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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

You Got Your Lease WHERE?

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Paperwork Is A Key Component Of Your Business

Leases, contracts and landlord paperwork

And this includes your lease! Your lease is the single most important document you can have with your tenant as it sets the groundwork for your relationship.

But have you even read it?

I’ve talked with hundreds and hundreds of landlords and read dozens and dozens of different leases and the things I’ve seen have made my head spin.

From landlords who don’t bother with leases and just do everything verbally to hand me down leases that aren’t even legal in the state or province they are being used it.

You Need A Legal Lease

That’s part of the reason I’ve decided to work with LawDepot.com to help make sure more of you have the proper forms in place. LawDepot approached me last year about advertising on my site and I held off at the time, but the time felt right now to add them as as option for visitors here.

From leases to eviction forms and everything in between and around, they have the forms you need to protect yourself properly and to make sure you are doing your business right.

Now, to be completely transparent I do receive a commission if you do purchase through them, so it helps me as well, but more importantly, it gets the right forms in your hands.

To find out more, go visit them at www.LawDepot.com (that is an affiliate link) and see if they can help.

Alternatively you can also do some research and find a local apartment owner association. Groups like this often offer lease packages that tend top have the most current and up to date clauses and wording in there packages.

I’d definitely recommend you stay away from the off the shelf type products you find in office supply stores. These packages often tend to be extremely generic and tend to miss-out on specifics that would affect you in your state or province.

Dealing with Realtors When Buying Investment Property

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How to deal with a REALTOR® when buying investment property?

Buying investment properties with a realtorWhen I first started out as an investor I didn’t realize there was a difference in a Realtor helping me buy my first home versus buying my first rental property. I assumed they had the same training and knew all the answers, but I assumed very wrong.

After going through many different Realtors until we found one who understood what we were doing, we often wondered what the problem was. Well, looking back there were several very obvious problems.

The first was us not realizing what we needed and the second was the Realtor not being aware of our specific needs. Because of this we actually drove some of our first Realtors away and others we became too much work for, so they essentially dropped us.

To help you avoid some of the headaches and problems we went through I went to someone with some answers from the other side of the table. A friend, fellow investor and a Realtor Joe Samson who was gracious enough to write the following article which I am sure many of you will find not just helpful, but also insightful to you as you move forward.

So take it away Joe!

So you’re confused and left wondering why your REALTOR® never called you back when you had plenty of money in your bank account to buy several investment properties.

You were very serious when you asked him to “call me when you find a good deal”.

I’ve been a real estate agent and investor for over a decade now, and these are some of the most irritating words that an investor’s agent can hear from a client. Here’s an insider’s look into what it takes for a real estate investor to have a good relationship with a REALTOR®.

So your REALTOR® never called! You’d waited patiently and watched others how they’ve been scooping up prime real estate one after another and you’re wondering what happened to all those real estate agents that you have recently told about your plans?

Don’t get me wrong, since we only get paid after a transaction is completed, I appreciate every opportunity I can get to help a client with their real estate purchase. But in this case I have to say: “Thanks, but no thanks”. Read on to find out why this awkward scenario is not ideal to anyone.

REALTORS® and investors need to find the common ground on which they can work together. Just like the example given above there are hundreds of other pitfalls or opportunities where a relationship can easily end up in the gutter or go sour due to a bad decision that you should have approached differently.

Working with a REALTOR® during your search is the cornerstone of your journey. Selecting the wrong type of property or if your real estate agent is not fully understanding your plans during the process, then it could be devastating to your investment or you could end up wasting significant amount of your time.

There must be hundreds of opportunities where a REALTOR® – Investor relationship can go wrong. To avoid heated conversations, let’s take a look at some of the obvious, but often ignored causes of failures when working with your agent.

Taking Responsibility

As always, everything is a matter of perspective and someone else will need to be blamed for sure if the investment goes belly up.

Let’s admit it, we have all said this before: “…it ain’t my fault”!

