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Buying Your First Rental – Dealing With Financing Part One

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Financing Rentals

financing your rental propertyWhen you first start buying rental property one of the biggest challenges you’ll have is dealing with financing.

It seems simple enough (or at least the way they portray it on TV or in slick Real Estate seminars makes it appear simple), put some money down, put a mortgage on it and away you go, but that’s only at first glance.

And on TV..

But in the real world…

Well, if it was that easy in the real world then anyone could do it!

That’s why I’m going to talk a bit about the basics of financing here.

I won’t tell you whether getting the lowest interest rate is what you need (often it isn’t), I won’t tell you whether you should be getting fixed or variable rate mortgages (I have a blend of both and it depends on my plans with a property) and I won’t tell you it’s best to put more down (it usually isn’t, but it’s a case by case situation).

I will however warn you about some potential traps you may fall into with your first property and those warnings are worth the price of admission, which is free so it’s very worth it!

Why The Basics of Financing Aren’t Basic

Part of the challenge we face as Real Estate investors is we get bunched into a different class of borrowers by the lenders, so we also have to typically follow different rules.

Of course these rules also vary depending on where you live, so make sure you have someone who can help you work through them properly and legally!

One aspect that does seem to be consistent where ever you live is investors tend to have to jump through more hoops to get financing for rentals versus a regular home purchaser. If you understand this before you get to far it does take some of the stress of acquiring financing out of the equation.

Some of these hoops and challenges could mean higher down payments, less flexible payment terms and as your portfolio grows less flexibility with lenders. So be ready and also be preparing for the future!

Now the question many new investors have is why is it so much more work? Well, according to statistics landlords are simply higher risks than home owners!

Whether it’s because so many are uneducated about the process or whether it’s easier to give up on a rental than a personal residence I can’t answer for you. It’s just how it seems to end up and as they fail, the extra burden falls on the current and upcoming investors.

I know it’s true that some investors simply get overwhelmed or taken advantage of and ultimately end up losing the ability to pay their mortgage debt which leaves them few options but foreclosure. But that doesn’t mean it’s our intent!

It’s this danger, or higher statistical danger, that causes extra hurdles for those investors who simply want to do it right.

But if you’re here and you’ve been following me for any period of time hopefully my articles and videos are helping you to avoid following into some of those situations of overwhelm or of being taken advantage of, right?

Hopefully you did say right and if you did, let’s move forward and talk about one of the first warnings.

Why The Bank May Not Be The Best Option

financing with banksWelcome to the first trap/warning/mistake that new investors make with financing!

OK, perhaps it’s not a trap, but it is a misconception that your bank is out to help you. They’re advertising says it’s true, but we are far gone from the days where bank loyalty really helped you out.

I’m probably a little jaded with dealing with banks, but they do so many little things that annoy me.

Like trying to break down relationships with their main staff. There’s a reason banks tend to transfer managers so often, it’s not to provide upwardly mobile career paths. It’s meant to break up any potential relationships that could cloud sound financial practices.

I’ve had it happen to me where I’ve had great relations at the front counter, know the tellers kids names, I’m up to date on upcoming staff weddings and I even took extra steps to be remembered, like bringing in donuts on the 1st of the month when I would do big deposits.

We all like to be remembered and this went a huge way to helping us stand out from their regular memorable clients. It also helped me with little things like getting a fee for a bank draft waived or perhaps an overcharge getting wiped out, but when it comes to big manager level issues suddenly it’s all business.

My real life example of this was a bank we’d been dealing with for many years, that we had multiple accounts through and that had handled hundreds of thousands of dollars worth of transactions for us. 

We discovered we were paying a ton of extra service charges for all the accounts and I inquired with the teller if there was a chance to get the fees reduced. Due to the great rapport I was informed it shouldn’t be a problem, especially due to our high number of transactions (and likely the donuts), but I’d need to talk to an “account manager”.

This too went great as I was recognized by her and was again informed it shouldn’t be a problem, again due to our high volume, but they did this all the time for customers, she just had to get it approved by the manager…

Two days later, I was simply told no the manager wouldn’t approve it… Welcome to the world of zero relationships and all business. And yes I did move all my accounts within sixty days, so now they moved from $800 per year worth of service charges to zero, and I quit delivering donuts!

Part two of the problem is banks also like to cap their risk. They don’t like over extending themselves to any one individual (note this doesn’t qualify to those that don’t need to borrow money, banks love to loan those people even more money!).

This results in you potentially having an easy time getting your first rental property mortgage. Then for property number two the hoops become more varied and tighter to get through.

Finally somewhere between property three and five they simply tell you that you’ve reached your capacity with them and they won’t loan you anymore money.

Now, you have all your properties tied up with one lender and no leverage. they control all your options so you have to start fresh somewhere else.

That’s Why I Recommend…

It’s due to those types of issues that I recommend you look into dealing with a mortgage broker if you’re serious about investing in Real Estate, oh and not just any mortgage broker.

You’ll want to find a broker who is familiar with Real Estate investors and dealing with financing of rental properties.

If you’re not familiar with the role of a mortgage broker the easiest way to explain it is to think of them as someone who deals with many lenders and banks, versus a bank who traditionally only offers there in-house mortgage products.

This can open the door to a variety of different options and products involving your mortgage and a mortgage broker who is experienced with investors can warn you in advance which products fit your needs best.

An example of this is variable mortgages versus fixed rate mortgages. Variable rate mortgages fluctuate with the bond market while fixed rate mortgages stay at a fixed rate for the term of a mortgage. Both are important, but they also have different applications depending on your investment plan.

If you’re in a market where values are increasing quickly variable mortgages give you more flexibility with less penalties typically if you decide to break your current mortgage early and refinance or sell to acquire some of the equity for another purchase.

Sharing your investment plans with a knowledgeable broker can ensure they fit you with the products that save you money not just up front, but on the back end too!

dealing with financingAnother bonus of having access to a broader width of lenders is more flexibility if you continue to expand.

You’re able to have your “eggs” spread to multiple baskets.

