Win/Win/Win for Rent to Own Deal

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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Mark, What's With This Win/Win/Win Stuff?

I grew up with a father who would rather take a hit himself than cheat someone else out of something. I saw this put into practice multiple times and he has lost tens of thousands of dollars a number of times because of this mindset (I'll call it integrity). About a decade ago I approached him with the idea of renting to own and asked what he thought. He basically told me to stay as far away from rent to own deals as possible. The reason was that "The tenant will always lose out on this kind of deal because the landlord will need to protect his/her own interests". I asked for an example and he gave me a few. I left it at that. I trust my dad and his understanding of real estate in general as well as investing. It has only been in the last 2-3 years I have come across some really interesting ways of doing business and helping people who are cash rich and credit poor own a home that actually does help them.

What Does a Typical Rent to Own Deal Look Like?

Dad believed that rent to own deals all fall into a limited category. And he was right. It is a simple transaction that I will explain here, but it does have some variations that I will share as well. Typically, there is someone with a house they no longer want for various reasons and are willing to sell it within a period of time as long as that period of time is hassle free. On the other side of the deal there is a family who, again for various reasons, wants to own a home but cannot currently obtain financing from a financial institution either because they do not have money for a down payment or because the lender/bank doesn't like the family's credit score. The agreement they both sign comes in two parts

1. The lease agreement

This is basically like any other lease or rental agreement. It details how much rent will be paid each month and what will happen to protect both the tenant and the landlord

2. The option contract

The basics of an option contract are: It gives the right to the tenant to purchase the house within a  certain period of time for a certain amount of money. If the contract time limit runs out before anything is purchase, the contract is now null and void. This contract is typically purchased from the landlord for a price and this money is lost if the tenant will not or cannot purchase the house.

In the typical scenario, the tenant is left on their own to save enough money for a down payment as well as rebuild/improve their credit. The landlord receives higher than normal rent and typically hassle free management because the tenants are treating the house as their own and even does minor fixups themselves. Typically, this type of situation works out about 40% of the time (I've heard lower numbers than this as well), based on investors I have spoken with extensively on the subject. The reason these deals aren't completed is that a typically family that has poor credit also has a difficult time saving a large amount of money and doing everything right for an extended period of time so their credit score jumps. This makes sense to me... how can a family rebuild their credit if they may not even know what they must do to improve this score?

What I'm Doing Differently

The way I do rent to own is different in a few significant ways. I call it a 'tenant focused rent to own program'.

First, I only will get into a deal with tenants who have an excellent chance of qualifying for a mortgage with just a little help. 

Secondly, I only work with tenants who have enough money for a down payment TODAY. This is important because it removes a huge obstacle to home ownership

Thirdly, and possibly most importantly, I help these people all along the way so they know what they need to do in order to rebuild their credit. We work with a credit repair specialist who meets with the family a few times each year to monitor the improvements to credit as well as give homework for future improvements.

Lastly, I structure deals so that tenants can choose where they live in the city as well as the exact home they desire. This is done by finding an investor who wants a good return on her/his investment without a high degree of risk. The investor purchases the house for the tenant/future home owner for now. The tenant pays higher than normal rent to make this a good deal for the investor and at the end of a relatively short term (2-3 years) the tenant purchases the house from the investor. 

So... What's the Win/Win/Win about?

Well, when a family that desperately desire to work toward purchasing home is able to not only buy that home, but also control the house until they are able to purchase and can, in the meant time, live in that house they definitely feel like they are moving on in life (especially when they have help all along the way). 

When an investor who is dissatisfied with 2-6% returns on their investments/future retirements (and that's in a good year) receive much higher than that without any management trouble or headaches that can come with renting to others and another person takes care of the details, they know they are profitting while helping another family in need. 

When I put this deal together and work hard to make sure there are few, if any wrinkles in the deal and take care of a family with the desire to own a home as well as an investor who desires to take care of her/his family in retirement and make a profit along the way for my hard work, I absolutely win.

There it is: a win for a family, for an investor, and myself and my family; win/win/win. I love doing real estate because there are legitimate ways to take care of multiple people simultaneously. 

p.s. this type of rent to own scenario is a success over 90% of the time:)

I hope you both enjoyed and learned something from today's blog. Happy investing!


If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

9th Dimension: Reinvesting with original money

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

Remember: Please share this article if you find it enjoyable. You can also like this article and comment on what was helpful to you. This helps me focus on what you want.

What's the advantage?

When you have a property you have owned for any length of time and want to invest in a new property real estate is unique in that you can refinance your initial property and use that cash to reinvest in other properties. The greatest beauty of this strategy is that if done properly you are not putting your original investment at risk and you can now realize the multidimensional nature of real estate with twice the number of properties.

The higher the percentage of equity in a property, the less you are capitalizing on the many profit centres of real estate. Here's an example: If you own 100% of your property, nobody else is paying off your debt for you which means you aren't capitalizing on the full benefit of hedging against inflation. If you own 50% of your real estate then you are paying back your debt with deflated dollars! Remember my earlier blogs on this topic.

Another example is not realizing leveraged appreciation. When you own 100% of your property and it increases in value by 5%, you gain 5%. If you have only 50% equity in your property and it appreciates at 5% you are actually gaining a 10% return. Again, refer to my earlier blog on this topic for a fuller explanation.

Is there a rule of thumb?

It is important to understand how mortgages work. Should I remortgage or take out a HELOC? There are advantages of both. Two advantages of a HELOC are that I haven't messed around with how my cash flow is working on my investment and I can choose to make interest only payments which decrease the cost of this debt. Two advantages of mortgages are that the bank cannot ever call in my loan as long as I'm making payments and I am paying down principle each and every month rather than potentially leaving outstanding debt stagnant and not getting ahead in another way. You will need to make the decision yourself and I advise you to talk to professionals who you trust when making this decision; both mortgage brokers and other, more experienced, investors are wonderful to bump ideas off of, but make sure these people are competent in their field because it does not take very much time, effort, or money to legitimately claim I am either a mortgage broker or investor.

A note of caution:

I do not recommend anyone but the most experienced of investors to ever take out the maximum amount of equity from properties. You can put your entire portfolio at risk if you are over-leveraging. Remember my earlier blogs on this topic! Cash flow is king and must remain intact in order to manage that largest swaths of risk. Everyone has their own rule of thumb with this, but here is are two questions I ask myself every time I make a decision on refinancing or purchasing another property: What is the worst case scenario? Can I handle this scenario without putting my portfolio at risk? If I can handle it, then it poses far less risk to me. With a first property/investment you may not want to take a ton of equity out but with your 10th or 100th property you have much more to fall back on if something goes wrong. Also, I tend to like keeping a lot of equity in the home my family is currently living in. That way if everything else goes wrong my family isn't affected in the same way. I can lose my entire portfolio and not endanger my family.