Then who’s fault is it? Once we start pointing fingers at others, the damage is most likely already done, regardless if it’s your advisor’s fault or not.

When you hear these words: “Taking Responsibility”, it may bring back memories to you from the days when your parents were trying to beat this message into your head. Back then we have just shrugged our shoulders, but let’s face it, they were right about it.

As a business owner we’re faced making decision every minute of the day. Some of the decisions we make may be as little as answering an e-mail to a tenant, hiring the right cleaning crew or writing a cheque for hundreds of thousands of dollars.

At the end of the day, we need to realize that it was us in the first place who has decided to engage the services of our team members. The ultimate conclusion is that we opened the door for them to do business with us, therefore we need to be very diligent with whom we decide to work with.

Hiring The Wrong REALTOR®

Choosing the wrong realtorThe truth is that there are thousands of real estate agents out there right now who are waiting for your phone call. Almost any one of them is capable of filling out a standard purchase agreement after opening a door for you to a house that you are interested in. But in this case you’re not interested in buying A house, rather you are looking for THE house that is going to bring you positive cashflow with very little maintenance headaches, aka: investment property.

Asking lots of questions about the real estate agent’s past experience is a very crucial step that you can take. Working with the “new kid on the block” may not necessarily be to your best advantage. The key question to ask your future agent is if he owns any investment properties on his own. Make sure you get some details as well to verify the depth of his experience.

Find out from exactly how many properties he owns as you don’t want him qualifying his personal residence as his investment property just to give you the impression that he is the guru whom you have been looking for. Next, ask when did he purchase his properties, what were his biggest challenges as a landlord and so on. I believe that these question are vital to verifying the agent’s experience.

You may run into some individuals who might be reluctant to share these details with you. They could be claiming that it’s private information and there might be all other sorts of excuses that they could come up with for not sharing. I think that’s just baloney and it may be a red flag to me personally. Most real estate investors whom I came across were very proud about their achievements and they are usually excited to talk about their experiences.

In the housing business a word of recommendation is as good as gold. I was a little bit hesitant sharing this advise in the first place, but you can also ask your real estate network if they can recommend anyone whom they worked with in the past. Just be cautious and ask the agent good questions about how is he going to prioritize his clients when the “good deal” shows up.

Thanks to technology, service providers are becoming more transparent of their performance then ever before. Spend 10 minutes online and see if you can find any reviews or testimonials of the person you are meeting with. Someone who’s been around the block a few times should have plenty of reviews available.

Key tip: randomly select 2-3 reviews before the interview and ask the REALTOR® if you can have those client’s phone number to request a quick feedback of their experience with him. Some people may be dishonest about how they are trying to portray their image to the public, so going the extra step may be worth it.

Once you have purchased your property, part of your learning curve is becoming an impeccable landlord. Surrounding yourself with likeminded people and team members who you can rely on can make your life very easy. Since you have decided to work with an experienced real estate agent, he should be a crucial part of your going forward strategy when you are managing your tenants. Having an experienced advisor available can be a real rock for you when you will be facing some challenges. Find out from your REALTOR® if you can rely on him to ask question even after the sale is completed.

Being Emotional

For most REALTORS® working with real estate investors can be a whole other world than what they might be used to dealign with. The typical residential buyers or “moms & pops” can often go through emotional roller coaster rides before making their lives biggest decision.

On the other hand, real estate investors need to leave their soft feelings at home and they need to become fearless business owners as if they’re going amongst a pack of wolves.

Seriously! This is probably the number one cause of failure why investors loose their shirts in this business.

I’d seen it countless times after spending weeks or months of looking at investment properties and nothing was to the client’s liking. The numbers made sense, the location was great and the property was in good condition as well, yet the buyer just couldn’t pull the trigger. This is a huge turn off for many REALTOR®S when their client cannot look at an opportunity objectively. In the residential area this indecisiveness is an everyday occurrence. But when you are committed to invest in real estate, be sure to step up to the table when it’s your turn and don’t hesitate. Otherwise an unspoken conclusion might be forming in your agent’s head regarding the level of your commitment.