Now if you start having challenges with one lender it’s not quite the deal breaker anymore and you’re not feeling quite as locked in anymore.

Trust me, this can be stressful as I’ve run into situations where one particular lender changed their policies a couple weeks before a renewal. This forced me into a situation where I had to sell the property and since I dealt with a broker, I was able to let my broker know I wouldn’t deal with that lender anymore.

With a large portfolio tied to one lender, this would have been a major headache.

Dealing With Financing Overwhelm

I’d really hope to provide a nice concise article about financing, but I find my self explaining more than I anticipated (might be due to the amount of information I need to cover!) and including more and more information.

All this financing stuff can really get overwhelming!

So I’ll stop here and make this part one of my financing series versus article.

While you’re waiting for part two (and possibly part three), why don’t you leave me a comment with some of the challenges you have faced with financing, or with banks!

Also, let me know if you’re currently using a broker or dealing directly with the bank and the experience it’s provided you with!

Looking forward to your feedback.

Part Two & Three Of This Series Is Up!

You can find it here,

Dealing With Financing – Part Two Terminology

Dealing With Financing – Part Three Financing Strategies

Making a Quality First Impression

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Exuding Quality

Quality productI recently purchased a new fall coat and as the weather is starting to really cool off in the mornings I felt today would be a great day to wear it out.

To be fair this wasn’t a really expensive jacket, in fact it wasn’t even a real “jacket”, but rather a nice hoodie that had a very fuzzy interior lining, plush according to the label. A lining that would keep me perfectly warm on a cooler day.

I don’t even think I paid $50 for it, but it looked good and felt warm and comfy when I tried it on, so I was hooked. That was back in early August and since it’s been so nice it’s been safely squirrelled away in my closet waiting for the cooler fall days.

Well, now that we’re into October, those cooler fall days have quickly arrived! So out comes the new fall hoodie and that’s when I made some observations. It was as I was cutting the tag off that I noticed something. Just a tiny little detail.

But a tiny detail that upgraded my impression of the jacket, sorry hoodie, to another level.

The tags were made of a very thick sturdy paper that instantly upgraded my thoughts about the quality of the clothing.

Feeling the heft and weight of the tag made a huge impression on me. This tiny little incidental item, a tag albeit a nice one, exuded quality and the feeling that the manufacturer’s of this product actually cared about it.

It was as if they they didn’t cut corners, as so many people do, and rather than throwing on the cheapest tag possible in order to save .0001 cents, they had a better product that deserved a better tag.

Have you ever felt like this when you bought something?

If you did, how did it make you feel? A little prouder to own it? Maybe you stood up a bit straighter when you wore it or your friends saw it?

Now here’s the zinger, do your tenants say the same thing about your rental property…

Exuding Quality With Your Rental

They say you only get once chance to make a first impression and it’s so true. Although with my coat it was actually the second impression when I looked closer, but you get the idea!

Well, what impression does your rental give to potential tenants? Or to add to it, what impression do you give?

Is the entrance tidy and clean, or worn and cluttered? Do you show up in a torn t-shirt and the same shoes you use to cut the grass (which may be ok if you are actually there cutting the grass…).

Did you pick up a welcome mat from the Dollar Store that looks cheap, or did you spend a few extra dollars and buy a nice sturdy mat from a home furnishing store? It’s little upgrades like this that can make that good first impression!

Maybe it’s just a new door handle instead of the old worn knob, maybe swapping out the broken and chipped door skirt for a new tidy looking one to help make your property stand out.

It’s little steps like these can can help ensure your property not only gets rented faster, but stays rented. We often forget that our rentals are people’s homes and its a trap that can bite you in the pocketbook later.

Sure when the rental market is hot it’s not much of an issue, but when things turn, and they inevitably do, and the market is a bit tighter with more vacancies and less tenants to go around that they suddenly become very pressing issues.

Consistently High Quality Rentals

first impressions make a difference with your rental property

That’s why it’s far easier to be consistent with your properties and be pro-active at setting a higher standard. Then you don’t run into the hurdles of the down times, or if you do, unlike your competition you coast through them as others flounder.

This type of pride of rental property ownership pays more dividends than just filling your property faster, it also helps you keep tenants longer, attract higher quality tenants and as you stay on top of your property it helps maintain values.

A story I share with many people involves a property I owned years ago that had a very similar property just down the street. At least very similar in the style of property.

Both were half duplexes, both had front decks and both had yards, but the similarities ended there.

My property had tenants in place usually two to three years at a time, theirs had a for rent sign out front every six to nine months.

Now we’d never personally been in the unit, but one day my wife was at our property and saw the other landlord was doing some showings so she invited herself in to check it out, and chat with the owner.

Upon entering the difference was easy to see.

Now this was only a decade ago, but the other property still had the original shag carpeting from the 70’s in it…

And quite possibly the original white paint color, great first impression.

Going further into the property and looking at the kitchen my wife found the original dark brown fake wood look cupboard doors with more original 1970’s hardware.

No wonder people kept leaving like it was a revolving door.

In comparison, our property had hard wood (which probably had shag carpet on top of it at one point), freshly painted walls with a modern color, newer white kitchen cabinets with newer countertops and bright shiny contemporary knobs on all the cabinets.

It’s Not Rocket Science

First Impression of qualitySo just by description alone, which would you chose?

And maybe that’s why we were always able to fill the property so quickly and kept tenants for so long!

Now, let’s talk about you and perhaps some homework?

What do you think your property gives off as a first impression? Cozy place to call home? Or pitstop until we find something better?

Your homework, if you truly want to be an educated landlord, is to stop and take an objective look at your property.

Would you live there? If not, that’s the first sign you might want to change things.

What could you do to spruce it up just a bit? New front door? Drastic updates at the entrance to make it more inviting? Or maybe simple steps like fresh paint on the door and a new handle or trim plate across the bottom of the door?

Taking simple steps like this pay handsome dividends over time and it’s a matter of small efforts to get this done that pay back so well with longer term tenants and shorter gaps between occupancy.

