Over the last few year's we've had this fairly hidden way to ask us questions on one of our websites ... but surprisingly people have been finding it and we've been answering their questions.
We looked at it the other day and we've answered probably a hundred questions or so on it.
If you're a Rock Star Inner Circle Member we usually chat in person at a class or you can book time with us at the office.
But if you're not a RSIC Member one of the best ways to get your Canadian real estate questions answered is by submitted it here.
Today we took a few of the questions and answers to share with you here...
(Mississauga, Ontario, Canada)
After reading your book I'm more intrigued than ever. But I'm curious, particularly since a lot of this comes from the U.S., what happens if/when the market makes a correction.
I can't help but envision owning x number of homes, the market drops by 10% or more(if we are in a bubble not an outlandish possibility)and all your rent to own tenants realize the house is worth substantially less then they have it optioned for. They no longer are willing to pay a higher rent since they know they likely are not buying the house at the agreed price any longer. Further, it seems conceivable to me that if they know they are going to loose their deposit anyway if they opt not to buy at an over market price at the end of the lease they will just walk away.
Is it not a possibility that in a down turn (Similar to the U.S. today) that you could end up with a substantial part of ones portfolio vacant and thus a real problem with cash flow to cover the mortgage payments?
What has happened to your U.S. members where the values have dropped by huge percentages?
It's important to set context before with this one. Risk with real estate applies to every category and every strategy.
Student rentals may have a University put up a massive new residence building.
Apartment buildings may have $250,000 in unexpected underground parking repairs.
You get the idea.
With single family homes you need to be comfortable that you'll be able to rent out your property for acceptable cash flow in any environment.
Once you've established that then you can get advanced and implement lease/option strategies on them.
Property and community fundamentals come first. Always.
That way if property values change (up/down) you always feel good because you bought a property that you know you can rent out anytime (there are always people looking to rent).
And if the current tenant doesn't pay you your rent you can move on and get a new one (by the way, in your example, tenants must pay the higher than average rent that you mention because it's in their lease - they can't decide not to).
Also, for lease/options there are always two sides. We know investors who are had to give up equity because the property appreciated past the set buy out price. We know others that had to agreed to reduce their price (although they didn't have to) to sell their property but still made a profit b/c of accumulated monthly cash flow and equity build-up.
As for U.S. investors, we know some who got carried away and bought "not so nice properties" because they were good deals and they've seen their prices drop. Interestingly they can still find tenants for them. We know others who bought in good areas and have had stable prices. So it's case buy case. Once nice thing about lease/options is that you as the investor are in control.
To summarize quickly, it all starts with the property.
Find a property that you like. Focus on a good area.
And if you decide through your own education that you'll rent out that property for an acceptable amount in any economic environment - then chances are you've found a winner.
Hope that helps a little!
(Edmonton, Alberta, Canada)
My wife is very likely going to inherit a 12 place apartment building near the university of Edmonton.
Her grand father was a successful man who invested in many things. She wants nothing to do with it; and since we are expecting our fourth child in 4 weeks she is very busy.
She has no experience, and I have none either, at running a business. Is it even a business?
I have always wanted to invest in real estate. I have read dozens of real estate investment books. I like your book by the way. I read most of it on the computer as I could until my eyes hurt.
Unfortunately, I don't know anything about running a business.
If you were in my situation what would you do? Who would be an expert on how to run such a business? If you know some good people/mentors in edmonton that would be cool.
Thanks for the question!
If she wants nothing to do with it then personally I would sell it.
This is definitely a business (your customers are your tenants, you'll have maintenance and expenses on the property and you have financial tasks to deal with - it's definitely a business). And if you're not engaged fully there's the opportunity to mess it up.
Now, if you you've always wanted to invest in real estate you've stumbled upon an interesting situation. Apartment buildings can produce cash flow when run well and will build up equity (or, as in your case, may have a lot of equity in it already).
You'll want a local mentor to guide you. We have commercial contacts who cover most of Canada. I'll email you directly and pass along their contact information - they may have some local contacts in Edmonton that would provide helpful.
Hope that helps a tiny bit!
a response to Ben's question
by: Neil U
I agree with Tom here.
Real Estate investing, especially at the scale of what you are looking at is definitely a business.
Take Tom's advice and get connected with a local mentor.
Another thing that you could do, if it tickles your fancy, is to sell a joint venture partnership in the building.
You can retain a portion of the ownership in the building and sell a portion of the ownership to someone local who will take care of all of the maintenance, filling vacancies, finding tenants, essentially all of the work.
I would only recommend this route if you have somewhat of an interest in real estate, and want to keep a portion of the ownership of the building
However, if you want nothing to do with it, if it is not a priority for you, and you have no interest in it, then like Tom said, you probably should sell.
Dear Real Estate Renegades,
My husband and I bought a condo (745 sq.ft 1 bed + den 2 bath ) in Toronto (Downtown Markham) during the pre-construction phase at 247,900.00. Thinking ahead, we are looking to buy a house in the Markham area but considering keeping the condo as an investment property due to the uniqueness of the project. Remington has released a new condo project, selling similar condos to ours for about 309,900.00. So my question to you is this: should we sell the condo now with a 60,000.00 profit or should we keep it as an investment? If we keep it as an investment, when should we sell (considering the new construction and cooling market)? Any other advice would help.
A new couple trying to get in the real estate game.
RE: To invest in real estate or to not invest in real estate
by: Tom Karadza
Tough one. What are your goals?
We personally don't like holding onto real estate with the hopes of appreciation only.
If the condo has the potential to appreciate and can also produce some positive cash flow we'd be inclined to keep it. If it's negative cash flow we'd likely sell it and take the profits and move them where that money can work harder for us.
Our 2 cents!
by Kevin Dixon
We are looking to invest in Real Estate but do not have access to any money but do have RRSP money?
How do we use it so that it will not be taxed?
Thanks in advance for the info
RE: Using your RRSP to invest in Canadian Real Estate
by: Tom Karadza
Hi Kevin from Queensville!
Some banks (e.g. TD) will allow you to invest your RRSP money into "second mortgages" on real estate.
For example, if you find a solid person with good equity in their property looking to extract cash from their property but can't do it b/c the banks don't like them at the moment (maybe a dentist looking to expand and buy more equipment).
You can lend them money on that property as a "second mortgage" from your RRSP and earn interest.
We know that many lawyers and brokers lend their own money out this way.
There are fees you have to be aware of and you obviously want a good property, a good person to lend to etc.
Find a good mortgage broker who does this ... they exist.
If you'd like to submit your Canadian Real Estate Question to us click here.
Until next time ... Your Life! Your Terms!