On the flip side of the coin, there are some real naive buyers who may be so hyped up about getting out there and buying anything just to claim their first rental property. They get so emotionally driven that if they end up having the wrong person on their team, they will fall in to this trap very quickly.

You need to educate yourself in advance so that you can make decision on your own and be able to recognize the difference between a good and a bad investment.

Having a Plan

Buying Your First Rental Property GuideComing up with buying strategies and crunching the numbers can be overwhelming for the novice investor. Expecting your REALTOR® to serve the opportunities for you on a silver plate is very unlikely to happen. Unless you tell them exactly what you are looking for.

Since every market is different, strategies need to be very adaptive to the local environment. For example: some investment methods might work well in the U.S. while the same strategies may not fly in Canada due to different rules and regulations.

Before you decide to spend hundreds of thousands of dollars on an investment property you should have a pretty good idea about how the entire process works. You can gain knowledge by reading books about real estate investing in a specific market. You can also join networking groups or invite others for lunch who have purchased investment properties before.

Before approaching your REALTOR® to help you find the property that you’re looking for, you will need to be able to understand what is it that you want. Otherwise how are you going to recognize a great buying opportunity if you don’t know what it looks like?

Being a Property Addict

Have you ever caught yourself looking at houses online for hours? Were you jumping from one website to another to see if you can find that gold nugget of opportunity that only seems to be a fairy tale? Perhaps you spent countless hours surfing online at your job when the boss wasn’t around? I’ve done it too.

It’s a completely normal thing to do when you are very interested in finding a solution to a problem. However it’s not necessarily a good thing for you. According to Google, addiction can be defined as a condition of making a habit of a particular activity.

When you are looking at hundreds of irrelevant properties on a daily basis it could push you off track. Wasting your time is one thing, but not having a clear sense of understanding of your goals can trap you in a maze of confusion.

Dealing With Realtors

Being more specific could have been the main thread of my entire point throughout this post. It is imperative to clearly set-up your property targets and identify your niche. Focus your search on a selected area where you intend to become a landlord instead of being all over the city. Decide on the type of property that you are looking for. Ask yourself if the house needs to be a certain size? What is going to be the minimum number of bedrooms that you require? Are you looking for newer or older buildings? Do you like condominiums more than houses?

Having clarity in your vision is going to free you from all the unnecessary activities that you may be doing and it will bring you closer to your goals. Try to resist the urge to look at all sorts of properties all the time and focus on spotting the ones that are relevant to your search criteria. By doing this you are going to soon become an expert in your niche and you’ll be able to weed out the bad investment properties that should have never showed up on your radar.

Being an investor’s agent comes with great responsibilities and I consider it a noble opportunity to work with anyone who is striving to become financially successful. You can reach me, Joe Samson at http://www.JoeSamson.com and I will be happy to guide you along with your investment questions.

Joe is a local Calgary Alberta Realtor, so he may not be able to help everyone as I know many of you come from all over North America and the world, but the advice and information in here should definitely be able to help you with whomever you work with. If you have soem feedback or questions for Joe or myself, we’d love to hear them! – Bill

Why Thinking Like A Tenant Pays Off

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Landlord thinkingAs a landlord you often have to think carefully about your property. There are monthly costs to consider, maintenance issues to budget for and mortgages to cover just to start with.

Throw on dealing with tenants, potentially property managers, keeping neighbors happy and the list gets longer and longer. You simply think differently when you’re a landlord and the property is a huge investment you need to manage, maintain and care for.

Yet one aspect we often overlook is thinking like a tenant at times, rather than constantly wearing our owner’s hat.

What Would Your Tenant Think?