If you’re struggling to fill your vacant property this might want to be a priority. If you expect to have a vacancy soon it should also be high on your radar. At the same time, if you have great tenants it can also be an assurance to them that you want to take care of your property and can also be rewarded with them acknowledging it and taking even better care of your property for you.

So, ball is back in your court. Are you willing to do some homework? If you are I’d love to hear what YOUR thoughts are on YOUR property and what you might need to do to improve it and to start making a good first impression as soon as possible!

Leave me a comment below with any changes you may be making in the near future to your property or with any changes you’ve made in the past that have paid dividends!

So, Your Tenants Late with Rent…

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Dealing With Late Paying Tenants

late rent payments - tenants late with rent

I received an email recently asking me what steps a landlord should take when a tenants late with rent and I was kind of taken aback.

You see, this is one of those issues that is so easy once you’ve gone through it a couple hundred times. The problem for me is it was so long ago, I’d forgotten what I do is a learned response.

And I learned it so long ago that when a tenants late with rent, I simply take action.

So, rather than making you learn it on your own, I’ll just go ahead and break down the steps you need to follow if this occurs to you, but before I get there,  I want to talk about the challenges of evicting a tenant.

It’s these challenges that create the need for your actions to follow a specific process on your end as a landlord, so let’s dive in.

The Challenge of Evicting a Tenant

Just about every jurisdiction has a specific process for evicting tenants. Sometimes it involves a three day notice to quit, other times a 14 day notice to vacate. Some places require a court application to make it official and others have tribunals.

The one consistent challenge this represents for landlords is you need to prove your tenant has breached your lease and/or that you have a valid reason to evict them.

In my experience those valid reasons for an eviction tend to revolve around three main issues,

  • Non-payment of rent
  • Damage to the property
  • Conflicts with other tenants

You would think any of these would be easy enough to prove, but when you end up in a hearing, landlords often find themselves ill prepared compared to the excuses or lies that a nefarious tenant may be able to come up with when faced with eviction.

I’ve had tenants late with rent lie about paying cash and not receiving receipts, I’ve had tenants try to explain the gaping hole in the drywall was there when they moved in and I’ve had tenants explain they had no idea there were conflicts.

So what’s a landlord to do? Especially when a tenant is outright lying?

Preparing For Evictions Before They Are Necessary

Now, the point of this article is about what to do when a tenant’s late with rent. It could just as easily apply to damage to your property being damaged, conflicts between tenants or any other reasons that could lead to requiring an eviction of a tenant.

The important sub message for you is that every issue like this you need to understand could be the first step to building up a case for eviction. Assume the worst, and hope for the best!

That’s why the first step you need to take is to create paper trails you can refer back to if the situation doesn’t correct itself and goes further out of control.

When I’m consulting with landlords about evicting tenants I continually harp on documenting everything. It’s not just a matter of talking with them, you need to document it as well.

That’s part one of preparing, but just because you’ve documented it doesn’t end there.

Part two is making sure the tenant receives copies of your notices/documentation so you have a complete paper trail and takes the ability away from them to say they weren’t aware.

Creating a Complete Paper Trail

Tenants late with rent so create a papertrailSo what is a complete paper trail? It’s evidence that shows everything along the way, whether it’s the written notice you provide informing tenants rent is late, to complete documentation showing the condition of the property when they moved in all the way to dates and instances of previous conflict issues with the tenants.

Hopefully this is making sense, but to clarify even more let’s walk through an example.

It’s the 1st of the month and Joe your tenants late with rent. Now maybe he usually sends electronic transfers later on the 1st, so you sit back and eagerly check your email on the 2nd, again no money!

Tenants Late With Rent

Step 1

I’d suggest calling and/or texting the tenant immediately advising them they haven’t paid rent for the current month yet.
It could have been an honest mistake, or it could be a sign of pending trouble. You can often tell by how easy it is to initially contact them. Although sometimes you may simply get strung along as well if you do reach them first time, so be diligent and stay on top of this.

If you get paid great, you still want to move onto step 2, but at least the pressure is off.

Step 2

If you were paid, great, but you’re not done yet.

Follow up with a written letter for the tenant informing them that you understand late payments can happen, but this can only be a one off type situation as the rent payment is required to cover your bills for the property like a mortgage (you may need to ad-lib here a bit depending on your situation).

If you weren’t paid, you want to create a more stern letter for the tenant explaining all of this.

In both cases you need to refer to the conversation and/or text correspondence that you previously had about this issue. This is a matter of building up your evidence and paper trail.

I’d suggest bringing up potential repercussions if it’s not dealt with immediately and what may happen if the situation isn’t corrected (eviction, extra costs to the tenant and more, but all without being threatening, just informative).

Step 3

***UPDATE – Thanks to some great feedback from one of our readers, who also happens to be a Constable located in Massachusetts, he’s recommended the following tips regarding service of paperwork;

1) Certified mail does not need to be accepted and won’t be returned immediately. First class mail cannot be proven to have been delivered. Worse still is there is no proof what was delivered.  Tenants can claim that they received an empty envelope or one containing a blank piece of paper.

2) Proof of service.  I am an officer of the court. As such my return of service is accepted by the court as prima facie evidence that service was effectuated as indicated. Also I am a disinterested person and have no involvement in the action.

I would strongly suggest that whenever possible a Constable, deputy sheriff or Marshall should be engaged to serve this process, ensuring  that the case  can move forward with little delay. – Constable MP Weisberg

Now rules and variations do occur depending on where you are located, so make sure you understand them locally. Service by a process server, Constable or Sheriff may be mandatory, or simply advisable depending on your unique circumstance. Thanks for adding your voice to this MP and thanks for helping other landlords!

It’s important that you hand deliver this if possible. If it’s not, you want to create some potential trail of delivery and receipt.

If you’re hand delivering make note of the date and time and follow up with a text and/or email referring to the letter you dropped off. A frequent tenant response in hearing is they never received any notice about the problem, this solves that.

If you are not able to hand deliver you can send it via registered mail or courier which provides a tracking process.