Summary

If you are not at least thinking about reinvesting equity in your property you are not taking advantage of all that real estate can offer. The beauty of reinvesting is that you can have a full time job that takes care of your family while reinvesting all money made from real estate investing back into real estate investing. There is a snowball effect to reinvesting which can explode after a couple of decades! Remember the only financial lesson the majority of us learned in school? Compounding interest is almost magical in how it works to an investors advantage. I will leave the final word in today's post with someone who has significantly more pull to his quotes than myself. I've heard it said, though I question whether it was stated in these words, that Einstein stated: "The most powerful force in the universe is compounding interest". As far as I know, a less disputed statement by Einstein is: "Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it."

Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Why Stocks are Less than Ideal

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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False evidence appearing real

What are the few ways to make money in the stock market? Well, the tried and true method spoken of by so many 'gurus' is to buy and hold for a long time. While there are other ways to make money in stocks I will focus on what most people talk about and show why this simply doesn't help the average person with investment growth.

With the recent all time high of the market last week (just under 17,000) my interest was aroused at what the true value of 17,000 really is. I took a look at the market peak at the very start of the century and then followed the numbers (both highs and lows) to discover just how much the market really has come. There's a catch here, though. What I did to find the true value of the market was to adjust the numbers for an average inflation rate of 3%. Here is what I found the numbers would be on a yearly basis using a 3% appreciation rate.

2000 - 11,722.98 (historically highest high of the market)
2001 - 12,074.67
2002 - 12,436.91 (40% drop in the market this year)
2003 - 12,810.02
2004 - 13,194.32
2005 - 13,590.15
2006 - 13,997.85
2007 - 14,417.79 (market hit high of 14,164.53)
2008 - 14,850.32
2009 - 15,295.83 (54% drop in market)
2010 - 15,754.70
2011 - 16,227.35
2012 - 16,714.17
2013 - 17,215.59
2014 - 17,732.06 (market, just last week, hit all time intra-day high of 16,970.17 (June 9))

By looking at these numbers it is easy to see that the market has not even matched a 3% inflation rate over the last 14 years! Isn't this crazy? The second reason this is crazy is that there typically are huge dips in the market every 5-7 years. The market dropped by 40% by 2002 from the previous high and then by an astronomical 54% by 2009 from the 2007 high. What this screams to me is RISK!!! If I were planning to retire around any given year it is almost impossible to know in advance what the market will do. If my portfolio has lost 50% of it's value at the time I want to retire what does that mean for me? It means I have a choice of retiring with half of what I planned or delaying my retirement, neither of which is very appealing.

Summary

If you want to invest in a market where you don't even match the appreciation rate and also desire to take the risk of possibly losing half your portfolio by the time you want to pull your money out... by all means invest in the stock market. If you want ways to manage your risk that you can follow and know with substantial certainty, read some of my other blog posts. While real estate may rise and fall as well the greatest advantage of real estate is that you never need to sell it in order to retire and depend on a fantastic income for the rest of your life. It doesn't matter as much what the overall real estate market does because you can retire on the rental income and keep all of the original investments.

Disclaimer: There are other ways to make money in stocks and even some ways to have a consistent income from certain stocks, but the way people make a ton of money is typically through capital gains (buying low and selling high) or higher risk strategies that a person must typically study for a very long time in order to be profitable. Even then nothing is guaranteed. One of the major reasons I like real estate is that I have control of the investment. I can decide where I buy and how I manage the place as well as rental increases and regular maintenance. The more I control, the better I can control risk. In the end I have to admit I simply don't control almost anything in the stock market.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Alberta Housing Market a Standout Performer!

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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What should this news mean to the savvy investor?

The Calgary Herald came out with an article on the booming Alberta economy and housing market around 10 days ago. You can view the article here: http://www.calgaryherald.com/business/Alberta+housing+market+standout+performer/9858815/story.html

It basically says that while Canada's housing market appears to be slowing somewhat Alberta's housing market has recently been heating up. The way I found came across this article was that it was tweeted by a company that makes money from informing real estate investors on what is currently happening across the country.

I'm going to be completely transparent here: Shame on those who make money from investors by posting this kind of stuff and shame on a newspaper that has an uneducated view on what is happening in Alberta right now (You didn't expect that coming did you?)

For the small mom and pop type investors this news tends to inflame the desire to take care of their families and retirements by getting into the market before it's too late. It is false to think that it is too late to get in the market ever. Educated investors have made money in every type of market in North America's history and will continue to do so regardless of how much a house costs. When a newspaper article tells you the market is heating up, it means you need to start rethinking the market in a way that most people won't for a couple of reasons.

Reason #1: Media tends to lag the market by at least 6 months!

Think back to 2007 and 2008 when the market in the US was just about to crash. Do you remember what CNN and other news media was reporting? They were proclaiming how wonderful the market was and how people simply could do no wrong by getting into real estate. At this same time all of the big dogs in real estate were selling off a lot of their portfolio and changing their strategy to match the actual market; overextended. In the next couple of years when the market was low what did the news media report? Basically that you shouldn't touch real estate with a 10-foot pole! What were the savvy investors doing? Purchasing property as quickly as possible!

News media tends to lag what a market is actually doing and I'll give an example from the article under discussion today. The Alberta market has been heating up for at least 8-10 months already. Especially when it comes to starter homes. Over this past winter in Calgary, a typically slow time of year when prices consistently even drop a touch, the market rose to the point where it was difficult to find any kind of decent deal. I remember speaking with my real estate agent regarding a place I believed I could potentially flip. We put in an offer that made sense from the standpoint of making money from the deal and were outbid by over 8 other offers. This was in the middle of winter!

I can guarantee that every investor worth their weight in straw understood Calgary's market and was ready for an incredibly hot spring in the market, but were also preparing for the future year or two based on what was already taking place.

Reason #2: When everyone is buying you should often do the opposite!

You can make money in every kind of real estate market: flat, seller's market, buyer's market... it really doesn't matter what the market is doing. It matters more how you are responding to the current market that determines your success in real estate investing. When the media is raving about the strength of the market you should realize that most people reading that article are thinking of the benefits of purchasing a property. Here the basic rules of supply and demand should kick in. When a lot of people want to buy, it is the ideal time for you to sell!

I realize there are different strategies in real estate investing and I want to provide a broader perspective than simply making money from capital gains. If you are a buy and hold type real estate investor, it may be the ideal time to sit back and watch the market. Why? Because the faster and hotter the market gets, the more likely the next dip is right around the corner. If you understand how to flip a property this is a very dangerous market for you. You don't know when the next dip will take place and therefore you need more than one exit strategy in case it happens in the middle of your infill or rehab project. There are other strategies as well and I won't reference them all here. Please simply be aware that you need to be informed about real estate and make sure you make the decisions that will help you in the long run. In real estate the tortoises typically end up doing way better at the end of the race than the hares.

