Plenty Of Opportunities to Breakeven Over Time

by Julie Broad

On the weekend Dave and I attended Ozzie Jurock’s Landrush conference in downtown Vancouver with 600 other eager real estate investors (and a few dozen realtors too).

The conference had a jam packed line up of speakers covering everything from the latest mortgage rule changes to Canadians buying real estate in the US to market specific presentations covering various areas in British Columbia.

On the surface it really covered a wide array of topics relevant to British Columbians. And Ozzie’s jokes were, as always, funny and pointed. And his message about real estate was positive and forward looking.

We definitely got a few gold nuggets from the day, and really that is all you can ask for from a low cost seminar like this, but I fear that some people walked away with some troubling advice. Essentially the message was to buy real estate because it always goes up in value. … that was the message of most of the speakers.

They all said it in different ways but that was pretty much the message. “Buy in my area because the future’s so bright you gotta wear shades.” “Buy the biggest and best house you can afford to live in today because it’s best investment you’ll ever make“. “Buy a house and hold onto it and you’re going to make money”.

I could talk about many reasons why the underlying message of “buy a house and you’ll get wealthy” bothered me but I will just focus on 3:

  1. If you’re new to real estate investing the worst thing you can do to yourself is just buy whatever property you CAN just because it will eventually go up in value. And I realize that is not specifically what was said but because none of the speakers got into what makes a good deal this is really the message that you walked away from that conference with. Yes … over 20 years the value is darn near guaranteed to more than double just because of inflation … but if those properties don’t have good solid positive cash flow they will eat you alive and you’ll likely not hold onto them for 2 years let alone 20. That means you’ll probably LOSE money not make money.You have to stick to the fundamentals of real estate and buy good solid properties in good or up and coming areas that generate positive cash flow.

    One speaker actually said to the audience that his market had “Plenty of opportunities to break-even over time.” We hope he meant have break-even cash flow … but even at that … what a lousy selling point!! I don’t want break even cash flow… I want money in my pocket every month!

  2. Careful what makes a good deal. One of the speakers showed us examples of properties on the market that he thought were a great deal right now.  This would have been really interesting except what made it a great deal to him was the difference between this year’s LIST PRICE and last year’s LIST PRICE (which the property didn’t sell for). He gave us one example of a home that was listed for $875,000 last year and didn’t sell. Now it’s on the market for $700,000 and he was telling the audience what a steal of a deal it was now.Sorry folks but if it never sold for $875,000 it was never worth that in the first place. So using a fake price to justify it as a bargain is a terrible way to spot a deal.
  3. Your home is not an investment so you shouldn’t treat it like one. Your home is a lifestyle choice and yes, if you hold it for a long time you will likely see some nice price appreciation that is capital gains tax free in Canada, but here’s the thing that always bothers me about this:YOU WILL NEVER ACHIEVE FINANCIAL FREEDOM IF YOUR HOUSE PAYMENTS ARE EATING YOU ALIVE!

    In other words, buying the biggest house you can afford just because the gains are tax free is lousy advice if you want to be rid of your job. Instead you should buy a place you can pay off quickly so you don’t have mortgage payments to worry about. And even better, you should find a way to have your payments paid for by one of your investment properties. To do that, you would be smart to have smaller payments not bigger payments.

    And if you want to challenge me about whether your home is an investment or not … let me ask you … if you lose your job … is your home going to feed you or is it going to starve you??

There were a lot of smart and experienced people standing on stage dishing out what I consider bad advice. Now, for the average Canadian that is happy to carry on going to work every weekday and just wants a comfortable retirement at age 60 or 65, it wasn’t bad advice. But if you don’t want to work for “the man” as Dave calls it, then you should pick and choose the advice you follow carefully. We picked up a couple of really good ideas and tips from the conference … but we also laughed at and discarded more than 80% of what we heard. That type of advice doesn’t fit the life we’ve created for ourselves.

We focus on buying positive cash flow properties in good areas because we want investments that take up as little of our time as possible while giving us the most amount of cash in our pockets today!! Of course, long term, because we’ve purchased in good areas with positive looking futures, we expect them to go up in value. But that isn’t what pays for our ski trips and dinners out today … it’s the positive cash flow that does that for us! And we didn’t do that by purchasing properties that breakeven over time. 🙂

As for the gold nuggets we learned … we’re going to check out one of the tools we found out about, and research a little further into a couple of the ideas we got, and we’ll get back to you on those!! If they pan out I think fellow BC real estate investors will be excited with what we learned…

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Filed under Education, real estate

But You’re Lucky Because

by Julie Broad

One of the things that really gets both of us rather heated is when someone we know says “Yes but you’re lucky because…” and they go on to say that we have lots of free time or we don’t have kids or we don’t have to go to work everyday so we’re able to do whatever it is they think they can’t do.