If neither of these are possible as the tenant is trying to avoid you, then your option may be posting the notice on the property.

The challenge with this is it’s still hard to prove they received it, so here’s some additional steps.

Make sure you post it on every entrance to their unit. If it’s an apartment, it’s easy, just post it across the door and the door frame so they can’t miss it as they go in or out.

If it’s a house with a front and back door, post a copy on the front and back door, again across the frame and door. If it’s a house with a garage, post it on the two doors and the garage door.

Perhaps most importantly whatever the circumstance, once it’s posted then make sure you take a photo with some sort of date and time stamp to verify when you took the picture(s), just in case you need to prove it later.

Just as a warning, be aware some pro-tenant jurisdictions may claim this is tenant harassment or potentially slanderous if it’s posted for everyone to see. Always be aware of local rules and laws and make sure you can back up any claims that may be indicated to protect yourself.

Step 4

Follow up!

Once you’ve talked to the tenant, left them notice or documentation about the issue, follow up with an additional text, email or follow up phone call which you also document.

I’ve run into numerous situations where tenants have confirmed via text they received the notice, then in a hearing deny it and their entire claims fall apart due to the text evidence showing they are lying.

The final proof ends up often being your follow up, so don’t take a short cut and miss that final step as often it can be the deciding factor.

Final Thoughts

One way to stand out if you do ever end up in an eviction situation is to be a professional. If your tenants late with rent it requires more than a phone call or text to be a professional. You need to do the extra work!

As is often the case it comes down to treating this like a business and doing your job professionally. If you’re in a hearing and you come across as a professional who has all the evidence, is following all the rules and are going through all the proper processes evictions become much easier.

Now it’s your turn for a final thought.

If you’ve ever evicted a tenant, tell me what the experience was like below in the comment section. If you think this article would have helped you I’d like to hear from you even more!

What You Need To Know Before You Own Your First Rental Property!

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Advice For New Landlords

Pieces of the puzzle with your first rental propertyI’ve been helping landlords for years now and as I look through the masses of info = I have shared, one gap I find is what a new investors needs to know before they own their first rental property.

The trigger for this was just a quick comment a subscriber named Matt left me the other day.

You see Matt’s been reading my articles and watching some of my videos preparing for his first rental property which he closes on at the end of the month.

He’s being pro-active, he’s getting prepared and educated and he’s being very smart about getting started!

I love it.

To hopefully get him off to an even better start I replied back to his comment with some additional tips and suggestions, but  I realized that unless someone is reading that specific article they will miss that specific information!

So I realized maybe I need some information all in one place to help others just like Matt! So here’s what I have.

Getting Started With Rental Property

Some of the information I’m going to talk about here you’ll find in other articles on the site or videos here and on YouTube I’ve done and I’ll include some references to these at the bottom of the article.

In my experience I’ve found that I read one article and don’t quite get a concept, but when it’s explained slightly different or from a unique perspective suddenly it becomes crystal clear.

I’ll also include a subscription form at the bottom where you can get my guide “The Secrets of Successful Rental Properties” where I also talk about some of these tips that apply to your first rental property and to your fortieth rental property, or at least in different ways.

So rather than babbling too much more, let’s get started!

Leases – They Are Not All Created Equal!

leases for your first rental propertyIf you’re not familiar with my background, my online start was with a site that helped landlords evict tenants in the province I’m located in, Alberta Canada.

Sure I had my own sites for my Real Estate biz that I’d created in the past or paid someone to build, but AlbertaEviction.com was all my own.

This site came about because of my own personal experience with so many evictions over the years. Now I hope it’s not a shock that a guy who educates landlords has had to evict a ton of tenants.

It should be more of a reality check.

Because just about every landlord I know has had to evict a tenant at some point in their career. Time and circumstances change situations and a perfect couple one year may be divorcing or laid off the next causing you the landlord problems as their problems trickle down.

It’s not uncommon for me to get emails from landlords telling me how they’ve had great tenants since they bought their first rental property five or even ten years previously, but suddenly they’re stuck evicting someone.

It can be a bit of a numbers game and the longer you own a property and the more tenants you have the better (or should I say worse) chance you have of getting a bad tenant.

In my case, I’ve just dealt with so many more tenants than the typical landlord that I’m that much more experienced with the negative aspect of the business.

Which bring me full circle back to my point about leases. One of the biggest problem so many landlords I helped through my eviction site had, was they used the wrong or if not wrong, a poor lease. Leases are not all created equal and the rules in various states, provinces and countries also vary making it important that your lease applies where your rental property is located.

An example of this is in my local area is that I recommend to landlords to only use “Fixed Term Leases” rather than “Month to Month Leases”. The reason being (at least in Alberta Canada) a landlord doesn’t need to renew a fixed term lease (find out local rules that apply in your area!).

“Fixed Term leases refer to leases with a start and end date, they can be as short as a one month term or as long as several years, but they have a defined end date.”

In English, that means that if I have a tenant who is constantly late with rent, doesn’t maintain the yard or I’m just not getting along with, once the lease term ends, I’m not obligated to renew it, they have to leave.

If instead I used a month to month leases that just rolls over with no fixed ending date, I require a valid reason to evict the tenant, so unless he is doing something in serious breach of my lease, I’m stuck!

The lesson from this is, understand your local tenancy laws and make sure your lease fits what’s best for you! You may not have the same rule about fixed versus month to month, but you need to understand what does apply and make sure your lease includes what benefits you the landlord the most.

Next step is to ensure you have a very specific lease for your region.

If you’re buying a generic lease from an Office supply chain, a corner store or downloading it off of the internet, it better apply specifically to your region.

Now just about any generic lease will work everywhere, but the problem is they are generic and they don’t contain the specifics you need to enforce them for your benefit.

If you can make your properties non-smoking, your lease needs to contain that information. If you don’t allow pets, your specific lease should state that. If you don’t want tenants to sublet rooms or the basement or a garage, your lease requires a clause stating the restriction.