An alternative to the masses

I'll offer a suggestion that nobody need take. This isn't advice as much as it is a challenge for you to think on in your investing education. Market corrections take place consistently in every market, but especially in markets that can get as hot as Calgary. What this means is just as the peaks are high, the dips are low. We don't know when the next correction will take place in Calgary, but it typically happens when everyone is super excited about real estate (there are specific factors to watch for other than simple excitement from the masses). If a real estate deal makes sense today, then you shouldn't wait on it too long because it'll be gone. There are important factors that help it make sense and these are discussed in other places in these blogs ('The first dimension of real estate' is an example). If you can't find great deals, however, it may be time to wait until the next dip. Why? Because it is when the market is falling that so many fire-sales are taking place and you can pick some absolutely excellent deals that will be pillars in your portfolio for decades to come.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Biggest financial oversights of each decade of life

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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In what stage of life are you?

This morning I read a short article on the worst money mistakes people make throughout life. I would like to summarize them here for you so that more people can avoid these financial killers. While the mistakes we make at younger ages can be overcome with sound financial decisions later in life, the longer we wait to learn about and utilize finances in wise ways the smaller the window of opportunity and larger amounts of money we must make in order to take care of ourselves and our families. Keep in mind these ideas are someone else's and that I would tweak them; I don't agree with some of what this writer believes are the biggest mistakes and I've added my own tips, at times, to help give an idea of what you can do to take control of your own finances.

20s: Spending more than you earn and not saving for retirement

In this decade the biggest mistake is spending a ton of money on vacations and vehicles as well as clothing and eating out. These are all unneeded expenses and make a huge difference in how you can live later on in life. I'm not saying you shouldn't travel or eat out or buy a decent vehicle. What I'm saying is that by changing just a few minor details you can really take care of yourself later on in life.

These are ideal years not because you earn a ridiculous amount, but because you can save so much. While your expenses for living are relatively low you can actually get way ahead of almost anyone in North America simply by knowing what to do with your hard earned money.

Tip:
Understand the basics of budgets. Many educators teach budgets in a way that restricts what you do with your money. The focus of a good budget shouldn't be on restricting yourself, but rather freeing money up for top priorities. If you commit to investing and saving a certain amount of each pay check you can then spend the rest of your money how you want in complete freedom knowing that you can both enjoy life and take care of your future. The amount you invest and save doesn't have to be earth shattering and you don't need to watch each penny you spend. Take some off the front end of your pay check and put it away and invest it... with the rest you can simply enjoy it as you wish. No restrictions!

30s: Combining finances and delaying insurance

Biggest mistakes in your 30s, according to the article, are combining finances in romantic relationships and choosing not to have insurance while it is most inexpensive. If one partner handles finances the other typically doesn't understand what to do if his/her partner passes away or there is a break down of the relationship. Also, if all debt or payments are made by one person there is potential that the other partner may not be building his/her credit in order to qualify for potential needs in the future. Don't necessarily agree fully with this mistake I see the point and believe both partners should always have a good handle on the finances. I'll add another mistake: not having a plan, especially for your children, if anything happens to you and your partner. Why would you give all of your net worth to lawyers for fighting among in-laws or others? Take the very little time it takes to choose guardians for your children and at least let your family know what the plans are if you pass away. I recommend going to a lawyer and spending the money, but you can also put together a simple will yourself with a little bit of help and research on the internet. Just make sure you are taking care of your kids!

This and the next two decades of your life provide the ideal earning vs. ability to save ratio in life. It is when you will have the highest earning potential. Utilize this period of time to have appreciating assets rather than liabilities. Life insurance can be very inexpensive at this time in life, but make sure you do your research and understand the products. I was a licensed life insurance broker for a short period of time and really don't believe whole life or universal life insurance provide value for the average person. Each product has a use and the more you understand the more you will have the ability to make the best decision for your family

Tip:
Make sure you understand credit and debt. Both how credit is built and maintained as well as the differences between good and dangerous debt. My quick definition is that good debt will maintain itself and pay you over and above what you will ever need to pay back monthly whereas dangerous debt is any debt that doesn't pay you on a monthly basis. I personally utilize term life insurance because it has very low costs if started at an early age (you don't really need it before having dependents) and when it runs out my family will have enough cash flowing investments to pay enough to my family if anything happened to me. This is a type of self-insuring which, if done properly, will pay out way more than life insurance if you live for any length of time.

40s: Funding college accounts over retirement accounts and not saving enough

Don't get me wrong... taking care of your children should be a very high priority for you. If education is important to you and your children there are many ways to take care of its funding. Do you really need the Ivy League school if you don't have the ability to pay for it? Make sure you are taking care of yourself and thus teaching your children how to handle their own finances.

Typically the only financial lesson any of us learned in school was the magic of compound interest. If you invest early on, you can invest less on a monthly basis to reach the same amount later on in life. If you start funding both your retirement plan and your children's education at an earlier date it won't take as much out of your pay check than later on.

Tip:
This may be the time to start budgeting for your kids' education, but it IS the ideal time to teach your children about their own finances. I'll write another blog shortly on how my wife and I are teaching our young children so they will be able to take care of themselves. Instead of simply lamenting that I didn't get any extensive financial education I can simply teach my children.

50s: Co-signing on a loan and getting too defensive with savings

Newer CMHC regulations are changing whether or not you can co-sign for one of your child's mortgages, but co-signing can put quite a bit of your future financial security in jeopardy. As individuals start thinking more seriously about retirement there is a tendency toward taking zero risk in any investment which, for the average individual who has been burned in a few investments, can seem safe. It isn't if you do not have enough for your retirement.

The average 50 years old has a lot of life left and, it may just be me, the majority of even 60 years old can still feel very comfortable working rather than beginning retirement. This means that the 50 somethings are individuals who can still save quite a bit. Not only can you still work, but often you are also an empty nester at this time of life which means expenses can usually drop substantially.

Tip:
Rather than not investing or throwing your money away in a GIC (you make less than inflation takes away from your nest egg) why not take the extra time you have without children to begin re-educating yourself on investments? If you have some extra time this allows you to know and then properly manage the risk for any investment. Gone are the days when you trusted others with your money. You need to understand the risk and then take appropriate action. If you fear losing money... make sure you have a controlling interest in your investments so that you can decide what happens instead of leaving it up to chance or others' mistakes.

At this stage you need to understand how much you need to retire and replace your income. The numbers can be astronomical if investing traditionally in GICs or bank controlled assets. If you are paid 6% on your investment and need a modest $60,000 (this will assume you've paid off your mortgage) to live on each year, you will need a hunk of cash of at least $1,000,000. This doesn't even take into account how much more you will need each year due to inflation. Ask yourself right now: do you have $1,000,000? Now, if you invest in your own education and turn your nest egg into cash flowing investments they will already cover inflation (unless you invest in stocks). Also, if you have educated your children before this point it will really pay off because they won't be asking you for money.

