When Should I get Started?

I figured we would start with an easy one 🙂 The answer is “Right Now”.

There is no better time to start.

With each passing day you are missing out on potential profits to be made. There is a ton of opportunity in many different Canadian markets and all over the US (Yes, even with what you hear on CNN).

The key to remember is to gather the facts on the market and type of investment you are looking to get into. But with the most common approach of ‘Buy and Hold’ there is no reason to wait – you have to get yourself into the game.

There is money being made every single day in real estate, you have to decide if you want to be part of that or continue talk yourself out of it.

Is Real Estate Really A Good Investment?

It may best to use a real life example for this one.

One of the investments I own is a student rental By McMaster University in Hamilton, ON.

I purchased this home as a power of sale a few years ago with a friend. And although he was extremely hesitant at the time I knew a cash cow when I saw one.

We did do some major renovations to this house. I forget the exact number but I know we spent more than we wanted to!

After all was said and done we were able to refinance the property and get ALL the money we spent on renovations plus our down payment back.

Did you catch that?

We now owned the house and every penny that we had taken out of our pocket to buy and fix it was now back in our hands!!

That’s big, but wait, it gets better.

On top of the money that we had invested into the property we were also able to take a few thousand dollars each as profit.

Not big money, but in the matter of a few months it is definitely worth noting.

Plus, the home was still worth more than the mortgage on it. So we still had extra profit (as equity) sitting in the home because we STILL OWNED IT.

Now it was time to rent it out as the school year was approaching. We did that and even after the refinance we were making about $700 a month in positive cash flow.

So just to bring this all together.

I now owned a property that I no longer had money invested in, it was worth tens of thousands of dollars more than the mortgage on it, and it was making $700 a month in positive cash flow.

So from this the answer to real estate investing FAQ number 2 is a resounding “YES, yes, and yes!”

What Is The Best Type of Real Estate To Invest In?

This is a tough one because there are so many good investments available. But it is a common question and deserves a spot on the real estate investing FAQ list.

Ultimately it comes down to your long term goals and risk level.

Yes I just used a four letter word “R I S K”

There is always risk involved in investing, you have probably heard the old saying “No Risk No Reward” Well I got news for you, it’s true.

The key is to collect enough information so that you can minimize your risk. But we will come to that, let’s stick with the question.

Let’s use vacant land as an example.

Vacant land can pay massive returns but there are not too many people that have the finances to purchase large areas of land or the expertise to know how to extract profit through development.

There can also be some big hiccups along the way. For anyone in Ontario, you may remember when the Ontario government decided to protect the Greenbelt, which essentially stopped all development in those areas.

Now if you were an investor with some land there, that can be a good sized hiccup.

So although vacant land can hold some excellent opportunity you have to be a certain type of investor to maximize those returns.

Most beginner investors will invest in some sort of residential real estate. It could be a single family home or maybe a small building with 3 or 4 units.

Residential investments are easier to get into.

Usually there is less capital required to get into the game, (which is important, remember real estate investing FAQ 1?) and your turn around time to see some profit or benefits is much quicker.

Focusing on your strengths, your risk tolerance, and your financial situation should give you an idea of what the best type of real estate investment is for you.

Educate yourself and set realistic expectations of your investment. Just like not every stock or bond is for every person, the same can be said for real estate.

In my personal opinion, if you are a beginner just getting started you may want to investigate the residential side of investments first. The thing to remember when answering real estate investing FAQ number 3 is that there is definitely at least one type of real estate investment that fits your needs so be sure to find it and then do it!

What About Paying Taxes?

If only I charged for my time whenever I have explained how my tax situation works!

Taxes are complicated.

Taxes in Canada are even MORE complicated.

I use an accountant that is either an angel or a rock star depending on how you want to look at him. He’s likely both rolled into one.

I can not stress enough that if you are investing in real estate you must use an accountant that knows real estate specifically. You are leaving money on the table if you are not.

Many people will try to cut corners because it cost money to use a professional, my experiences have taught me that paying the money will pay large dividends back to you.