I could go on and on, and I already have I believe, but I need to because it’s that important. Generic leases get you started, much like generic house plans are the building blocks for your dream home.

You need to fine-tune that lease much like you choose colors and materials if you are building a home, so it suits your needs and protects your interests.

It may require buying a lease from a local landlord association, it may require getting a custom lease created by a Real Estate specializing lawyer in the area or it could be somewhere in between. Just make sure it’s not generic!

For a reality check it should also not be a single page! My standard lease I’ve modified and edited over the years as rules change, is four pages long and uses a small font in order to contain all my clauses and information.

It’s that long because I try to cover everything!! And your lease should too!

Now onto the next priority.

Tenants – They Too Are Not All Created Equal

Tenant problemsMore reality checks for you, not all tenants are equal or will look after your property the same way.

That nice looking couple who seem so pleasant may be professional tenants who bilk landlords out of months worth of rent and understand how to live rent free for months or even years at a time by being smarter than their new landlord.

There are so many districts throughout the world that have set up very tenant friendly legislation that makes it virtually impossible to evict tenants in a timely fashion.

They’re set up to allow tenants to appeal or delay hearings month after month and even then they are awarded extra time to vacate. Professional tenants understand these rules and once they are in, they can cause havoc.

All while not paying, or while damaging your property or worse building drug labs or grow ops which you get stuck fixing later.

The lesson from this?

Screen your tenants diligently and rigorously. Create systems and processes where you check and double check the information applicants provide you.

This includes calling and verifying all references, previous landlords and contacts. I even go so far as to check online profiles for their Facebook, Twitter, Instagram and more to see who these people really are.

If you put in the effort up front to do all this fact checking, research and verification, you’ll find you can save yourself a ton of headaches going forward.

As my friend Julie The Street Smart Diva and I often talk about with students who have gone through our coaching programs, it’s far easier to let the wrong person in than it is to get that same person out.

Your job as a successful and educated landlord is to make sure you never let that wrong person in and makes sure they end up somewhere else while you reserve your property for the fantastic tenants you deserve!

The Final Lesson For Your First Rental Property

Processes, systems and checklists for landlordsCreate Systems! I just referenced this when talking about screening tenants!!

As new landlords and investors you have a ton to learn as you get started with your first rental property. From the incredibly important skill set of screening tenants to property maintenance and much more.

Some you may do yourself, some you may hand off to others to do, but long term, many of these processes need to be repeated over time. Often over and over as you own a property for years or expand your portfolio.

The challenge being, if it’s been a years since you last screened a tenant, can you remember all the steps?

If you happen to own several properties already and you’re ready to do your annual or semi annual inspections, do you know what furnace filter sizes to bring to replace at a specific property?

Do you know how many smoke detectors are in the property that take batteries and which kind of battery so you have them with you?

Or if you are adding a second or third property to your portfolio, what did you forget to do or ask the first time that you need to know for the next time?

Did you talk to your insurance people in advance to get the proper rental insurance in place?
Did you have a list of home inspectors you know and trust at the ready?
Did you have a list of requirements for your Realtor of what your next property needs to have?

These are just a few examples of the hundreds of questions that need to be answered as you maintain and expand your portfolio.

And yes it is a lot of work, initially at least. But that extra work at the beginning as you take notes gives you references and the start of check lists and the systems you need to streamline your landlord business going forward.

Once you get the basics of these processes down and in some semblance of order you’ll find it a helpful resource that you can go back to for years and years and that will make your land lording experience simpler, less stressful and ultimately more profitable!

Now just to tie all this together and to help make this easier to remember, I want to share with you what I call,

The Educated Landlord’s Mantra

  1. Remember how hard it is to get them out (bad tenants)
  2. Do your due diligence (on new properties & new tenants)
  3. Trust your gut, but have processes (so you don’t forget steps or get caught in emotional decisions versus rational decisions)

If you can remember these three steps as you get started as a landlord, it will carry you forward many years!

Landlord Lessons
Wrapping Up

So, those were my thoughts and words of advice about your first rental property, what would you add to this? I’d love to get some feedback from you, maybe share your advice or some lessons you’ve learned as you started in your Real Estate investing journey!

Just leave me a comment below and share any stories you could add and any feedback you might have! I look forward to your thoughts and will reply back to everyone!

Also, if you didn’t grab my guide The 7 Secrets of Successful Rental Properties yet, simply fill out the form below and you’ll get it emailed to you!

And finally, if you belong to a Real Estate group, know other landlords who this could help or could simply share this with people on your Facebook, LinkedIn or Twitter feed, I’d really appreciate it!

There are handy share buttons right at the bottom of the article and the more people we can share this with, the more successful and educated landlords we’ll have out there!






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Understanding The Basics of Leverage and Return On Investment

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Leverage in rental investmentsIf you’re buying your first or your fiftieth property one challenge that almost every Real Estate investor runs into is financing their properties.

In a perfect world we’re all sitting on a huge trunks of money and can simply purchase a property all cash. No financing required, no banks or brokers required and it all gets incredibly easy.

Yet, if it was easy, everyone would do it…

And if everyone had trunks full of money, sites like mine wouldn’t be necessary as money is supposed to fix all problem.

So let’s get back to reality and talk about a couple of areas involving financing. These are the benefits of leverage that financing gives you and I’m going to introduce some of you to the concept of Return on Investment or ROI.

Leverage is one of the most exciting aspects of Real Estate and it’s also why so many people get involved as it allows you to get involved without completely paying for a property.

I’ll break out other exciting tidbits a bit further, but for now let’s dig into the power of leverage.

The Power of Leverage

The Basics of Leverage in Real EstateIf you’re just getting started with owning rental property hopefully this little walk through can help you understand how leverage can benefit you as a Real Estate investor.

To help get the point across I have some examples that hopefully make it much clearer than just rambling on.

It’s also where you get to learn the basics of Return on Investment (which I’ll refer to as ROI going forward through this article). Anyone excited yet?