60s and beyond: Underestimating the cost of future medical expenses and overlooking your income

When you do choose to retire, don't forget to continue to invest wisely and cover you risk. Don't get too passive or you may not have enough... some people are living into their 90s. Don't be the person who suffers through lack of planning! Medical expenses, even in Canada, can get expensive if you want good care and the cost of living can actually go up quite substantially!

These years should be where you are able to enjoy your grandkids and spend quality time with them no matter where they live on the planet. My parents take regular trips to Japan to visit my brother and his family of 5 and this is how it should be. This is where all your planning pays off. Congratulations!

Tip:
Cash flowing investments are so much better a plan than a big pot of cash in the bank because they cover every scenario. I have covered this in depth in other places in this blog, but keep in mind that cash flowing assets should grow with or outpace inflation or they won't meet your needs at this stage. Don't leave decisions up to your children as you age. Make sure you have a living will that will take care of you AND your loved ones. It is expensive to live in a retirement complex that has full time nursing staff.

One last tip: do some research right now into how much the maximum payment from both CPP and OAS is! I promise you will be suprised at how little you will receive if you don't already have a good idea of these numbers (hint: the maximum total, annually, is less than $20,000 as of this writing). CPP and OAS don't provide a lifestyle, they simply keep people from starving (and you may still starve if you attempt to live in a Toronto, Vancouver, or Alberta) even if you own your home with a clear title.

Summary

I won't be wordy here. The main point is that you need a plan in place. I recently read an article that stated the average Canadian will retire with less than $60,000 in savings! That will take care of you for one year of retirement and I don't want anyone in this country to have to work as a wallmart greeter for the rest of their lives due to a simple lack of planning. I have nothing against Wallmart greeters, I simply want people to take this job because they want to rather than to keep from eating cat food.

Here is a link to the article that precipitated my interest in writing this post:
https://ca.finance.yahoo.com/news/worst-money-mistakes-age-000000873.html

Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Financial Planners Are NOT Helping You!

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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If you are a financial planner...

The purpose of this particular post is not to shame financial planners or to question your integrity. The purpose is to help those who tend to trust their money with you because, generally speaking, you aren't helping them. While I realize there are a few of you out there that are outstanding at your job, I'm guessing pretty much everyone reading this will have been educated in conventional financial matters rather than anything outside the box.

Why is conventional financial wisdom anything but wisdom?

Conventional financial planning practices at least two things that don't make any sense to me. The first is that they are paid by the mutual fund companies that they are trying to sell you on. This isn't unbiased financial planning, it is lying about being a salesperson! The second is the idea that I am supposed to work my tail off at my job and scrimp and save every penny in a tight budget in order to build up a large pool of cash which is 'invested' in places that, on average, pay me around 3-6% (I'm actually being kind to the industry with this average) annually so that when I am 65 or 70 and believe I have enough I can slowly decrease this pool of money over the next 15-20 years until, presumably at my death, there is very little left. In other words; I work my tail off so that I might have enough money left over by the time I die.

Another part of this is the mindset that I need to retire with a lot less money than I am living on right now. Why? What sense does this make? Just because I'm working at a full time J.O.B. doesn't mean I need to retire with less money. Just because I will be enjoying my grandchildren a lot of the time doesn't mean I need to settle for no money for the things that are important to me (I might want to take my grandchildren to Calaway park for the day, or take my kids and grandchildren somewhere warm for a coupe of weeks in the winter because they are working hard to save money and could use a break). Personally, what gets me really excited about retirement is that I will have both the time AND the money to invest in other people when and how it fits the lifestyle I am looking forward to.

Priorities are vital for a long term plan

I don't propose you get involved in some kind of Ponzi or get rich quick scheme. It really depends on how much money you are making at your current work situation, but I like the idea of my wife and I making sacrifices now in order to have the lifestyle we want later without compromising certain values. First on my list is family time; I will always spend time with my kids and wife on a daily and weekly basis. One day of the week I do not work, I simply spend time with my family. Every morning for a few hours I spend time with my wife and then my kids. This is uninterrupted time where they have my undivided attention. I also spend some time in the evening with my kids playing. Sunday nights is a dedicated time to my wife where we pour a glass of wine and simply connect at the end of one week and the beginning of another. This is my first priority... period! The reason it is my highest priority is because my greatest long term goal is having great relationships with each member of my family (if I have money and time, but can't see my grandchildren it isn't the ideal picture I have for retirement).

After this, however, my wife and I do make financial sacrifices in order to save and invest for our future. We do have a budget. We don't feel it is overly restrictive; simply a help for keeping on track for our long term goals. As we make more money, our lifestyle can change to accommodate. The focus isn't on restriction, it is on long term goals that are a priority for us as a family. Robert Kyosaki suggests having three 'piggy banks'. In each you can deposit 10% of your income. The first is labeled 'giving', the second 'investing', and the third 'saving'. If I stick to this type of financial planning I can use the rest of the money for basic needs and then desires knowing that I have freedom to meet the needs of others, reach my long term goals, and have a stash in case something unexpected happens. My wife and I live with a lot of freedom in this knowing that we are taken care of and can invest in others.

What do I invest in?

This is, literally, the multi-million dollar question! I don't get excited about 3-6% returns on my hard earned money (in good years). I get excited about having my money work hard for me just as I've worked hard for it. Now, I'm going to share something on a personal level. The purpose of this is simply to raise your expectations of what you really need to start earning on your investments. I don't get excited about any investment that has a projected long term return of less than 30% of my money. I may take less for a short term return, but long term I need at least 30% to be interested.

Take a deep breath!

Yes, I said at least 30%. Most people will have two reactions to this statement:

1. Mark is involved in some kind of scam or get rich quick scheme

2. Mark is taking on unbelievable risk in order to even think about making those kind of returns

Here is why you think that way. Are you ready for it? YOU'VE BEEN EDUCATED BY FINANCIAL PLANNERS WHO RISK YOUR MONEY IN STOCKS YOU KNOW NOTHING ABOUT MANAGED BY PEOPLE YOU KNOW EVEN LESS ABOUT!

The first step to financial freedom is education. Let's be honest, we didn't learn a thing that truly helped us understand financial literacy in school. That means you need to do some learning on your own. Warren Buffet had mentors and taught himself how to invest. Something that is clear about Mr.Buffet is that he doesn't invest in something he doesn't understand well. That's a key factor for how he makes a lot of money. What are the steps to financial freedom that financially well educated people take?

