(img: daniel mennerich)
We regularly get the opportunity to meet new real estate investors.
At this point, I think we've probably chatted with somewhere in the neighbourhood of 4,000 to 5,000 local Canadian investors.
Although each of them had very different backgrounds, the questions they have asked us about real estate are amazingly similar.
Today we're going to share the most common ones along with our answers.
And perhaps even more importantly, we're going to share a question we rarely get asked as well.
Here we go...
If we had a dollar for every time someone told us the real estate market was going to collapse, we'd own half of Toronto by now!
We've heard this comment as far back as 1998 if you can believe it. We then heard it in 2006, 2007, 2008 (when the market plateaued for a while), 2009 and literally every month of every year since then.
The last time there was a bonafide real estate collapse in Ontario was in 1990.
That was nasty.
Here's how we answer this question...
No one knows when the real estate market is going to collapse. Heck, we thought it was going to fall apart in 2008 and almost every year since then and we've been wrong every single year.
Ontario is super unique in that we are a very small population living very close to the world's biggest economy.
Toronto and the Golden Horseshoe has land constraints with Lake Ontario on one side and the Greenbelt surrounding the other side. We get approximately 100,000 new immigrants a year into this area each year. That's like a city the size of Hamilton arriving and setting up shop in this strip of land every five years.
These things together, on top of Canada's reputation for being an awesome place to live with stable banking, produce a certain demand for real estate.
However, the market can change tomorrow. We have no control over the money forces.
And that's why we believe investors, especially when you're starting out, should own properties where the income pays for and covers the expenses of the property. And we think these properties should be starter homes as they're the most liquid type of real estate ... easiest to buy, easiest to sell, easiest to refinance, easiest to manage, easiest to find good tenants for, etc..
This way, if the economy stinks up and prices or property fall you should be able to survive any downturn (with heavy emphasis on the word, "should," there are no guarantees in this business of course).
This is our opinion of course and only our opinion.
This question is always fun because we usually get it right after another new investor asks us about the real estate market's impending doom.
Our answer is to see the previous question.
We have no idea what the market is going to do.
Heck, if the central banks have their way, property prices may triple from this year with low rates, negative rates and soon to be money falling from the skies.
Here's what we can tell you, with real estate...
You don't make money by "timing" the market.
You make money by "time-in" the market.
You want to get in and SURVIVE this crazy stuff. That's why we don't like speculating on "flips" and buying expensive homes that don't cash flow. Both of those strategies are hard to survive a sudden down turn with.
Getting caught in the middle of a six-month "flip project" while the market collapses isn't fun. Our family knows this from direct experience back in 1990.
We have literally heard people tell mortgage brokers that they don't care if their Toronto home doesn't produce positive cash flow because it's going to increase in value by $200,000 over the next year anyway.
We wish those people the best.
Yes, you do.
Canada is a great country because we have good roads with curbs at the side of them, good sewer systems that don't turn roads into rivers during storms and things like police forces that aren't easily bribed, etc.
If you don't think these things are a luxury just travel the world a little.
I like this stuff and you need money to pay for it, so yeah, you pay taxes.
Welcome to Canada, otherwise known to us as a real world Disneyland. We love this place.
And remember this...
If you're a paying taxes, it's because you're making a profit. So that's a positive thing. And capital gains tax is almost the lowest tax rate around (the small business tax rate of 15% is also really nice and it's why many investors use corporations to own their real estate - speak to a good accountant about this because it's a little tricky to get going).
You can evict tenants in the middle of winter.
This is the biggest myth in all of real estate.
We are all governed by the Residential Tenancies Act of Ontario and we know this to be true.
It doesn't take six months.
If you ever hear a landlord complain about how long it takes to evict a tenant, ask them if they filled out the Tenant Board paperwork at the first sign of non-payment of rent.
You'll likely get a whole bunch of excuses as to why the didn't or haven't started yet.
If you follow the very clear process for non-payment of rent, the process doesn't take six months. More likely, it's as little as six weeks and as much as twelve.
You can do the process yourself or hire a good paralegal to handle it all for you.
In Ontario, you can also garnish wages for any lost rent and to recoup some of your expenses for going through the process.
By the way, www.LandlordSelfHelp.com is a great free resource available to landlords that very few people know about. You can email them questions and get all kinds of great advice.
Owning real estate as an investment is like running an active business.
There are going to be times where things go smoothly and yes, there will be times where you need to get your hands dirty.
Often you can get contractors, plumbers, handymen to do your dirty work but sometimes you can't and things need to be addressed and you've got get in there and get things done.
Although buying rental properties is often referred to as "investing," it's much more like you're buying a business. The property is your product, the tenant is your customer and you're managing the show.
Ask any business owner you know and they'll tell you that they've had to get their hands dirty at some point and likely much more often than you think.
When our commercial landlord stopped making his payments, we had to move the entire brokerage out of a building before the doors were locked permanently with no notice.
This involved renting trucks, lifting desks, securing paper work, finding a way to transfer our phone numbers etc. .... all while we'd rather be doing something else on a sunny summer day.
Real estate, business, life ... you just never know what stream of shit you're going to have to deal with on any given day 😉
Now here's a question we're rarely asked that we should be asked....
Now we're talking!
One single property has the power to change your life.
Nick purchased his first rental property when he was 21.
He's now 38.
Over that time, he's refinanced that property and removed all of his initial investment.
He then refinanced it again I believe to extract more money to buy more property.
The property has always produced cash flow for him, sometimes as much as $800 a month in positive cash flow.
And today, that property has more than six figures in equity available to him to extract yet again.
A little earlier we mentioned that real estate investing is sort of like running your own business, and that's true but here's the thing...
It's even better than a regular business because properties tend to appreciate.
A "regular" business usually doesn't own the building or land that it's operating on. With income properties you do. So you get all the benefits of regular cash flow AND appreciation of the property.
Now there's no way to guarantee this appreciation but over long enough stretches of time, it tends to happen. And it's beautiful when it does.
At first, you don't notice it but after ten years, fifteen years or twenty years of ownership it's game changing. And if you pick up more than one property, things get really interesting fairly quickly.
We find most beginner investors get so caught up with the negatives of real estate they ignore the big advantages of owning it.
Until next time ... Your Life! Your Terms!