time, you won’t believe some of the things that happened to him in Paris.

Let’s just say there was an Internet Cafe, a bloody nose, a parade and a loaf of bread involved.  And one scared Mom who called me at 5:00 a.m. in a panic.

Wow.

Anyway, back to it…

So I was left to handle this thing by myself.  There were some tenants in the property and I went to deliver a microwave oven that had broken and to cut the grass.

I was petrified, had no idea what I was doing when I went over to chat with those tenants.

I was so new at investing that if they had asked me for $100 I probably would have given it to them just to keep them happy.

Funny how things change.

A few weeks later Nick returns and we end up losing the tenants.

I guess they didn’t like the microwave oven I had dropped off. I was burning their popcorn or something. So we start advertising the property.

At the time I had limited marketing experience but figured that we better stand out from the crowd.

So I got two bright yellow pieces of bristol board, taped them together, and wrote FOR RENT with a huge Sharpie marker across them.

This sign was so bright it almost let off a nuclear glow.

I’m sure the neighbours were impressed.

And then to really draw attention I wrote ‘FREE PICKLES‘ at the bottom of the sign in huge letters.

Yes, I’m serious.

I figured that it may draw attention to the sign and that may lead to more calls.

Worst case, I would offer them a jar of pickles if they rented the house.

I know how ridiculous this sounds and I swear I’m not insane, but at the time you have to understand, I thought I was brilliant.

I thought I was a marketing maverick even.

This was the most strategic marketing move I had in my toolbox…I was thinking “outside of the box”.

I put my cell phone at the bottom and started taking calls, another mistake.

When people called I began making appointments to meet them at the property.

I’d make one appointment for Tuesday at 7:00 p.m. Another for Wednesday at 11:00 a.m.

Another for Thursday at 9:00 p.m.

I was trying to be accommodating and show up whenever the possible new tenant wanted me to.

Big, big, mistake. Each time I’d go something short of a disaster would happen.

Either they wouldn’t show up and I would just sit outside like a fool.

3 Questions: Apartment Buildings, Cash Flow & Rents

This week we had three different questions tossed our way and because they come up regularly we thought we’d share…

The first was from someone who was looking to do “hands-off” real estate investing. They were chatting with us about investing and felt they would be better suited for a larger apartment building than a single-family home because they wanted to make more money – faster. Here was the question…

1. I want to buy apartment buildings so I don’t have to manage the property as much. What should I know?

Wow, lots to discuss here but there are a couple things you should know. In the Ontario market right now there is incredible demand for apartment buildings. The larger REITs are after anything $5,000,000 and up. And well qualified individual buyers are looking at anything from $1,000,000 to $5,000,000.

What this does is really push down the returns but it’s still possible to find a property returning a good amount. And if you include the debt pay down in your return as many investors do then the numbers really look decent.

Apartment buildings are great long-term purchases and to buy them you’ll need 15% for CMHC insured financing and after fees, it’ll be closer to 20%. So if you find a small building on the very low end you’ll be looking at about $200,000 to get into the apartment building game. If you see a building for $3,000,000 you’re looking at $600,000 down.

But don’t get confused with thinking they are an easy way to make money. If the building returns 6% to you a year and in your first year you have a major repair you’re likely going to need to fund the building with some extra money to take of the expense.

Words to consider perhaps: You buy buildings when you have money. Not to make it.

The next two questions came from a Toronto investor who was downright confused as to why were buying property in the “905” region and beyond without even considering Toronto.  And he also had a great question about rents versus property prices.  Let’s tackle both…

2. Why would I want to own a property in a sleepy town like Kitchener, Ontario when I can buy a great property in Toronto? Especially if I have to drive an hour to get there … why would I want to do that?