1. They educate themselves
2. They invest only in things they understand
3. They don't take unneeded risks (again, they are educated and understand all risks involved in any investment)
4. They can invest with their head instead of their emotions
5. They manage their investments themselves

The fifth point is essential in this process. I expect 30% returns because I understand risk and manage my investments myself. I can never expect 30% returns if I have someone else managing my investment because, legitimately, they need to be paid for their work which takes a toll on my return.

I don't have enough time right now

Maybe you legitimately don't have enough time to educate yourself and then manage your investments yourself. That's a legitimate concern for some. In that case I would encourage you to learn what you can as you have time to do so. My other posts are a great place to start if you are new to these ideas. The information is 100% free (if you already have an internet connection) and you can go at your own pace. The beauty of a blog like this is you can communicate with me and ask me for more information on certain topics. I'll be happy to comply and give people what they most need. If you have money sitting around right now and don't know what to do with because you aren't happy with 3-6%, then start getting into contact with real estate investors. As you get to know them ask a ton of questions to gain an understanding of how they will manage risk in such a way that you don't have to fear for your investment (don't sacrifice emotional/psychological health in order to receive a few more percentage points). Don't invest with anyone that is even the least bit sketchy! If there are any red flags, ask questions. If you don't receive legitimate answers, then move to the next investor. Ask what type of return is projected and why. How will this kind of return be realized?

Another tip for finding the right person is whether or not they are willing to walk you through what is happening throughout the entire deal. This is important because you can receive more free high quality education by going through the process a few times. After you've done things a few times you will feel much more confidence to invest in a project yourself. A caveat here... Don't pester the investor with multiple questions every 2-3 days. Only work with them if you trust them and then let them do their job. What I'm suggesting is that you can be given updates and at important stages along the way you can ask more detailed questions about what they are doing to manage the investment.

The last word

I have almost completed a series of posts on why I believe real estate is by far the best investment in North America. It offers the greatest returns along with the best possible risk management. Having said that, I'm not against people educating themselves in the stock market or precious metals or the energy sector or small and large businesses. All of these have the potential to give you a great return. Just remember that you need to understand what you are investing in (sorry, a weekend seminar isn't enough).

I would absolutely love to interact with you on this topic. If you are a financial planner, please comment on this post. If you disagree or believe I've missed something, please comment. As we dialogue it will help many others begin their journey of financial literacy.



Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Turning poor cash flow properties into great cash flow properties - part 1

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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Why is this even an important topic?

If you have been reading my blogs, learning from the master educators in the business like Kyosaki, or are a saavy investor in Real estate you shouldn't need to read this blog at all. If, however, you have invested in real estate without adequate education on how to decrease risk... keep reading. I am going to give three tips you can consider implementing on your current properties that can turn them from cash flow negative nooses into cash flow positive investments. Most people who claim to invest in real estate simply purchase a house (or a few) and advertize them without true knowledge of how to hold onto those properties for a long period of time. This is why the 'average' investor loses properties in a down trending market (like Calgary in 2007-2009). There is absolutely no reason to ever lose a property because you can't make the payments, but if you have invested in properties that aren't doing what they should be, you may want to implement one of these strategies.

3 Tips for turning no cash flow into great cash flow

While all three of these tips are common knowledge for educated investors, I have to admit I hadn't even thought to mention them in this blog until a friend recently discussed the same three tips in a video he sent out.This first blog will have the first tip. I'll follow this up with two other blogs in the near future.

First tip

Rent out a garage on the property (or get creative about other ways you can make money off the current property; you are only limited by your inability to think creatively). A detached garage is an investment in itself and you should always consider this when analyzing any property. A garage can easily rent for 100-250/month depending on where the property is located. The tenant of the garage may be the same as the one in the house, but often it is someone else who needs space for a vehicle, storage, or even a workshop. An extra $200 may make the difference needed to cash flow on your property.

If you don't have a detached garage, you can always consider building one on the property in order to rent it out separately, even if you borrow the money to do so. I'll give an example of why this makes sense.

-Current interest rates are around 3.5-4% on a HELOC or other secured loan. I'll use 4% for this example.
-To build a garage the cost is going to be around $20,000 (interest only payments on this will be $67/month)
-By having a garage on the property, you have just increased the property value by about the same amount the garage cost to build
-If you are renting the garage for even $150/month and are using $67 to pay the interest and another $33 to pay down principle each month you now owe less and less in debt each month while you are putting more money into your pocket from the investment ($50, which doesn't seem like a lot, but makes an enormous difference to any real estate investor over the long term and CANNOT be overlooked)

Summary:
You now have a garage that has increased the equity (it is now a more desirable house for someone else to purchase with higher demand) in your property and you are making more money each month by having this investment bring in more than it costs on a monthly basis to maintain the debt.


Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

8th Dimension: Instant and Forced Equity

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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What is the Difference?

Instant equity is, quite simply, purchasing a property for less than the open market would pay for that same property. Instant equity is not, as is reported at times, purchasing a house that was at one time worth $400,000 for $200,000. In an extreme downturn in the market such as 2008 in the US, many properties lost half their value. A property previously worth $400,000 may be worth even less than $200,000 in this kind of downturn. To truly realize instant equity an investor must spend less than a property is currently worth. Meaning that a property is, today, worth $400,000 on the open market and the investor purchases this property for less than $400,000. While some believe this impossible and others believe it in some way deceitful or wrong, it is neither... I will explain later in my tips section.

Forced equity is when by the end of effecting some degree of change, small or large, to a property that property is worth more than before the change. An example is if you have a house that has had a lady with 30 cats who has lived in the house for some time without cleaning or having enough kitty litter and the investor purchases that house and cleans it up by simply shoveling out the mess, pulling up and redoing the flooring, and repainting the interior. That investor has probably spent less than 10-15k on the clean up but can probably sell the property for at least 30k more than what s/he bought the property for because people are now willing to live in it and it looks and smells good without any extra effort. In this example using imaginary numbers pulled from a hat the forced equity would be 30k with 15k of that being out of your own pocket.

Tips on Instant/Forced Equity

I'll give a quick tip for each category of equity. There are many more, but these are tips anyone can use instantly in their investing. For instant equity the best tip I can give is to meet the sellers and get to know them. Once you have an in depth understanding of why someone is selling and what that individual or couple most needs you can often meet those needs and receive income (a drop in purchase price) for doing your job well. An example is when an older person wants to downsize and needs help moving because s/he doesn't have any family in town. By simply offering to help move this individual the seller will both trust you more and may be willing to lower the sale price of the property. Is this taking advantage of the individual? In my opinion you are doing quite the opposite of something deceitful or underhanded. You have offered a service very few others would be willing to offer (giving this individual what they believe they most need) for a price. This is simply good business, but the secret to doing great business is listening well. If you don't know how to truly listen to someone, you can never fully meet their needs.