There are so many things about that sentence that upsets us. The biggest two things are the BUT and the word LUCKY.

The ‘but’ automatically discounts the person saying it. They clearly are making excuses as to why they can’t have whatever it is they want. They are blaming something else in their lives for the reason they aren’t the person they want to be when the only person they should look at is themselves!

The word ‘lucky’ lets them believe that it’s luck that has put us in the position we’re in not years of hard work, years of investing money instead of spending it, and making hard choices that eventually opened the door of opportunity for us to leave our jobs and begin living a more freedom filled life.

We didn’t arrive at this destination through luck and we will not get to our next point of success through luck.

We will get there through education, application, action and making choices that move us closer to that destination … even when it means working hard on a Sunday instead of chilling at the movies.

The good news is that this same formula will work for you. You can become the person you want to be living the life you want to lead but it’s very unlikely you’re going to get there by making excuses, thinking others are lucky, and being fearful of taking action.

Although … it is St. Patrick’s Day so perhaps you could rely on a little Irish Luck to get you something good today…

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Photo: © Jason Stitt |

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Filed under Productivity, Success

How to Find a Great Realtor as a Real Estate Investor

by Dave Peniuk

Not all realtors are created equally. In fact, most realtors just aren’t that good when it comes to working with real estate investors. As real estate investors we need a realtor who will:

  • Take the time to understand our parameters and WHY we have those parameters. Just because a property has a basement suite doesn’t make it an investment property.
  • Respond quickly – when we’re working on a deal we are usually moving quickly and when we need information or want to see a place we would like a call back/email returned within 24 hours. And in most cases I would prefer a realtor respond within a few hours.
  • Be willing to try different things when it comes to making offers. We rarely make a standard offer. We almost always ask for special terms like vendor financing and we ALWAYS ask for the ability to access the property several times before closing to show to tenants.
  • Be comfortable with the foreclosure process, making aggressive offers and sniffing out the real story behind the sale of a property.

So – how do you know what to look for in a good realtor and where can you find one that will work well with a real estate investor?? I created a couple of short videos as part of our 31 Real Estate Investing Video Tips. You can check those videos out right here:

And I’d love to hear from you … what makes a good realtor for you? Do you have an awesome realtor? How did you find him or her??

And if you want more awesome videos like this be sure to sign up for our Real Estate Investing Video Series. Julie and I created 31 short videos full of tips to help you be a more successful real estate investor. The videos are all 3 minutes or less and they are free!! It’s our gift to you!!! 🙂 Enjoy!!

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Filed under investing, real estate, Realtors

Buying Real Estate in the US as a Canadian

by Julie Broad

I can’t tell you the number of times Dave has come home from shopping with something he didn’t really need, or something that didn’t quite fit but he bought it anyway just because it was on sale!!He’ll buy a pair of pants that are a little too short or a little too tight just because they are 50% off. Or he will buy a jacket with a collar that has one side sticking up and one side laying flat just because it’s a clearance item.

Then he gets them home and tries to actually wear them and complains the whole time that it doesn’t fit or the collar gets on his nerves.

In other words … the only reason he bought the items was because they were on sale not because they really fit his needs.

And that is what some Canadians seem to be doing these days as they rush down the the US and buy property. With the Canadian dollar so strong, our economy holding steady, and the house prices in the US so much lower than they’ve been in years, many Canadians think their favourite destinations like Palm Springs, Phoenix, and various places in Florida are experiencing the biggest Boxing Day like sale EVER. And they rush down in a frenzy to buy a place …. or in some cases they don’t even rush down they buy without ever seeing what they are picking up!!

If you are even remotely considering US property as an option in the next few years then you absolutely must pick up the new book by Philip McKernan called South of 49.

It’s an enjoyable read told through the story of a fictional character named Ted who decides he wants to buy in the US. And he nearly does just what I am describing above … rushing down to join in on the big US property sale that is happening.

Dave on the beach in Delray Beach, Florida

Through the coaching of a good friend of Ted’s, named Sid, and the level headed nature of his wife Nancy you are taken through the steps of what is involved in buying US property as a Canadian. Through the story of Ted and Nancy it becomes very apparent early on that it’s even more important to start with a plan and a clear understanding of WHY you want to buy property in the US.

The biggest issues to get a handle on before you buy a property in the US are:

  • Will this be an investment or a lifestyle property? The answer to this will make a big difference in where you buy as well as potentially how you hold the property. You’ll also want to make sure you get tax planning advice because you could be subject to taxation in 2 countries if you haven’t set everything up right for an investment property.
  • Where do you want to hold the property? Be sure to consider the ease of access from your Canadian home as well as the other things you’re looking for.
  • How the property will be held.
  • Financing options (most people get financing in Canada to pay cash for their property in the US but there are financing programs available to Canadians in the US if you put a large amount of money down on the property).
  • How much time you plan to spend in the US. This is similar to whether it’s going to be a lifestyle property or an investment property but when you read about Nancy and Ted you’ll realize just how important it is to talk about this and think about this. Does owning a place in the US mean you will only vacation in the US? If you have big dreams of an African Safari or Paris in the springtime then you have to consider that.