For ease of understanding I’m keeping this to the very basics very basics. I’m simplifying this by not taking into account any additional costs and expenses. These would typically include legal costs, taxes, financing setup costs, cash flow, mortgage pay down and many more annoying yet vital details.

Why skip these important aspects you might be thinking?

Because I’m only making a point about leverage, I’ll have a separate post about annoying yet vital details later to keep all the detail folks happy 8’].

So let’s go look at some examples!

Example 1

An investor purchases a property for $100,000 all cash and over the next five years the value of the property has increased by 10% making it now worth $110,000.

His $100,000 investment has grown by $10,000 and his ROI is 10%. That’s determined by dividing the growth amount or return, $10,000 in this case, by the original investment and multiplying by 100 to turn it into a percent.

ROI is typically referred to as a percent so it’s easier to compare across properties, industries or sectors.

The formula being

(Growth/Original Investment) x 100.

In our example the numbers look like this,

(10,000/100,000) x 100 = 10% return.

On a yearly basis the it works out to be 2% or the total percentage divided by the number of years. 10%/5 = 2% per year.

With inflation normally between 2-3% per year, this is a break even situation at best, but likely a net loss.

Example 2

In this example, lets say you still have the $100,000, but decide to now put only 50% towards the purchase price ($50,000). Then you use traditional financing for the remaining 50%.

Again, the value of the property has risen 10% over five years but the important difference is the return on the investors investment.

Using the same formula, but with a much lower investment, we get some much better returns.

Here’s this example,

(10,000/50,000) x 100 = 20%

Suddenly that return has doubled. Even on a yearly basis (20%/5 years) it’s double at 4%, so now you’re potentially slightly ahead of inflation!

But the aha moment is you still have $50,000 and could repeat the process on a similar property. By duplicating this and purchasing two properties your gross return would be $20,000 (2 x $10,000 in growth).

Your individual (and your overall) return on both of these properties would still be 20%, so that doesn’t change, just the amount of money you at the end does which is the important factor.

Example 3

This is where it gets exciting. We’re now going to look at only putting 20% or $20,000 down to purchase the original $100,000 property.

With everything staying the same except the amount put down, 10% increase in value over 5 years, lets look at the Return on Investment calculation now.

(10,000/20,000) x 100 = 50%

Anyone else excited? Same property, but now buying it with way less money and you’ve created a much larger return.

Breaking it down to a yearly basis, you’re seeing a 10% per year return on your $20,000 investment.

Let’s rethink our aha moment and now consider buying 5 $100,000 properties with our original $100,000 by putting only $20,000 on each.

With a $10,000 increase on each property that $100,000 dollars that only increased to $10,000 in the first example now becomes $50,000. Same original amount, just leveraged to allow additional properties and resulting in a 50% return on investment.

Which my friends, is the power of leverage!

And The Lesson Learned Is…

It’s also why you don’t want to typically buy a property all cash when financing is available. Is it always the case, no, but it is in my simple examples!

The issues do get more complex as you add in mortgage paydown, cash flow from having tenants in place and other external factors, but the one point I needed to convey with this article was the power of leverage.

Hopefully it made sense and it provided some clarity for you. To further help, I’ve created a Simple ROI Calculator for you to use. Just click the link below to download and once you’ve downloaded you should be able to open it in your spreadsheet program of choice!

Simple ROI Calculator

It just covers the basics, but it might be fun to play with when looking at a current property you own or even to project a return by estimating growth. Hopefully you find it helpful.

If you have a chance to play with it, I’d love to hear about your ROI, so leave me a comment. If you already understand ROI, let me know if I explained it clearly by leaving a comment, and if you think this will help others please share it with them!

Traditional Retirement Planning, Or Real Estate Investing…

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Or Why My Financial Advisor Didn’t Like Me

Investing in Mutual Funds versus Real Estate investing

You need to understand, I’m a Real Estate guy and this site talks about landlording, Real Estate and Real Estate investing . That’s why my retirement planning is based around property, not mutual funds or stocks.

Due to that, due to some of my experiences and due to some knowledge picked up along the way, I may have a slightly biased view towards financial planners, but it wasn’t always like this.

When I was much much younger I really bought into the mantra of setting aside money each month to put into mutual funds. I even modelled what successful people do (or at least what I thought successful people did) and found a financial manager to help me along the path.

To make sure I was doing it right I set up automatic withdrawals each month so funds were withdrawn from my savings account and transferred over to buy more mutual funds. Here I was just like one of the grownups!

I was ecstatic that the power of dollar cost averaging along with along term plan securely set up the future was bright…

Does this sound familiar to anyone?

You know, invest in your retirement now, start early, dollar cost averaging, plan your financial future and more? All the hugely successful investment firm and big banks were all talking the same game, so it had to be right, right?

Well, unfortunately it seemed the more I read about all these great mutual funds and the more I chased the mythical returns they made in previous years the more disappointed I became. For some reason these funds that made 10% one year, suddenly only made 3% when I bought in…

What was going on? Or more importantly, what was I doing wrong?

Over time my visions of yearly 10% returns the books talked about started to fade. Doubts started to creep up, was I doing it wrong? Did I need to set more money aside? Maybe I needed a longer time frame and things would balance out, or maybe, just maybe there was something else going on?

Could it be possible that this promised land of steady returns wasn’t actually true?

I was starting to suspect that perhaps the rules weren’t quite what they seemed and maybe much like Las Vegas, the odds were not in my favor, but rather they were stacked in the favor of the house.

To make sure I understood everything clearly, I did more digging and found out some interesting facts.

The Rules Are In Favor Of The Fund Managers

stocks versus Real Estate investingIf you’re not already familiar with how mutual funds work, here’s a quick recap, or at least the part we hear about. (This is the simplified and slightly sarcastic viewpoint btw).

Some brilliant financial guy analyzes the various financial markets finds solid stocks and investment vehicles that he believes show great opportunity to grow and become more valuable over time. Then through marketing and sales they get investment capital to finance these purchases so everyone can grow their investments.

In my case, this investment capital was in the form of my automatic withdrawals, but it’s also through large institutions like pension funds who buy into these funds and many other individuals and groups buying into the game of investing.