The second tip is for forced equity. I already mentioned the cat lady previously in this post (it happens more often than you think) and how new paint and flooring can greatly help with reselling a property. Another way to force equity is doing other quick cosmetic touch-ups. Cosmetics in a house are often the biggest selling point for families who do not want to deal with anything that may require someone who is 'handy'. Other ideas: add a suite to the property, add parking stalls for a multi-unit property or add laundry or storage space all of which can bring in more money month to month as well. These ideas are off the top of my head but hopefully start everyone thinking on how to plan property acquisition in a different way. What types of property will I be looking to purchase myself? Properties that need simple cosmetic upgrades and can easily profit from upgrades that also bring in cash flow. While extremely simply, don't overlook these ways to manage risk by building equity in your property.

A quick summary of this dimension is that if you purchase a property with low demand and, for just a few dollars, transform it into a property in higher demand, you are forcing equity. If you listen to people's hearts and perceive their needs and then meet those needs, you will also be paid more for your services in the form of lower purchase prices for properties. Put in this way, rather than being deceitful or underhanded you are actually simply providing better quality business and being paid for that service.

'You Can't Touch This'

Please bring another investment class that can do what real estate can do. I actually implore anyone to find something similar because I would love to diversify in other investment classes. Yes, purchasing and selling businesses does have the same benefit, but other than business I don't know of anything else. This is an area where real estate really does start leaving other investment classes in the dust. So far I have covered 8 dimensions of real estate and, if you remember my original premise, while some investment classes can appear to compete in some of these dimensions there really isn't anything that an 'average joe' can get into with just a little bit of cash and knowledge and set up a retirement that will outdo all of their colleague's and friends' retirements by touching on each one of the 8 dimensions covered so far. This isn't even the end! We haven't covered another three that immediately jump to mind and there may be more before I'm finished this series. Stay tuned for the last few blogs in this series and go back to previous dimensions if you've missed something.


Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Vacany Insurance: The Product You've Never Heard of

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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What is Vacancy Insurance?

When purchasing in any area part of due diligence is always to find out what typical vacancy rates are in that area. If the rates are high it means there is a saturation of supply with low demand and it may be a good idea to rethink the area you are purchasing in. Having said that, sometimes that type of area can also be a source of the best deals. If you are a really good property manager, or have one working for you, and are willing to make the property more appealing than those around it, you may have a great opportunity on your hands. In Canada the best way to check up on vacancy rates is by looking it up on CMHC. This website has a TON of information that is useful, but you'll need to learn to find and sift through a lot in order to get the most out of the site. There are some other quick checks you can do on how much of an area is purchased for rental vs. owner occupied dwellings. One app I would recommend for the quickest of checks is CIBC's "Home Advisor". This app is free for the iphone, but isn't the absolute most reliable in information. So, use it for a quick preliminary check and then do your proper due diligence on the area.

The reason you've never heard of vacancy insurance is that it isn't purchased all that often. To tell you the truth, I have no idea whether it even exists in the form other insurance plans exist. I would never purchase this for myself however, because I self-insure for vacancy risk. When a property sits empty for even one month the expense can be enormous. I'll give a typical example:

You have done your homework and have purchased a suited single family detached house that brings in about $2,300 each month and only costs you $2,100 in expenses (including vacancy self-insurance and all other expenses I've previously discussed in my blogs). Great deal, right?! It absolutely is a great deal, better than almost all investors in Canada. If this property sits empty for even one month, however, you have just gone in the whole $2,100! With an average of $200 each month in cash flow it will take almost an entire year to make that up. The way to insure yourself against this risk is by taking out a little bit of money each month so that when it happens (not if... when) you will be covered and it won't affect cash flow at all. Is this possible? Yes.

An Alternative to Self Insurance

There is always the option of simply raising rent... Isn't that a great idea? This way you will make more when the property is filled and the hit when it is empty doesn't feel so bad. FORGET YOU EVER HEARD OF THIS OPTION! The reason this is an absolutely crazy idea is that by keeping rents higher then the average in your market will guarantee you will have more vacancies. While I don't advocate charging less than market rent under normal circumstances (again, this is a topic for another blog), there is a better way ta take care of vacancies.

Two Legitimate Ways to Manage Vacancies

The first, and best, way to manage vacancies is not to have them. If the average vacancy rate in your area is 4%, you should always have a less than 4% vacancy rate, period. This should be the case if you self manage and if you hire a property manager. Demand this of your manager and then pay out bonuses for reaching that rate year after year or, conversely, penalize the manager for not reaching that rate. I believe I've mentioned this in a previous blog but it should be repeated often. I know a manager who has a better than 4 year average on a tenant turnover. Not only that, but I believe this individual rarely has vacancies when the turnover takes place. What this means for you, the property owner, is that you don't deal with as many headaches (putting new tenants into a property), as much payout with turnover (each time a new tenant comes in there is risk of more damage to the property than what the security deposit covers), or as much expense cost and loss of cash flow when there is a vacancy of one month or more. Again, this is subject matter for another blog, but there are great ways to reduce the chances of vacancies and length of vacancies. Bottom line... beat the average.

The second way to manage vacancies is to build them into your expenses. If the average vacancy rate in your area is 4%, then take out 4% of the rent for vacancy expenses. For the same $2,300 in rent that was used as the example above, $92 can be taken out each month to become your vacancy insurance. Every 2 years (25 months to be exact) you will have enough in the account to cover one month of vacancy. The way I take care of and build expenses into my evaluation of any property has 2 great advantages. The first is that I never purchase a property I can't afford. The second is that if every thing goes wrong that typically can go wrong in a property it doesn't affect me negatively because I was expecting it. On the other hand, when something doesn't go wrong (if I have 10 years of owning a property without one month of vacancy) I now have cash sitting in an account that I can use for whatever I want. This is now my bonus for managing a place well and it isn't difficult to beat the average.

A Teaser

I'll give one really quick tip on filling a property quickly and avoiding vacancies. In your lease contract you can offer an incentive for letting you know at least 30 days in advance when your tenant is leaving. If your tenants gives you more than 30 days notice you will give a discount of some kind off the last month's rent. It should be clear that your tenant must still pay the last month's rent and that this discount will not come out of the damage deposit. You can also set the date at 45 days if you would like to do so. What this does is give you, under normal circumstances, more than 4 week's notice and allows you to find a really good next tenant. It costs you nothing if the tenant doesn't give you notice (without penalizing the tenant either) and really doesn't hurt if you find an excellent tenant well before the vacancy. Also, many responsible tenants look ahead of time for a property. Finding these people early can snowball into having better tenants that do less damage, pay on time, and let you know well in advance when they are planning anything like moving out.


Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Property Management: DIY? Are You Sure?

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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To Self-Manage or not to Self-Manage, That is the Question!