As an owner your costs seem to continue to grow. Taxes increase, utility costs increase, legal fees increase, everything seems to be increasing, all at your expense.

One way to combat this is to pass these costs onto your tenants by raising rents. Now, I covered how to go about this in a previous article (Raising Your Rents Without raising The Roof), but the important part about it that I didn’t talk enough about is to think like your tenant!

If you just show up minutes before the cut off of when you can legally raise the rent and throw a rent increase notice in your tenants face you could be setting yourself up for trouble. Just imagine how you feel when you suddenly see a huge increase in fees from your bank or a large jump in your taxes.

It’s the same for the tenants. All they see is a money grubbing landlord looking out for themselves and jacking up there rent for no fair reason. They don’t see the three years prior where you couldn’t or didn’t raise the rents, they don’t see the vacant months that you covered right out of your pocket, they simply see a big fat increase that affects them.

In the previous article, I talked about positioning and explaining why you’re increasing the rents to help soften the blow. But part of the explanation I didn’t cover was planning further ahead.

Don’t React, Lead The Market

Landlord leadershipYou’re running your landlording like a business. You know that costs increase over time and you know that your tenants rent will be going up, even if it’s just $25 or $50, in six months, so why not let them know there will be an increase way in advance?

You don’t have to specify how much, just that you’ve been reviewing some of the costs and local rents and expect there will be a small increase in the future. Again, you value them as tenants, so you’re going to do something that is fair to both of you, so make sure they are aware.

Now, rather than reacting last minute you are leading them and you can make a decision that works for potentially both of you. If you see that your costs haven’t really increased and the tenants are fabulous, you may come back to them in another couple of months and let them know upon re-examination you’re going to hold off on any increase this year.

Or you may simply go in with a small $25 increase to cover minor increases that you’re having to cover for anything from taxes, to bank fees to insurance. Or, if the market has skyrocketed you may need to consider increasing rents by much more so as to not miss out.

However it plays out, you’ve forewarned the tenants in advance so they aren’t completely blindsided.  Now, rather than being upset, they typically appreciate the advance warning and can make plans to either move on, allowing you to put people in at the higher rate, or to prepare to absorb the additional costs.

Expanding on this you can also start including tenants on longer range plans.

Preparing For The Future.

Sometimes you know you have work coming up in the future on your property, so why not include the tenants in the updates?

Whether it’s a new roof, a new driveway or even a new fence, let the tenants know the proposed plan. If you’ve started to plan to get the roof done in the spring or the rotting deck upgraded before summer, give the tenants advance warning and let them know so they can prepare.

Once you talk with them who know what else you can discover. Maybe they are going to be away on vacation for a week and you can coordinate your project to take place while they are gone?

Now it’s very little inconvenience for them and they are rewarded with a new roof ,deck or some property improvement that makes their enjoyment of the property better upon their return.

If you start working with your tenants and thinking about what makes them happy and perhaps a little more prepared for you, it starts getting easier to keep them longer all while keeping them happy.

It’s a win win for everyone! Are you already thinking like a tenant? Or do you simply leave your landlord cap on and push forward upsetting tenants and replacing them every year? Tell me how you prepare for the future!

 

How A Car In The Garage Won Us A Rental Property In A Bidding War

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Negotiating A Rental Purchase

Buying a Suited Rental PropertyWe’ve bought a lot of rental properties over the years and while we ended up with many that we wanted (some perhaps we shouldn’t have wanted so bad), we’ve also missed out on many along the way.

Sometimes at a rental property we saw things that would affect the value or would require too much time and energy to repair and we avoided purchasing them and sometimes we saw certain features that made the property attain “must have” status in our minds. Of course the important part is the property had to work.

And by work, I mean it had to fit the particular mold for what we were purchasing the rental property for. During our heyday, we bought properties we renovated and flipped, we bought properties we turned into regular rental properties and we had properties we turned into high cash flow rooming houses.

Depending on the features, the area and of course the price, we knew we could usually fit a property into one of these systems.