The idea being as the fund grows in value from the carefully analyzed data the value of each fund grows, or in some cases a dividend may be paid out which the investor typically uses it to reinvest back into the fund.

As more and more money is poured into this fund it grows and gives the brilliant financial guy even more of other people’s money to play with. All with the intent to provide everyone with a nice return.

Now, here’s the part they don’t talk about.

As for the funds themselves you need to realize their goal is to make money for the institution, not just to help investors in the funds retire…

To make that money, it used to be very common to have what were called front end loaded funds where you paid a percentage up front to get into the fund. This put you behind right away, but made sure the fund itself made money right away.

To counter the paying to play setup of front loaded funds there were also back end loaded funds where you had to keep your money in for a set period and if you took it out early you were penalized on a sliding scale.

This worked out slightly better for investors, unless you were in a losing fund or needed to get the money out early. In the case of a losing fund you then got dinged twice.

Once by the loss of the funds value and then by paying a percentage of your original investment for having them lose your money.

Of course there are also no-load funds, but they have a different set of rules which I talk about further on.

The problem is, all the rules are designed by the funds for the funds to make sure they make money and not necessarily for the fund investors. Basically they are playing a stacked deck where they are guaranteed to win and if you win, well that’s just a bonus.

Best of all though, at least for the investment companies behind the funds, whether they make or lose money, you’re still paying them for the privilege of having your money in their hands.

Which is one part of the other two problems with mutual funds, including no-load funds.

The Two Problems With Mutual Funds

Mutual Funds versus Real Estate investmentsProblem one, even if the fund loses money, the fund itself still gets paid a management fee. This management fee is often 2% or more and often up to 3% and guess where that gets paid from?

If you guessed your money you’re absolutely correct.

Think about that.

If you invested $1,000, the fund went down by 2% your $1,000 has become $980 plus you get hit with another 2% management fee for managing your losses. Now you’re down 4% or more depending on how they calculate their fees (is it based on the original investment or the amount after losses, you might need to read the fine print to be sure).

Or say you win and it went up 4%. suddenly your $1,000 is now $1,040 yay. Oh wait a minute, you still have to pay 2% for their management!

They win either way! With your money. With you taking all the risk, how awesome is that? At least for them…

But I haven’t talked about problem two yet….

Problem two is the majority of fund managers under perform the market. I’ll give that a minute to sink in…

Let me know when you’re ready…

Is that enough time for you to digest that the majority of funds or institutions that you’re paying 2% or possibly higher fees too, is unable to outperform the average growth of the market?

You’d be better off investing yourself in something like the S&P 500 which is an index of the top 500 stocks in the US markets rather than paying your fund manager to manage your money.

Here are some of the numbers to back that up.

Over a 20 year window from December 31, 1993 to December 31st 2013 the S&P 500 returned an annual return of 9.28%. Yet the average investor made just 2.54% according to Dalbar, one of the leading industry research firms.

According to financial industry expert Robert Arnott, the founder of Research Affiliates, from 1984 to 1998 (a 15 year span), 192 out of the 200 top active fund managers did worse than the Vanguard 500 index (an index fund similar to the S&P 500).

Anyone feeling confident about their mutual funds yet?

But Wait, The NaySayers Are coming!

By now the naysayers reading this will be getting ramped up with their counter arguments.

“There are lots of funds with lower management fees!”
“You’re forgetting about compound interest and long term growth.”
“My Financial Advisor is different….”

I’m sure all of this is true, as are my numbers and info.

Many of these lower management charging funds are not actively managed and hence have a lower management fee, but they are also lower risk and also come with lower returns.

Compound interest is incredibly important, but 2.54% average growth over 20 years even compounded is still crap.

And it’s very likely your financial advisor is not different. Unless of course you’re already a multimillionaire and then I question why you’re even here reading this.

That leads me to problem three, which is an industry problem and an internal bias your advisor may have and not even realize.

What’s Best For Your Financial Advisor,
Isn’t Always Best For You

biases in Real Estate investing versus stocksThere’s a built in bias to the entire system and to be fair I’ll admit, it’s not just restricted to the financial industry.

Whether it’s a Realtor directing clients to a property he gets paid more for (properties listed through full brokerages versus discount brokerages), a mortgage broker pushing you to a lender he gets paid a higher commission through or a Financial Advisor pushing you to trade your mutual funds to get into a new, higher paying fund.

I understand I’m painting with a broad brush here, but it’s a brush that deserves to be painted broadly.

When I updated my Financial Advisor about our plans to buy and invest in multiple properties I was warned vehemently about how risky Real Estate was.

He was extremely anti-Real Estate due to the risk involved, or that’s how it was framed anyway. Never mind this was only recently removed from the days of Enron, the dot-com crash and multiple high flying stocks that were heavily bought into that virtually disappeared over night leaving investors with nothing.

Now you can call me biased, but perhaps the aspect of losing out on future capital that he could invest for me was the real risk? Or was he sincerely concerned about my long term financial wealth? I’m not sold on number two in this case.

Over the years I’ve learned even more about the financial systems through various books and articles and it’s becoming an even harder sell to trust an industry that has become “to big to fail”.

Circling back to Real Estate, the same individuals behind the mutual fund and investment world were also involved in the financial crisis of the late 2000’s.

And it seems like far more of the little people who lost their homes or their finances ended up hurt than any of the big players who received bailouts and huge bonus’s for their spectacular work…

Now all of this seems to be strange for a land lording guy to be talking about, but learning more about the financial world is what made Real Estate that much more attractive to me.

Real Estate Gave ME Some Form of Control

So here we are, full circle back to Real Estate. When I invest in stocks or mutual funds I’m often affected by decisions about austerity made by politicians in Greece, about oil price decisions made by ministers in OPEC and by real or perceived threats of invasion or retaliation by hostile countries. All factors that affect potential values for stocks and funds and all beyond my control.

Even more frightening is the potential for a stock to devaluate from x price to not being worth the virtual paper it’s printed on simply because of the previous factors.