My tax situation has a lot of moving parts and because of that I was reassessed by the Canadian government in 2006.

The peace of mind alone to be able to forward that paperwork off and let my accountant take care of it was worth the investment.

And that is what it is, an accountant is an investment into your real estate investment business no matter big or small.

I am going to refrain from giving any specific tax advice since I am not qualified and someone reading this that does not take responsibility for his own actions will try to hold me liable!! 🙂

I will tell you that there are definite and absolute tax benefits to investing in real estate.

There are reasons why wealthy individuals all invest in real estate in one way or another. Yes, there is money to be made on the real estate itself but there are also huge tax benefits.

While thinking about the answer to real estate investing FAQ number 4, this comes to mind…

I have always been able to keep more of the money I made from real estate investments than any job that I have ever had.

Don’t forget I live in Canada, we are world famous for our taxes… OUCH!!

But if there is a way to make money and pay less taxes then I’m all over it.

What If My Investment Doesn't Go As Planned?

This is a very common question. And the most blunt answer I can give is “It Probably Won’t”.

Only rarely do the stars align and everything goes exactly as you had envisioned before setting out on your journey.

You should look at realistic worst case scenarios to see if you are comfortable with them.

If I owned a rental property, I know that somehow, someway it IS possible that a gaping hole opens up in the Earth and the home is swallowed up.

Is that realistic? NO.

But you wouldn’t believe the things I hear from people too scared to get into the game (again, remember real estate investing FAQ 1, it’s a big one!).

A more realistic scenario is the property doesn’t get rented out in the time you think it will.

And again we have to be realistic. One week is not a typical time frame to rent out a property.

This is probably the beginner investor’s biggest fear when first investing into real estate.

“My plan is to rent out the property but what if……?”

You get the idea.

This is something that should be addressed before you buy the property.

There are some questions to ask yourself in addition to the the real estate investing FAQ questions:

  1. Is the property nice enough for someone to live in it?
  2. Is it nice enough for people to genuinely be attracted to the place when they walk through the door?
  3. Are other people in the area getting the same type of payment that you are expecting to get?
  4. What is my plan to get someone into the home?

These are the questions that you should be asking yourself ahead of time so that you have an idea if your plan is realistic.

In this specific example the worst case is that you’ll have to lower the rent if you don’t rent it out. Remember, there are always tenants looking for nice places to live.

Account for that in your planning. If you have to drop the rent $100 per month how does that change things?

  1. Will you still get appreciation?
  2. Will you still get tax benefits?
  3. Will you still get all or most of your mortgage payment, and property taxes covered?

If you look at the big picture is this still a very worthwhile investment?

It will be difficult to find a case where it is not – especially if you are honest with yourself at the beginning.

Things will rarely go as planned but account for the hurdles and have a plan.

The experiences of overcoming these hurdles is what investing is all about, it’s what life is all about.

They will make you a stronger person and looking back those hurdles will become small pebbles that in the future you will walk right over. And that is where the fun begins because bigger hurdles mean bigger rewards.

I Like Residential Real Estate, So What Type Of Investment Should I Start With?

There is not a short answer to this question or an exact science to getting to one.

It will really be an individual decision to decide which route to take and one of the biggest determining factors will be what your goals are.

If you want to try to create some quick liquid cash for yourself then the buy and hold strategy is probably not the way you want to go. It is an excellent way to increase your net worth over time but it doesn’t usually produce any significant amount of immediate cash-flow.

So the quick hit in real estate investing is “the flip”. Which is about the same as any of the dozen or so shows that follows people around while they buy, fix up, and sell a property.

Remember, the real estate investing information in FAQ question 5? You may want to go back an re-visit it.

I can guarantee you things will not go as first planned while flipping a house.

Typically to make money flipping a house you are buying it well below market value and doing a whole bunch of renovations to it.

And anyone familiar with renos can tell you it can be like a black hole once you get started. A black hole for money that is!

But if done right it can pay quick dividends!

If being the supervisor on a construction site is not your thing then the proven buy, rent, and hold method may be up your alley.