If it was outdated and in need of renovations, we knew it might make a great flip property, if it was in the right neighborhood and had the right floor plan, perhaps it could be our next rooming house or if it was already suited, maybe this was our next rental property!

To help streamline this process, having a good Realtor can be a huge help. On the other hand, having a Realtor who doesn’t understand you can also be a huge pain in the a$$. In this tale of how a car helped us win a bidding war, the Realtor was a pain and it wasn’t long after this we parted ways.

It Pays To Pay Attention

At the time we were looking for a new rental property to add to our portfolio. We’d recently flipped a property and we wanted to move those profits into a property that would generate a nice return, so our Realtor at the time found us a nice property in a great rental neighborhood that had just come on the market.

It had just come on the market so we knew we needed to see it ASAP, as we felt it wouldn’t last long, so we had the Realtor setup an appointment right away and went to view it that evening.

It needed some work, but it was perfect for our needs. Three bedrooms up, partially finished basement with the laundry near the bottom of the stairs and a detached garage. We knew we could quickly suite the basement area and turn it into a nice little one bedroom unit, the garage had a furnace in it, so it could be rented as a heated garage and the upstairs was dated, but had great bones.

But perhaps the most important part was, the owner stayed at the property while we toured it and helped us out by telling us all the important details about the property. This is a rare occurrence as typically the Realtor who lists the house advises the owner to make themselves scarce during the showings.

You simply never know what might sneak out of the owner’s mouth that may hinder a sale or perhaps give potential buyer’s an advantage when it comes to negotiating. It’s access to unfiltered information about the house!

True to form, this homeowner followed us through on the tour and gave us plenty of extra tidbits, mostly about how much he was going to miss the home as he was moving to be closer to family, but also a couple little tidbits that were going to be beneficial to both parties. And this is why it pays to pay attention.

Ramblin’ On

It was when we looked at the detached garage we hit the jackpot.

Although it was full of tools, treasure and junk, there was also something buried under a tarp in one of the parking spaces. Since it never hurts to ask, we asked what it was.

Buried underneath it was a 1963 Rambler that the owner had one day hoped to restore. During the next 20 minutes he told us all the details about how he loved the car, had hoped to fix it up and then one day give it to his daughter, but instead it had just ended up sitting there being neglected.

Buying a rental property

You could hear his disappointment as he told us how he was now going to likely have to just give it away to some parts place or to try and sell it somewhere and would never realize his dream. As we finished the tour, we knew it was a property that worked for us and my wife already had a strategy in her mind to help ensure we got it as we knew there was at least one other interested party who was potentially putting in an offer that night already.

Unfortunately in this world, there are many folks who would use the extra information we had to take advantage of someone and outright deceive them. Deceiving people has never been our goal, we always wanted to make deals that worked for both sides, deals that were win win and where everyone was a winner and comes out happy.

So my wife came up with the perfect offer to achieve that.

We put in a full price offer, but it had one big condition in it.

The sale had to include the car. This condition just about put our Realtor over the roof, he thought we were nuts (and this was another reasons we were soon done with him).

We knew the car was a big concern for this fellow and we felt that just knowing that someone was interested in taking the car would help put his mind at ease.

Again, this wasn’t some slimy negotiating tactic, we saw how much he loved that car and wanted to get it back on the road, so that became part of our goal for it as well. We weren’t just going to acquire the home and the car and then scrap the car, we wanted to make sure it got taken care of too.

As it turns out, there was another offer that went in that night too. An offer that was actually higher than ours. But it didn’t include the car or any mention of it.

And The Winner Is?

Now I can’t remember whether it was later that night or first thing the next morning when we got the news, but even though the other bid was higher than ours, the homeowner went with ours. So who was the real winner?

Both parties! The homeowner got the price he was asking and someone to take his car. Was the car the only reason he went with us?