In a post earlier this week I wrote about evaluating a property with a realistic view of what actual expenses are. One of those expenses is property management and I suggested any investor always calculate what these will be and add them to your evaluation regardless of whether or not you intend to self-manage. There are a couple of reasons for this. The first is that if the property doesn't cash flow unless you self manage, it isn't a very good deal in the first place nor something you probably want in your portfolio. Secondly, and the reason you don't want the property in your portfolio, is that there will be a time in your investing career when you don't particularly want to self-manage. You may get older and want to go to Phoenix for half the year. You may get sick or have some sort of mishap and not be able to self-manage for an extended period of time (even one week can be detrimental to your property if its the wrong week), you may have so many properties in your portfolio that it is now too difficult to self-manage, or you may simply value your time more than at a few dollars per hour at some point in time. Property management can be very rewarding, but it is difficult to do properly. Let's look at the numbers and reasons you may or may not want to self-manage.

The Costs

Generally speaking the cheapest you will find a manager for a single family home is around 10% of the monthly rent without extra fees, but this is difficult to find at times. For a multi-unit property you can get as low as 4% of the monthly rent per door. The reason it is less expensive per door for a property with many doors is that the manager finds it easier to manage 30 doors within one buildng than 30 houses scattered all over the city. Know that there will most likely be expenses on top of this base price. The two most common are: 1. A fee every time tenants leave and new tenants need to be found and 2. A fee whenever the manager is called in to do anything (fix something, call someone to fix something, evicting a tenant, dealing with any difficulty at all in any way, etc.). When looking for a property manager always ask lots of questions regarding the contract and know that everything is open to negotiation. Also, have a lawyer that specifically works with real estate look over any documentation before you sign it. In summary: When you charge $2,200 in monthly rent, you will most likely pay at least $220 per month to a property manager. Sometimes this amount seems huge. For example, when the same good tenant stays in a property for 4 years in a row and never complains about anything it looks like the manage isn't doing anything, but they are still collecting rent and looking over the property, both inside and out (if they're doing their job properly). However, if you find a good property manager s/he is worth her/his weight in gold! Think about this for a moment. For a very small sum of money a person is willing to fix all your problems, deal with volatile situations, and spend hours each time a tenant leaves fielding calls. On top of that the manager is on call 24/7. That's not an ideal job in many ways. The way I see it is that if I have a terrible manager, this manager will be costing me a lot of money in my expenses because more tenants will go through the property and I'll pay more in expenses. If I find a great property manager I will gladly pay more than 10% because I will have tenants that don't cost me as much money in repairs or vacancy. One month of vacancy every year easily eats up any savings I would recognize with a 10% property manager.

Positives and Negatives

The strengths of either doing things yourself or having someone do them for you usually comes down to lifestyle. If you have the mindset that you have a ton of time and your time isn't worth very much or you simply love managing tenants (there are a few who do, myself included) then self-managing might be worth while. If you want your property to basically run itself and simply want a cheque each month, then it will be worthwhile to find a good property manager. Keep in mind that it is difficult to find a good one. Would you want to be paid a few hundred dollars each month to be on call at any hour of the day or night and deal with headaches and angry people each and every day? I respect good property managers! I know a manager whose average tenant stays in a property for over 4 years! This individual has also never had someone cost them thousands of dollars by destroying property. That's what I call a great manager. Often the biggest reason an investor is self-managing is that the property simply isn't a good investment and doesn't cash flow without self-management. This is a terrible reason to self-manage. My advice is to sell the property and use the money to purchase a good investment. If you don't know how to do that, send me an email and I'd be happy to walk you through the process no matter where you live in Canada or even in North America. One more positive of having a property manager is that if the tenant knows you are the landlord, there are ways to ask for favors. When no landlord is communicating directly with the tenant, there is a degree of separation that allows the property manager to often have a better relationship with the tenant because there is a different understanding of expectations and the property manager can always play the "I'll see what I can do for you. I'll talk to the landlord and see what s/he says".

The Final Question

The question you want to ask yourself, in the end, is this: Do you want worry free investing, or do you want a little more money in your pocket at the end of each month? If you don't believe me... own 4-5 rental properties for a few years and you'll understand what I mean. Only the best of landlords are able to do the job properly. There are often positives to managing your first property for a while to understand everything involved. Regardless of what you choose to do, make sure you are consistently purchasing property that can support a manager if needed.

Happy investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

How to Properly Evaluate Property Expenses

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

Remember: Please share this article if you find it enjoyable

Why is Calculating Expenses so Important?

I often mention cash flow in my teaching and writing about real estate investment (or investment of any kind) because of how greatly this one concept can reduce risk for any investor. By simply having a recommended amount of cash flow: at least $100/door, you are now in a place to weather an economic storm that hits any market. I live in Calgary where we have a very typical wave-like real estate market (sometimes called a bubble market) where house prices will rise for a few years and then fall for a couple of years with each high peak typically higher than the last. If you purchase a property just before the market falls, you will be paying money out of pocket for your investment which isn't all that much fun. If you lose your job at the same time or money is tight you may even lose your investment property. With healthy cash flow you can virtually eliminate the risk of ever losing your investment property. Each down turn in the market has hundreds of 'investors' losing their properties. While this isn't good for them, it is fantastic for me because I am able to purchase those properties at a discount and then make money from them on a consistent basis with very little risk. A key to investing in real estate is understanding cash flow and a key to understanding cash flow is understanding how to calculate real expenses (how much the property will cost, not how much you want it to cost).

One More Note on Cash Flow

There are ways to manipulate cash flow because you can affect cash flow so greatly simply by how high your mortgage payments are each month. There are realtors and investors who promote investment properties claiming they will cash flow, but once your read the fine print you find that they haven't properly calculated expenses AND that you may need to put a 30% down payment toward the property to make things work. This isn't a good deal! Yes, you can have more cash flow if you simply put up a higher down payment, but is that what you really want? Do you really want to tie up another $30,000-$50,000? Would you not rather purchase another property with that money and then have two cash flowing properties? Well... there are actually times when putting in more money up front can make sense. If you are already retired, don't need as much money, and aren't willing or able to look for a really good deal in an investment property but still want the relative safety of having a property that cash flows well, then it may be time to put 50% down on a property and make cash flow easy no matter what happens. This decision must be based on what you want from an investment property. Personally, I always want to put less money into each property so my money goes further, so it is important for me to get a good deal and have a cash flowing investment.

Expenses Most Investors Calculate

There is an acronym most investors use for the basic, more fixed expenses, every property has (unless you are buying with cash and won't have even a penny of debt). The acronym is PITI: Principle payment on your mortgage, Interest payment on mortgage, Taxes, and Insurance. These are extremely easy to calculate because you pay the same amount month after month or year after year for these costs.

