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mfrentz@akerahomes.com
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A Recent Coffee
I tend to do a lot of my thinking and learning at a coffee shop not far from my house in Calgary. It provides me with undisturbed space and time to do more than I can at my home office. Earlier today, as I was getting ready to leave, I overheard the group of people sitting next to me talk about a lot of problems they are either experiencing or hearing about as real estate investors. I quickly found myself becoming a little frustrated as I heard a few of their frustrations. I became frustrated at the fact there is so little reliable education helping average people with their investing. The group sitting next to me sounded far from average; they were very well spoken and intelligent people, but they spoke of problems I hear about consistently from investors who don't have a full understanding of real estate. In the end, consistently profitable real estate investing is not about how intelligent you are, but rather about how much you know.
Who NOT to Learn From
I highly encourage anyone interested in real estate (whether the goal is one door or hundreds of doors) to learn as much as you can and spend time talking to those who are highly successful because of how they invest. Some people are successful in real estate because they start with a ton of capital or because they can supplement their mistakes with a very high paying job... these aren't the people you want to learn from. Learn from those who started with almost nothing and understand every aspect of the business. One group of people I recommend you stay away from is family and friends. Spend quality time with your family and friends (and not only in the holiday season), but unless they are successful in the real estate industry themselves, they more often than not can derail you with advice they have picked up from popular news media instead of sound investors.
A Beginning
I'm going to throw out a few ideas for you to think about if you are investing in a place even as busy and high priced as Calgary in order to get the juices flowing. Take it for what it is and, if you are interested, read more of my blogs for more information. I will share a few basic rules of thumb with you to give an idea of what is possible in real estate. My goal for buy and hold properties is a 1% rent to value ratio. That means the ideal for me is to have a property that pays its investor 1% of the property's purchase price each month in rent. An example is that if I purchase a place for 300k, I would like 3k/month in rent. I know what many of you are thinking right now: IMPOSSIBLE! I can assure you that these numbers are very possible. If I was investing in the United States right now my goal would be a 2% rent to value ratio. I didn't say this was easy, simply very possible. It is always good to know an insider in any local area because they can give you both an idea of what you can find in an area as well as how to find it. Any local wholesaler is worth every penny of what they charge for a good deal.
It is hard work finding great prices on properties in an up-trending market like Calgary right now and, depending on how much time and marketing money you have, it often is a great investment to simply find a reliable wholesaler. If you don't know what a wholesaler is or how to find one... Ask a local successful investor. Most will know. If the investor you are speaking to doesn't know what wholesaling is or how to find one, this may not be the investor you should be learning from. In today's market I may purchase a place with a .85% rent to value ratio (at the lowest), but only if it meets all my other criteria. The reason is that I will only purchase a property that pays not only all the fixed expenses, but also the maintenance, property management, and vacancy costs and then, after all of those expenses, the property must also put some money into my pocket. If a property does not command enough in rent to give me cash flow after all expenses, then it is not an investment. An investment, by my definition, is something that gives me money each month whether or not I am paying close attention to it. A liability is anything that demands my time or money when I may not have a desire to give either of those. I will write another post either today or tomorrow that explains how to properly calculate expenses.
One more rule of thumb, this time for property management, as I want this post to be shorter. Again, this is simply given you in order to get juices flowing and set your expectations higher for the way you are investing. If you ever have uncollected back rent of more than 10 days you need immediate help. If you ever have uncollected back rent of more than 30 days it is most likely a sign you need much more education before continuing in the type of property management you are doing. I often hear horror stories of 'bad tenants' but, while most investors with experience have a few stories themselves, the majority of these stories are easily preventable. If you consistently have bad tenants (I will put this bluntly), you are a poor property manager.
This Blog Attempts to Help Everyone
Every individual is at a different level of understanding investing in real estate and I have attempted to tailor my posts in the hopes of addressing those differing levels. I encourage you to look through those posts that interest you and use them as a spring board from which you can learn much more. None of my posts are exhaustive. It is my desire that they kick start you toward successful investing not only until the next down turn, but until you decide to do something different on your own terms.
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
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