Part of it may be that he spent time with us on the tour and liked us, part of it might  be that we explained what we would do with the property and how we would take care of it, but mostly we do believe it was about the car. He knew someone was going to take care of it and help take one more problem off his hands.

And The Lesson Is?

None of this would be really helpful to you if there isn’t a lesson to learn from it as you go along and hopefully you already see it. It’s two parts actually.

First, it’s basically that paying attention to some of the details (and getting lucky by having the homeowner hang around) can help you with your negotiating.

Second, armed with extra information you can turn your negotiation into a win win scenario where everyone gets what they want.

As for the car?

getting a car with the houseUnfortunately, we had to sell it. My wife had visions of us restoring it and possibly giving it to one of our oldest daughter  at some point (really I think she just wanted to cruise around in a cool looking car). We didn’t just sell it to a scrap yard though, we found someone else who intended to restore it.

So how it ended up, we’re not quite sure as we never followed up with the fellow we sold the vehicle too, but we can only hope it was returned to it’s former glory.

Now, since this isn’t one of my typical landlord tips or advice articles, my question for you, would you like more posts along this vein? Posts or articles that talk about deals or strategies we used to buy properties? Let me know and tell me your thoughts on this story, I love to hear your thoughts!

You Need Your OWN Real Estate Plan

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Your Real Estate Plan Has To Work For You

Do You Have A Real Estate Investing Plan

I received some great feedback on the recent video about having a plan, (if you didn’t watch it, you may want to jump over here first, You Need A Plan). But there’s more to it.

It seems in the last week, people have just been appearing out of no where asking me questions about getting into Real Estate investing. And they’re not just asking me, they are asking other people they know as well. Which is great, but they are getting different answers everywhere they go, which is a problem.

As an example, a friend I just talked to the other day talked to another landlord friend who has about eight properties, so this other landlord is obviously is pretty serious about it. He’s sold all of his up down suites in high demand rental areas and bought single family properties in better neighborhoods.

He had quite a few of them previously and due to headaches of having extra tenants and managing properties further a field, he’s changed what he’s doing. He has a new plan. And that’s great, but it’s his plan!

This other landlord owns another business which has employees and his time is occupied with his main money earner, his company. I can see why he would want less tenants and to move things closer and simpler.

Now I don’t actually know him, but I would suggest his goal is to create a nice side retirement nest egg for himself with the rental properties and they also make a safe simple investment. The bulk of his time has to be devoted to his thriving business which is the real money earner and the real retirement vehicle.

This is significantly different than someone who may be considering turning Real Estate investing into their career.

Again I Say, You Need Your Own Plan

Follow your own Real Estate investing plan

If your intent is to buy a property or two as an investment, keep it fairly hands off and simple and your goal is to simply pay the mortgage down over time and have a retirement nest egg in 25 or 30 years, maybe a single family property closer to you is the way to go.

When you’re buying an investment property, you just have to understand the trade offs and what suits you.

With a single family home for example, you lose in the following areas.

  • Overall Cash Flow is Lower
  • Smaller Base Of Renters For This Type of Property
  • Longer Periods of Vacancy

Cashflow is usually just a few hundred dollars more than expenses on single family homes (unless you’ve owned it for many many years). The types of tenants that can afford to rent a whole house, also typically have enough income to purchase, so this subset of renters make up a smaller percent of the total base of renters actively looking for places to live. And you end up with longer periods of vacancy due to having a smaller base of renters.

The positive trade off is often they are better tenants and this equates to less headaches and/or time. If that’s what your goal is then this may fit your plan.

For someone with high income, and little time who is looking at this as a long term investment (15 years plus), this may be an ideal plan for investing in Real Estate.

But what if your goal is to get out of the job you have and not have to worry about income from your job? What if, like me, you intended to make Real Estate investing your full time career? Or at least a huge portion of your retirement nest egg? Then you need a different plan.