Ultimately, I think you should treat this purchase like you would any other real estate investment. Start with your goals. Complete good market research to identify where you want to buy. Begin building the team you’ll need to buy in that area as you search for properties, and then buy your property. To do this properly, I believe, you will have to visit the area you choose to buy in several times and see a lot of properties in those visits.

Then… besides following that process and devoting time and effort to the market research, I believe the next biggest thing you need to take care of is understanding the tax implications of what you buy. And you’ll want to set yourself up in a way that allows you to minimize the tax burden.

Here’s a few things I didn’t know:

  • The rent you earn on a US investment property is charged a 30% withholding tax. This is on the gross rent! Your property management agent is required to deduct this. This is no matter where the transaction takes place or whether the tenants are Canadian or American.
  • To avoid this you may choose to treat your rental income as income connected with a US business instead. This allows you to pay your taxes on the net revenue (after the expenses are paid). Doing this requires you to file an annual return in a timely and accurate manner each year until you get an approval to revoke this. If you fail to file on time you can be required to pay 30% on the gross amount for that year.
  • When you sell your US real estate a withholding tax of 10% of the sale price is payable under the Foreign Investment in Real Estate Property Tax Act of 1980. There are exceptions to this, however, that you will want to understand.

There is a lot to consider when buying an investment property …. especially when you’re looking to do it in another country. If you are a Canadian looking to buy in the US then you should definitely pick up a copy of Philip’s book. And all of the proceeds from the book sales are being donated to helping children in Sri Lanka.

By the way – I’m working on getting Philip and a couple of other experts on the phone in the coming months to talk about this subject. If you’re interested make sure you subscribe to our Rev N You with Real Estate newsletter so you get the invitation to join those calls!!!

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Filed under Books, Buying Real Estate in the US

A Small Leak Can Sink a Great Rental Property

by  Julie Broad

“Beware of little expenses. A small leak will sink a great ship” ~ Benjamin Franklin

Years ago the “latte factor” became famous. Everyone was talking about how spending just a few dollars a day on coffee adds up to enormous sums of money over your life.

Now, in the interest of full disclosure, I am writing this post with a freshly brewed Starbucks Americano to my right, so while I believe fully in this message I’m also going to tell you that awareness and conscious choices are just as important. I am aware that the $3.00 I spent on that drink adds up, but I am also aware of the fact that if it weren’t for that $3.00 I would be having a nap or staring at a blank screen instead of happily typing away. So I made a choice.

When it comes to your rental properties the small expenses also add up. But with rental properties you also have a choice.

You can choose to accept that passive income is a myth and you can choose to actively manage your property managers or actively manage your tenants and make more money

OR

you can choose to make much less money from your properties but keep more of your time to yourself.

For the first years we chose the latter. We were in pursuit of freedom. We wanted passive income. And as we’ve said many times – we worked hard to buy a handful of properties and then passively let things fall apart.

Ever since then Dave monitors our cash flows very closely. He spends several hours every month reviewing the bills that have come in, the cash that came in and any cash that was spent. He asks our property managers about each expense and discusses any tenant issues we have.

And … this has saved us more than a few times.

Most recently, Dave noticed the water bill on one of our rental properties in Nanaimo, BC was double what it usually is. He immediately contacted our property manager and asked that it be checked out. The property manager initially told us it was because the billing frequency had decreased. We were now being billed fewer times so it was expected that our bills would be double when we were billed.

Because we own properties in 4 different cities Dave wasn’t sure but he seemed to remember that change had occurred over a year ago. He pulled up our property expense tracking spreadsheet and sure enough – we’d moved to bi-monthly billing over a year ago.

He called our property manager back and insisted they investigate.

Turns out we had a water leak. The leak was quickly fixed and the next water bill was back around what it usually is. This home is a split level with a one bedroom basement suite and because they aren’t on separate water meters we pay those bills. His swift action saved us hundreds of dollars that year!

It wouldn’t take too many little leaks like this to remove all the cash flow from this property completely.

So besides just monitoring the water bills … what else should you watch on your rental property?