Expenses Savvy Investors Calculate 

(and most investors forget about until its too late)

What happens if you are self managing your property and you get sick/injured and can't manage for a year? What if there is an unexpected expense that you can't afford like a new roof or furnace or siding after a storm? What if the rental market falls a little and your tenants leave? What if you can't fill your property again for 3 months? What if you have tenants that are rough on your property before they moves out? Is the only choice to sell the place for whatever you can get or have the bank foreclose? Pretty much every decade in Calgary sees a fall in the market. There are different reasons for this and it will be good to cover it in another blog post some time, but the fact is that when these down turns take place there are many investors that lose their properties because they haven't covered their risk. When the market is rising everyone gets excited about real estate because its a 'can't miss' investment and then when the market falls real estate becomes a 'high risk' investment. I have news for you: real estate is never a can't miss investment but, if done properly, can be very low risk. You simply need to do your homework and invest properly. The three expenses many investors forget about until its too late are: Maintenance/repairs, property management, and vacancy insurance. If you consistently save for these three expenses in a bank account set apart for your investment properties this account will act as a reserve fund that you can always dip into in order to cover the expected costs you knew would come up even before you purchased your property. I will be writing blogs throughout the week covering each of these three expenses in further detail including how to calculate these expenses accurately, so stay posted.

A Reserve Fund?

Yes. A reserve fund. If you always have a reserve fund you won't be worrying or losing sleep because of the current local economy or a tenant leaving in the middle of a busy time for you (remember Murphy's law). The beauty of a reserve fund is that, once you own a few properties over a few years, you will get to know how much you need for each property as well as for your entire portfolio and the amount you need will go down (on a percentage basis) the more doors you own. For example, many experienced investors encourage new investors to set aside1% of the cost of every property they purchase while others may set aside $10,000 for one property, another $5,000 for the next property, and maybe just $1,000-3,000 for future properties or they may even stop putting new money into the reserve fund when it reaches a certain amount.

When Should you Calculate Expenses?

At the end of each year in anticipation for the following year? What about after you've purchased the property and want to know how much you will need to run this like a business? I suggest, actually implore you, to calculate these numbers (even if its simply an estimate) before you even put in an offer to purchase on the property. The reason I strongly suggest this due diligence is that if you don't have a good idea of your expenses before you purchase the property you also will have no clue as to whether it even comes close to cash flowing. This is part of due diligence on the purchase of a property and is called property evaluation. Once you are good at this you will only need about 30 seconds to to a quick evaluation in your mind to know the basic expenses. If you know the area you are investing in fairly well, it will take another 2 minutes to evaluate whether or not this property will cash flow with the rent it will bring in. When I come across a property in Calgary, even without knowing a particular area intimately, I can use my computer and figure out a basic idea of how much it can cash flow for within 10 min. If it looks good I move to the next step in the process. If the numbers don't work I move on to evaluate the next deal and don't waste any more time.

Here's to a profitable year in real estate investing for 2014!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html

Entering a New Year

 By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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What is Success?

Many successful real estate investors and business people with tell you the number one secret to success is simply pushing through and striving for your goals when it's most difficult. I've heard it said by an individual who studied the most successful business people in the US for 25 years that often the difference between success and failure is a few steps and that many unsuccessful individuals would have succeeded if they would have pushed through just one more barrier (Napoleon Hill). True failure is not having an unsuccessful attempt, or even many, but rather getting to a place where you no longer try. True success is not a certain dollar figure or attaining anything else of status, but rather accomplishing what you have set out to accomplish.

An Example of Success

The person I am going to talk about here was truly incredible (yes, incredible means hard to believe). He grew up in Eastern Europe in the late 19th century at a time when electricity, while understood on some level by academics, wasn't accessible to the general public (there was no electric lights at night). When very young he dreamed of an entire city being powered by electricity coming from an unlimited source and worked toward this in his younger years. I would recommend anyone watch the documentary "Nikola Tesla - Master of Lightning". It is older, but fantastic at showing many of the struggles Tesla encountered that would have stopped almost anyone else, but he pushed through and became one of the greatest investors in history. Alternating Current energy, Radio, and the dream of offering free or, at least, extremely inexpensive power to the entire world was Tesla's dream. So great was his desire to help people that he saw Radio waves as an opportunity to give energy to others rather than simply information. You could also Google Tesla's inventions to see some of his other ideas. The main point I would like to bring across in this blog is what Tesla had to go through in order to reach his dreams; succeed. He was called names, cheated by Thomas Edison (who also spent a great amount of money lying about Tesla and his invention of AC electricity to the public in anticipation of the first world fair that would be lit up at night), and generally seen as a nut job by many. At the end of my life I would gladly be commonly called completely crazy if that meant I thought outside the box enough to help others and become successful (which is definitely outside the norm). Tesla was crazy because he didn't fit the paradigm of most other people. Anyone who isn't 'normal' (people who spend more than they earn, have broken relationships everywhere around them, and consistently fail to meet their own expectations of themselves to the point where they give up having exciting goals and something to look forward to in the future) tends to be looked at with disdain for reasons I won't go into here. I delight in the fact that I'm different than the norm and would encourage you to start thinking differently as well.

What Can I Do This Year?

I'm not big on New Year's resolutions and never have been. Something about doing the same thing as everyone around me has always contained an element of normalcy I desperately attempt to steer clear of. Being the same as those around me or thinking the same as those around me isn't what I've ever wanted. I've always wanted to be different. However, I've always set goals for myself and worked toward those goals. I do this throughout the year and really take my time thinking through them. Below is an idea to help anyone wanting to begin working on having a different mindset start this year in a different way.

If you want to think differently you must ask yourself: Who am I spending most of my time with and what is the effect of being around those types of mindsets? Who in my life should I be spending more time with? Who is successful in some way and has a positive mindset that can rub off on me? It is true that we are influenced by those we spend our time with whether it is our spouse, our best friends, or our coworkers. To find someone positive it is a good rule of thumb to look for someone who knows who and invests in you without judgement. If it is a person who makes you feel terrible, that's not the right person. On the other hand, if there is someone who simply tells you want you want to hear every day and you know it's false, that person isn't the right type either.

Next, attempt to spend more time with that individual or those individuals. To make room for this in your schedule you most likely will need to also ask yourself: Who should I spend less time with? Who is the constant downer whose negativity always drains you of energy?

Don't get me wrong here. I'm not telling you to stop spending time with people that can learn from you or you can help. There should always be a balance of people who invest in us and those we invest in, but make sure it is balanced rather than sacrificing yourself, which ultimately hurts everyone around you (think about the flight take off spiel "always put the oxygen mask on yourself first so you can help others). We are less helpful to others if we are extremely unhealthy ourselves. I'm simply suggesting you change one significant relationship in your life and see what happens (It's magical!). After you notice the difference, imagine if there were 4-5 positive people in your life!

Happy New Year!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html