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?

Why Many Real Estate Investors Struggle

This week we were fortunate enough to participate in an amazing mastermind group that we’re part of down in Baltimore.

It’s full of like-minded action takers who are constantly re-inventing themselves and their businesses.

100% awesome.

While we were there, Nick and I got talking with a couple of them about real estate investing and the discussion centred around all the “new and shiny” ways to make money in real estate.

In fact, there are so many ways to make money in real estate that you couldn’t implement all the new real estate investing strategies out there even if you employed every man, woman and child in Canada.

The list of “real estate money making tactics” that you can dabble in is long … very, very long.

And even with all the strategies available many real estate investors still, struggle … badly.

Why?

Well, it’s been our observation that real estate investing skills and strategies aren’t what’s missing for most people.

What’s missing is the interest from the majority of investors in hearing about fundamentals, cash flow projections, project management, team building, marketing processes, saving for down payments and budgeting.

There’s some interest in these things, but it pales in comparison to the next great “million dollar” secret to buying property with “no money down”.

Next month in our own offices we have a jam-packed class on tax strategies and using Quickbooks to run your business … although it’s jam-packed, to their credit, the people attending are the unique exception, not the norm.

Being around real estate investors in one way or another for over 20 years we’ve learned that there is a huge difference between buying property with the hopes of making money and actually putting cash in your pocket.

We’ve had the advantage of seeing many investors over long periods of time, even before we seriously got started ourselves, and it’s made a big impact on us.

The great thing about real estate is that the business can be very forgiving. The large amounts of cash generated off of properties in rising markets cover up a lot of mistakes.

It allows people to get started and grow a real estate investing business of their own, small or large, without a lot of hardcore finance and cash flow management expertise. However, that doesn’t mean you shouldn’t seriously be studying these things once your real estate portfolio begins to grow.

But still, to our continued amazement, many “get rich quick” real estate experts completely mock smart business strategies and promote to real estate investors a very lazy approach to business – to their own demise.

Very recently we were told “face-to-face” by a so-called real estate investing expert that we didn’t understand the types of strategies he was talking about.

He had no idea that at some point or another we had done each of the things he was explaining ourselves, or had been involved closely with someone else who has.

He then even went on to mock us … explaining that we were traditional and “very conservative”.

As if that were a bad thing!

And what was interesting is that he was asking us for advice on business building!  He didn’t seem to even recognize the irony of the situation.

When we prodded and asked him what was holding his own business back he hesitantly shared that although he knew how to buy property with no money down he just needed some extra cash to advertise his business.

Hmmmm.

Confused?  Yeah, same here.

For years, we haven’t said anything against people selling “get-rich-quick tactics” as real businesses.  But we’ll say it now.