Then you need to focus on cashflow, because cash flow is what makes the rental market flourish for a landlord. When you have an up down suite or a side by side duplex with two incomes and you’re generating $500 per month of cashflow, or $800 or even $1,000 on one single property it takes a considerable amount of pressure off the amount of income you earn independent of your Real Estate..

It also gives you space to manoeuvre if the rental market slows down. And it will slow down. It might not be this year, or the next year, but in most areas the Real Estate market is cyclical. That single family home you were making a couple hundred dollars off of works fantastic when vacancy rates are 2 or 3%, but when they push up to 6 or 7%, rents start slipping down due to competition. If you’re in Detroit, well all bets are off.

Preparing For Downturns

Real Estate Does Go Down in ValueWith a $1,000 monthly cashflow dropping rents on two units  by $200 each makes you more competitive and still gives you some nice cashflow. Even on $500 cash flow, losing $400 will be painful, but you’re still positive and if you lose one person, you’re not having to cover the full payment yourself.

With a solid plan, you have a plan B, a contingency to deal with these scenarios. Raising and lowering rents and still surviving is an option.

With a single family home the amount you can cut is much lower and with higher vacancies due to a smaller rental pool having your property vacant for two, three or even four months can be a killer. When you only have $100 or maybe $300 cash flow in good times, you better have lots of extra income to support it, but maybe that’s part of your plan?

So obviously I’m biased, but I’ve seen what works. I’ve been through sub 1% vacancy rates and vacancy rates around 8%. I’ve had tenants offering to take places unseen during low vacancy periods and I’ve had properties languish for months vacant during the last downturn. Through it all I’ve recognized that cash flow is indeed king and it’s a recurring theme I push on this site to new landlords.

Ultimately though, it comes down to your plan. Some of it’s your comfort levels. Some is your available time and where you eventually want to be with it. If you don’t have the time to manage extra rental units, maybe you need to be prepared to hire property managers. If you’re investment window is 30 years, it’s about the end result not what’s happening right now, so you have to plan accordingly.

The important part being the planning. In some upcoming articles I’ll talk about renting out condos and other types of rental properties. If you have some thoughts on this though, I’d love to hear them!

 

 

Landlord Tools of the Trade – Painting Tools

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Landlord Tools

Painting Tools for Landlords

Every business has the tools of the trade, whether it’s wrenches for a mechanic, spreadsheet for analysts or even color swatches for designers. Knowing what tools to have can make those jobs easier, faster and hopefully more profitable.

The same can be said for the landlord business. So to provide some ideas of items you may want to have, I’m going to create a few articles with some of the items and tools I use to make my work easier and in turn, hopefully yours too.

Speed Up Your Painting

Hopefully you’ve seen my previous article/video about choosing paint colors (A Quick And Easy Landlord Renovating Tip), if not maybe go take a quick look at it after you’re done here. It gives you some ideas about saving time later and it revolves around painting which is where today’s tools come to play.

Now as much as I would like you to hire someone to come in and do the painting for you, it doesn’t always work that way. Hiring someone may not fit in your budget, you may have plenty of spare time or you may even find it relaxing. So if you’re doing it, make sure you have the right tools to get the job done.

I actually have several of the tools I take with me whenever I have to paint a property in the image at the top of the page. The obvious ones are the huge bucket of paint, the small ladder and the drop clothes. The less obvious ones are the scraper on the floor, the roll of sandpaper (the sanding block actually isn’t in the picture, but you’ll want one of those too) and my handy rolling stick.

Obvious Painting Tools

We buy the large buckets of paint as we use the same color in all of our properties and by purchasing in larger containers we save money. The small ladder allows us to reach the corners and top edges when painting. In my case I’m over 6′ tall, so I don’t need a very larger ladder, you might want to consider a slightly larger one if you need it. My wife actually has one with a shelf to set the paint on and it’s her favorite ladder for painting.