There’s no real magic to this technique except to make sure you are using the real estate investing information you gather and that you are really looking at your numbers beforehand to make sure you have a complete picture of what you are getting into.

So check out what it will cost you every month and be comfortable with what you expect to get in rent, and be realistic with yourself!

Typically you are not going to come into a bundle of quick cash this way.

But over time you are having other people pay for your house, and over time it will very likely have increased in value substantially. Not a bad deal right?

I know people that have multiple rental properties paid off and can live just from the monthly rents they are collecting…and very comfortably too!

This is definitely a longer approach to building wealth but it is a follows a proven methodology of buy and hold.

One BIG POINT on buying rental properties is you really want to dive into the fundamentals of the area before you invest. This type of real estate investing information will definitely help you maximize your return…..we’ll get into that shortly.

There is a third way to invest in residential real estate that is becoming more common. And that is using Rent To Own programs or Lease Options.

In case you are wondering, they are the same thing.

These programs can be a bit like combining the best of both worlds, the flip and the buy and hold.

Usually you are able to get a bit of cash out of the property fairly quickly while still building long term net worth. So it can be a very attractive technique to investors.

We are all looking to have our cake and eat it too right?

So as you can see we started off with a tough question as there is no right answer for everyone.

Different people will invest for different things.

Once you decide what you are investing for then you can decide which approach suits you best. When doing this make sure you keep the BIG picture in mind.

Sometimes we look at some of the real estate investing information we get and it focuses on just one part of the investment.

Take a step back and look at everything. It is key for success.

I started my investing career with a flip….I ended up with some great stories but not that much money 🙁

However, I learned a lot of lessons that I was able to build on.

Looking back I think I would have done things differently. I didn’t get all the real estate investing information I needed at that time. But overall the experience was great and it has taken me towards my long term goals.

Be sure you are taking the right steps to reach yours!

How do I time the market?

Let’s put it this way. If I was able to tell you exactly how to time the market all the time you would see me on every major news show in the world!

There is no guaranteed way to time the market but there are ways to ensure you are buying a good investment and the key is to get good, first hand real estate investing information.

Let me begin this answer with telling you about Nido Quebin.

He is an extremely successful immigrant from Lebanon and he has made a serious impact on America since landing on its shores.

I had the privilege to listen to Nido speak on a couple of occasions and one of the things he said really hit home.

“It is not timing the market; it is TIME IN the market”

That is how you become successful and wealthy, if you are not in the batters box you will never hit the ball!

That quote is a life changer I could dwell on it for a while but let’s keep moving…

There are things you can do to help increase the potential of your investment and that is to educate yourself. Keep exposing yourself to solid real estate investing information.

Don’t go into an investment because someone else told you it is a good idea. Gather some specific real estate investing information to back up what you are being told.

Let’s use the US market as an example. Right now the US market is in the midst of a real estate downturn and many people are paralyzed with fear because they are waiting for the “market bottom”.

As usual successful people are going against the grain and scooping up great deals all over the place.

I have started hearing stories of multiple offers on properties! And all this while the media is breeding more fear about the dropping values.

Now some of the people are buying homes that may drop in value a bit more but are they concerned? No, because they know a good deal when they see one.

They understand that the don’t have to buy at rock bottom to make money, when an opportunity presents itself and you have enough real estate investing information to make an informed decision you need to act, and act quickly or you will never be “in the market”.

Where should I buy?

Being in Southern Ontario I have the luxury of many different areas to choose from all within a short drive. So when talking to people I’m often asked if Toronto, Hamilton, or Barrie or anyplace else is the best place to invest.

The short answer is to look at the fundamentals of the market you are interested in. Yes, it all goes back to getting good real estate investing information.

It is hard to generalize an area as large as Toronto as a good or bad investment. There will always be pockets of both and the tough part is they won’t necessarily stay the same!

There are a lot of moving parts to different real estate markets, with many types of investments really.

Just like a stock, if I was to buy something on the stock market I would want to see some of the underlying numbers or projections of the company. You got it! I would want financial information about the company.

Are you starting to see a theme here?

With a investment property I would want real estate investing information.