  • Rent payments: If you’re managing the property yourself I think you’ll usually notice when you haven’t been paid but when you have a property manager handling your rent collection you might forget about it. You also might assume you’re property manager will let you know when rent was not paid but that is not always the case. Stay on it. If rent wasn’t paid, find out why and what’s been done. Never assume things are being handled. In every case a non-payment of rent notice (or the equivalent type of notice for your state or province) should be issued should you eventually have to take steps to evict the tenant.
  • Utility Bills: Whether you pay the utilities or not you should keep an eye on the bills because increased utilities could indicate other issues like the water leak. It could also indicate a broken seal on a window or a door if your heating or cooling costs have gone up… or just inconsiderate energy usage. When our tenants usage of electricity goes up more than 25% we always let them know and remind them to turn lights off, turn the heat down, turn off the tv when not in use and so on. It’s not just better for our bottom line it’s better for the environment.
  • Repairs and Maintenance: Your property managers should be getting 3 quotes for any major work. If it’s going to cost you more than $500 to do something then you need options. And you need to insist on this. You also need to monitor what is going on. Unfortunately we have so many examples of where our property managers have mismanaged repairs and maintenance, not gotten more than one quote, or have allowed the repair budget to go well over what was agreed upon. Even with diligent management we still get stuck in these positions on a regular basis and sometimes we don’t have enough time to deal with it ourselves and we spend money that we could have saved.

So listen the warnings of Ben Franklin and us … spend a few hours every month reviewing your monthly expenses and cash flows. Ideally enter them into a tracking program or a spreadsheet so the discrepancies are easy to spot. The spreadsheet we provide in our Real Estate Millionaire program makes it super easy to spot when bill expenses have gone up or rent is missing. And there are plenty of property management programs on the market that can help with that too!! The point is that you have to actively manage your property managers or your tenants to prevent the small leaks from sinking your rental properties!!

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Filed under Property Management, real estate

The Thing You Should Know About Property Defects Before You Buy

by Julie Broad

Yup – I fell for it. I bought a condo in North York, Ontario on the second floor of a building, right above the lobby. I negotiated the price down because it didn’t have a balcony, it was only on the second floor and because I said that being above the lobby would make it noisier. And guess what?! I got a lower price because of these things … but so did the guy who bought it from me five years later … and guess what?! His reasons for paying substantially less than similar sized units in the building were selling for were EXACTLY the same reasons I’d used when I bought it five years before.

In this video I explain what exactly went wrong …

If you like this video … you can get 30 other short real estate investing video tips. We’re giving them all away for free!!

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Filed under Buying Rental Property, real estate

The Fallacy of the RRSP Investment

by Dave Peniuk

I am going to get to the point today, which is often very tough for me (according to my lovely wife and business partner, Julie!). You see, I just returned from a conference on how we can utilize the cash in our Registered Retirement Savings Plan (similar to an IRA in the USA) and become fat and rich like our Banks, and lend that cash out as mortgages. But besides learning about the process of how to do it and following all of the government rules and regulations, it was pointed out just how few Canadians actually understand what their RRSP is.

I call it the “Fallacy of the RRSP Investment“. You see, a fallacy is “an incorrect or misleading notion or opinion based on inaccurate facts or invalid reasoning“.

Your RRSP in and of itself is NOT an investment.

It is a special type of account that can hold funds in it and the funds in it are tax deferred (thus, you can write-off your contributions to it and the returns are not taxable either – UNTIL you begin withdrawing the funds).

But, and this is very important, the RRSP is not an investment. The GIC’s, Mutual Funds, Stocks, Bonds, Mortgages (yes, you can invest in a mortgage through you RRSP account) are the investment.

I want to inform Canadians (and even our US counterparts with their IRA accounts) that they need to educate themselves and take more control of their money. If you do not know, unequivocally, what investments you have within your RRSP (or RESP, LIRA, RRIF, etc.), and what is their NET RETURN to you, then you need to take a good hard look.

This is what Dave looks like when he's excited

And you know what I am excited about? Really excited about? I am excited about the fact that I now have the full knowledge of how to use the cash in my RRSP’s and how I can help others use the cash in their RRSP’s to invest in mortgages (and with it the knowledge of what the NET RETURN will be because it’s a mortgage!! – you know, like the ones that you pay the banks hundreds of thousands of dollars in interest??!?!).

Now, I am not giving advice, as I am not a “Licensed Investment Salesperson” at one of the financial institutions (many Financial Advisors were called this until 2008), but I am letting you know you have other options available to you in your RRSP accounts. And, I urge you to find out:

  • What are you invested in within your RRSP (RESP, RRIF, LIRA)
  • What are your NET returns (this is your total return less all the fees charged by your Advisor, or Mutual Fund, or admin fees..)
  • If you have a Financial Advisor, Planner, Broker, ask him or her to explain how your investments are doing in REAL CANADIAN LANGUAGE
  • Ask your Planner what they are invested in and see if they are invested in any of the same products they suggested you invest in

If you do the above, and are able to get a real handle on the investments within your RRSP (or IRA), then you will be well on your way to taking real control of your money….because hey, no one and I mean NO ONE will (or more importantly SHOULD) care  more about your money than you!

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Filed under real estate, RRSP