With Real Estate investing I still have a certain lack of control, not all banks will deal with me, I can’t have all the properties I want, zoning rules can be problems and landlord tenant laws also factor me. Overall though, I do get to choose where I want to buy, who I want for tenants and I have a steady long term plan to carry me through.

Perhaps most importantly though, I’ve also never seen property devalue from x price all the way to zero. Even if it’s destroyed and you had no insurance (don’t tell me you’re not properly insured!) you still have the value of the land!

Ultimately I simply felt I had more control and there are still ups and downs, but that’s why we also had a long term view.

Long Term Financial Planning With
Real Estate Investing

Planning your future with Real Estate investingWith traditional investment planning once you reach retirement age you have to covert your IRA’s or RRSP’s or other retirement vehicles (USA, versus Canada versus other places) into investment vehicles where you withdraw money until it’s all gone or you die.

It’s a race to the finish with no real winner.

If there’s too much left, the government takes a chunk of it as part of the two inevitabilities of life, death and taxes. If there’s not enough left, well that’s not a pretty picture either.

With Real Estate, what if you have three or four or maybe ten properties that you held not just up to retirement, but well past that point?

If you generate around $1,000 per month cash flow after all your expenses, that gives you $3,000 per month of income with three properties, $4,000 with four and $10,000 per month with ten properties.

What if you generated $2,000 per month per property after expenses?

Remember in 25 years your mortgage is done, so all you’re paying is taxes, insurance, maybe a property manager and setting some aside for maintenance and vacancy funds, so it’s not that unreasonable if you buy smart!

Tell Me Your Thoughts!

Does Real Estate investing as a long term plan start to look even better? Why don’t you tell me your thoughts by leaving a comment below!

If you’re a Real Estate person, tell me if you’re like minded, if you’re a stock person (and I know they’re out there) tell me why I’m crazy! And if you’re a Real Estate person with stock minded friends, share this with them 8’]






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What Are Boarding Houses?

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And Is a Boarding House For You?

What are Boarding Houses and Rooming HousesI have a lot of people stop by looking for information about boarding houses, room rentals and rooming houses. It seems people are interested in short term rental properties as a way to earn extra income or to turn an under performing property into an asset that cash flows.

The extra income was the original ticket for me.

I bought my first rooming house with three rooms in 2004, hated it and wanted to shut it down within the first few months. That wasn’t an option, so I modified the original premise to what I can only say was an even better model.

Then within three years I ended up owning nine more rooming properties with 53 rooms that each rented in a range of $150-190 per week.

If you can quickly do the math on that you might understand why I grew it so quick!

Anyway, I’m wondering off the main point of this article, so let’s get back on track  by explaining more about boarding house properties and how they fit in the market.

Boarding Houses

Room and Board Properties - Boarding houses date back hundreds of years and come in a variety of different types and options. Predominately the idea of a boarding house is a property that it includes a room and board . With board being meals and often including services like laundry and cleaning.

My first experience with this was actually with my grandmother. She was a widow and rented out two rooms in her three bedroom home to local workers and provided them evening meals and laundry service.

These two sources of income helped her make ends meet and helped keep her busy as she loved taking care of people. It was a perfect fit for her!

Over the years you’ve probably seen other examples in movies and books without even being aware of what you were looking at.

Boarding Houses – The Original AirBnB

From Sherlock Holmes 221B address being a boarding house to George Bailey’s mothers boarding house seen in it’s a Wonderful Life to more recently in the film Brooklyn where Eilis lives in a boarding house.

Of course all these examples tend to be from previous eras where this was much more common. People tended to be more transient years ago and often followed work and needed cost effective places to stay. Even though things have changed and boarding houses aren’t quite as common, they do still exist and may be a perfect fit for some people.

If you don’t mind sharing your home, enjoy cooking meals and possibly providing cleaning or laundry services (which can be an additional charge). Operating a boarding house style property may be the perfect method to help you make ends meet and put some bonus cash in your pocket.

It just requires a spare bedroom (or two), enjoying having people around and most importantly ensuring you have a solid set of rules in place.

Variations of boarding houses include Bed and Breakfast setups, hosting foreign students and even AirBNB properties and even combinations of these options.

Just in my little circle of friends and relatives I see examples of this every day. My sister-in-law runs a successful Bed & Breakfast, a friend of mine rents out two rooms in her home, one to a foreign student and the other on six months terms. My cousin rents out a room in his home and we have friends who bring in foreign students for eight months at a time.

I even have an acquaintance who helps people convert their vacant rentals into AirBNB spaces.

The important part of any of these though is understanding any local regulations, laws and possibly even zoning that could come into play.

With a single room rented out to help make ends meet, it might be just fine, it might fly under the radar of any by-laws or zoning and be ideal for you.

Once you expand to a full fledged B&B though, or rent out multiple rooms as a full fledged business it can expand into a litany of paperwork and processes to legally operate.

Renting Out Rooms

Room Rentals for ProfitThe majority of my experience with these types of properties involves renting out furnished rooms in a home where the tenants are responsible for cooking their own meals, their own laundry and even their own cleaning (or at least most of the time).

From higher end properties targeting business people, tourists and more upscale clients to mid to lower end properties targeting trades people, individuals caught between places and even simply folks down on their luck, rooms were great for me.

They became a bit of a cash cow for me and helped create significant monthly income for us, but I’ve already written about that previously. If you’d like to find out more, check out this article,

Profiting from Renting Out Rooms and Boarding Houses

Or, if you would like handy tips on how to run your own rooming house, be sure to check this out,

Get My 5 Best Rooming House Tips via email

Or, if you’d like to learn about the Ultimate Mortgage helper,

Renting Out Rooms In Your Home

Here’s are my thoughts on what every rooming house owner should know,

What A Rooming House Owner Needs To Know

And finally, if you’d like to learn more about how, where and the basics of locations for setting up your own rooming house,

The Basics of Starting Your Own Rooming House

What are your thoughts on rooming houses, or did you even know they existed? Leave a comment below!