Looking at real estate for the long term you will want to understand certain trends that may or may not be occurring. Things like:

  1. Job growth
  2. Population growth
  3. Accessibility to public transit
  4. Accessibility to highways
  5. Demographic trends

Now these can turn into a small book themselves so we will leave them for another time.

But it is important to know that these are the types of things that will have a large and lasting impact on your investment. This is the type of real estate investing information you are looking for.

There are some other more personal factors that come into the picture as well when you are looking at potential investment areas.

Many beginners want to be accessible to their properties to give them a sense of comfort. So if you live in Ontario you may not be as interested investing in Alberta as someone that lives there, especially if you’re just getting started.

Or you may not be comfortable with a certain neighbourhood because you want a different type of investment so you will stay away from there as well.

The key thing to remember is that the fundamentals of an area will speak volumes about its long term potential, and when looking at large cities it can sometimes be a big mistake to generalize them.

How much should I invest?

Like I tell many of our private clients, this is definitely not my decision to make.

Everyone is in a different financial situation and you must evaluate that before you invest and decide what is right for you.

The one key term that is often tossed around when speaking of real estate investing, is “other peoples money”.

Which means that one the great benefits when buying property is you can leverage the money you have to get more money from a bank. So you don’t have to pay out of your pocket for the whole thing.

This is one of the most powerful aspects of investing in real estate.

Personally I am always up for using other people’s money and not just for real estate 😉

But the thing to remember is that there are many mortgage options available to investors now and knowing this real estate investing information can have a big impact on success.

In Canada we now have the luxury of buying investments with no money out of our own pocket…pretty powerful! (Keep in mind there are additional mortgage insurance fees for things like this)

Let’s take this example.

I have $20 000.

With this money I can either buy one $100 000 property with 20% down or two of the same properties with 10% down each.

Which way should I go?

I would like to buy two properties with the same amount of money. Yes, I will have some fees to pay but after confirming those fees and working them into my numbers to ensure the investment still makes sense I would move forward.

Can you guess why?

I hope you got it. It’s because now I have used the same amount of capital out of my own pocket but instead of controlling and getting benefits from one property I now control two at double the value.

I will also get double the cash flow, mortgage pay down, and appreciation…oh I almost forgot about the tax benefits too.

Can you see where I am coming from?

So although I can’t answer the question for you and give you a specific amount to put into your investment I would strongly encourage you to gather the real estate investing information you need to evaluate the situation and see if you can keep some of that money in your own pocket or have it work harder for you by using “other peoples money”.

Will I Make Money?

We have made it to the magic question. Everyone wants to know the outcome before getting into themselves into an investment.

Unfortunately that is not possible. Even the best investors in the world (think Warren Buffet) with the best real estate investing information have no guarantee of success.

I think the key is to educate yourself before hand. Learn a bit about what you are trying to accomplish and set out a plan.

I have seen people jump in blind without thoroughly thinking things through and have success but I have also seen moving too quickly be the cause of some good sized and costly learning experiences.

Remember, it’s not a mistake if you learn from it.

So pick a strategy and find the investment that fits with your goals. To do this read the real estate investing information that is available to you. Too many people want everything handed to them.

If you are buying vacant land or a triplex there are many different things to look at and consider, be sure to do it.

Don’t get caught up in the hype.

Think about an exit strategy, when and how will you be cashing out is it in 6 months or 10 years.

Think about some of the bumps along the road, they can be easily worked through but give yourself a bit of an idea of what be ahead.

If you have access to a system that has been successful, use it. Maybe it is neighbour with 10 properties, or maybe something you have read and seen implemented.

This is one thing we didn’t cover in the real estate investing FAQ list but that is insanely powerful.

Why do you think the most successful corporations implement systems? They don’t want to reinvent the wheel if they have already discovered something that works.

And although here are no guarantees in life I can tell you from my years investing in real estate I have not lost money in any way shape or form. There have been many ways that I have benefited financially and I don’t expect anything to change.

So I will be out there looking for more real estate investing information and investing in more real estate, WILL YOU?