Drop clothes, these should be mandatory! You can purchase them from most paint supply stores, but we also use old sheets and for those paying attention the blue sheets are actually old sheets from the surgery ward in hospitals. No, they weren’t used, but they were thrown out and a friend who worked at the hospital donated them to us. They are AWESOME!

Having drop clothes can save you a ton of clean up after the fact and although it takes a bit more prep time to lay them out, you will be thankful the first time a big glob of paint falls on them.

Less Obvious Tools

The less obvious tools are the scraper for cleaning up edges, removing silicon or for outside wooden frames with pealing paint. The sand paper may actually be one of the most important pieces.

I could probably turn this into a five thousand word article about painting, but to keep your attention, I’ll gloss over a few things, and just do some Coles notes on them. Starting with prepping the walls. The amount of prep work you do prior to painting will really help determine how it looks.

If you spend extra time mudding and sanding any imperfections, patching any plaster that is damaged and scraping any old paint off it will make the finished product so much better. That sandpaper you brought with you is worth it’s weight in gold to accomplishing that goal.

On top of that, doing a quick sanding between coats can also help create a smoother finish along with helping the second and/or third coat adhere better. Don’t skip this step.

That brings me to one other tool we use in concert with the sanding, the painting pole. Obviously we use this with the roller (should I have mentioned the roller as an obvious tool?), but we also have special sanding blocks that attach to the painting pole as well. This makes the process of doing a quick scuff up of the wall fast and easy.

It’s a quick sand, you don’t want to take the paint off, just scuff it a bit to smooth out any imperfections and to allow that next coat to stick more. Trust me, if you haven’t been using a pole already for rolling the walls, just having one will make a huge difference in your speed (and it makes you back feel better too).

Finally, don’t forget a couple plastic bags full of rags. This is dual purpose. The first time you paint a wall a new color you’ll need to do a couple coats. Wrapping your paint brush in a wet rag and leaving it in the fridge over night will help stop the paint from hardening allowing you to come back the next day and apply the second coat.. You’ll also be able to use the rags to touch up any booboos.

The plastic bags (sorry environmentalists) work great with the roller and the rolling tray. If you need to come back later or the next day for coat two, make sure the tray is full of paint, the roller is soaked and then then cover the tray with two bags, one over the thick end first, then across the other end. It keeps the air away from it and allows you again to set it aside until the next day without worrying about the paint hardening or destroying the roller.

Other Painting Tips

This one is a little more advanced and may not work for you, but we don’t use painting tape. We cut in by hand along the ceilings, baseboards (when we don’t remove them first) and door frames. It takes a steady hand and it doesn’t hurt that my wife is an artist as well so she can follow the lines. I’ve just had lots of practice and I stock extra rags in case I mess up…

If this is something you’re going to try, make sure you have a two or three inch wide wedge style paint brush as the wedge shape helps keep that line and we find it’s a bit easier on the hands. If you’re not familiar with this, it’s just having the tip of the brush angle down instead of squared off when you are looking at the brush when it’s flat on the floor. See the image for a visual explanation.

Paintbrushes

If you use drywall mud to patch holes, go over the mud after you patch with a wet rag. It will remove the excess and just leave the filled in hole making the wall look smoother instead of patchy.

You can use stir sticks to stir paint that has been sitting for a while or you can purchase attachments for your drill that will do a much better job of stirring paint. If you do a lot of painting, this attachment can be very handy.

Remove all switch plates and electrical covers and bring a couple boxes to put them in so they don’t get lost. If they are grimy and dirty we often put them in the sink with a little dish soap or cleaner to soak. then we remove them and wipe them down with some of our plentiful rags later and they come out much cleaner. If they aren’t coming out clean, consider purchasing new ones or the work you did making the walls all pretty is for nothing.

Did I miss any handy tips or tools to make your next painting project easier? Do you have some you can share with me? Either way I’d love to hear your thoughts about these tips and whether you would like access to more of the tools I use and how to take advantage of them to their fullest. So leave me a comment below.