Category: homebuyer (2)

15 Things to Know Before You Buy Your First Rental Property

Investing in real estate is not really “investing” as much as it is buying and running a business.

“More millionaires are made through real estate than anything else”.  Quotes like this make real estate investing sound easy, don’t they?  The reality is much different.  Investing in real estate is not really “investing” as much as it is buying and running a business.  Read on for the 15 tips that inspired our HGTV.ca article

1. Buy in a City with a Future, not a Past

You need to understand the economic fundamentals of the city that you’re investing in.  Just because a city’s real estate has historically grown by 10% per year in the past, doesn’t mean it will continue to do so.  Novice investors often start investing in smaller towns because it’s “cheaper” and you can get great “cashflow”, but they don’t realize the risk that they’ve now introduced due to tenant profile, smaller economies, stagnant populations, etc.  Your best prospects are to buy in cities that have strong economies, strong job growth, growing populations, and low vacancy rates. Shocker: even though Toronto is more expensive, it is actually LESS risky!

2. Don’t Buy Cheap, Buy Smart

Cheap is cheap for a reason.  If you don’t understand that reason, you shouldn’t be buying that property.  Only buy if you understand why it’s cheap, what risk it’s introducing, and if it’s part of your business model and your operational excellence to mitigate those risks.  For example, perhaps the reason that this property is $50,000 cheaper could be because its location lends itself to a lot of vacancy, or because of the amount of deferred maintenance by the previous owner, or because the tenant that you’re inheriting is a problem tenant.  Due your due diligence and be smart about your purchase… and don’t be misled by the cheap price tag.

3. Don’t Expect to Live Off Your Cashflow.

The reality is, you’re not going to retire off of the $300 or $500 of cashflow from the property… not yet.  Realistically speaking, cashflow generally gets recycled back into the property in order for you to hold for the long term.  Holding for the long term is the key to success – time allows for the mortgage to be paid down, the asset to appreciate, and rents to increase.  Game-changing cashflow is often when you have lots of equity in the property and you have a small (or no) mortgage.  You can use the “Multiplier Effect” to get to massive cashflow faster (described later)! 

4. It’s Not About “Timing” the Market, it’s About “Time IN” the Market.

Forget trying to buy low and sell high.  That’s not where the real money is made.  The real money is made by holding for the long term.  Staying in the market, through the ups and downs of the real estate cycle, is hands down the biggest determinant of success in real estate investing.  No one has a crystal ball, and therefore no one knows what is going to happen to the market tomorrow.  You can have a reasonable level of confidence, however, that the market will be solid over the long-term.  A property with good cashflow, low vacancy, and low headache tenants, is how you’re able to ride the ups and downs and stay in the market and not be forced to sell into a downturn. 

5. “You Make Money on the Buy”

Novices often interpret this to mean you need a killer deal or you need to find that diamond in the rough in order to make money in real estate, and this leads to inaction because the perfect property does not exist.  Once you understand the mechanisms through which wealth is built in real estate, the better way to interpret this statement is that you make money if you actually take massive action and buy a property, because the true wealth is built by holding real estate for the long term.  Does it really matter if you paid $800k or $810k for a property 10 years ago, if it’s worth $1.8M today?

6. It’s Not All About The Numbers

Contrary to popular belief, numbers don’t tell the whole story.  How could it?  How could it account for tenant profiles, risk, local economies, etc… and all the other critical key information not included in a standard proforma?  You need to look beyond the numbers to understand the full story of the property, the neighbourhood, and of the city that you’re investing in.  If something is too good to be true, it very well might be.  Remember: You don’t get something for nothing.

7. Multiplier Effect

You may be wondering, how do people grow their real estate portfolios to 2, 5, or 10 properties?  The answer is what Volition Properties has coined the “Multiplier Effect”.  After owning a property for several years, you can often take the equity out of that property via a refinance, and then you can use those funds as the downpayment for your next property.  Done right, and when investing in the right market, you may be able to massively accelerate the growth of your portfolio.  In Toronto, using the Multiplier Effect, Volition Properties’ clients have been able to double the size of their portfolios every 3-4 years.  Pro-tip: Make sure that your existing property still cashflows after your refinance!

8. Don’t use Uncle Joe as your Realtor.

You are buying an investment property.  You need an Investor Realtor, and you should rightfully have high expectations of your Investor Realtor, since they are a specialist.  The worst thing you can do is use Uncle Joe to help you buy an investment property.  Investor Realtors should be able to determine the best investment strategies for your particular market, run cashflow analysis for you, describe the tenant profiles for your area, and point out any areas of deferred maintenance (and ballpark costs to remediate).  Volition Properties has a team of Investors Realtors who specialize in investment real estate, each of whom is an investor and owns a portfolio of investment properties themselves. 

9. Top 5 Questions To Ask Your “Investor” Realtor

When interviewing your “Investor” Realtor, ask them these questions and see how confident they are in their responses.  1. How many investment properties do you personally own?  2. What is the tenant profile for this area?  3. What investment business models work in this neighbourhood?  4. What are the development opportunities to put this property to highest-and-best use?  5. Have you executed on at least 50 properties of this nature in your career?  If they stare at you dumbfounded as if you have three heads, walk away… quickly.

10. Understand your Tenant Profile

Tenants are the biggest risk factor to your business.  Better tenant profiles will pay their rent on time, treat the property with more respect, and be less headache. You need to have in-depth insights into whom it is that you’re targeting.  At Volition Properties, we actually identify our tenant profile first, then build our investment business model around them.  In Downtown Toronto, this means that our tenant profile is a young Millennial/GenZ, university-educated, 2-5 years out of school, making $60k-80k, working at a big company in downtown Toronto in professional services (health, accounting, consulting, finance, tech, etc.), who wants to live where they work and who wants to play where they live.  Who’s your target tenant profile?

11. Buy Near Transit

Transit is the single most desirable feature to look for in an investment property.  Your tenants will often not have vehicles, and thus will pay a premium to be within a 10 min walk of a dedicated transit station.  You’ll get a 15-20% greater lift in rents / property values than the rest of the market, and you’ll also be insulated by 15-20% reduction in rents / property values during a downturn.  A good long-term strategy is to look where future transit stations are being built and to buy close to them… it’s essentially an Investment Heat Map!  But only invest after shovels hit the ground… plans can always change! 

12. Join a Real Estate Investor Meetup Group

Your net-work is your net-worth.  Surrounding yourself with like minded people is the single most valuable investment you can make in yourself.  Other real estate investors can help provide you with guidance on how to navigate tricky tenant situations, or provide key contacts like Investor-focussed Mortgage Brokers, or can help advise on how to accelerate the growth of your portfolio so you can reach your goals faster.  A great place to start is the Toronto Real Estate Investors Mastermind, the largest and most active Investor Meetup in Toronto with over 3,200 sophisticated investors. 

13. Don’t Chase The Shiny Object

Choose a single investment city and stick to it, don’t always be chasing the shiny object.  Become an EXPERT in your chosen area, spend the energy to understand it thoroughly, and build your Investment Dream Team. Once you’ve committed to a particular city, stick with it.  This focus allows you to scale your efforts, build economies of scale, and to reuse the existing team that you’ve built.  A quote that I think is particularly pertinent: “Success isn’t that difficult; it merely involves taking twenty steps in a singular direction. Most people take one step in twenty directions.”

14. Real Estate Investing is NOT a Passive Investment

Like it or not, you are a small business owner.  You have functions such as advertising, marketing, customer relations, maintenance, accounting, tax, bookkeeping, insurance, finance, banking, accounts receivable/payable.  You’ll be making strategic and tactical decisions that will lead to the success or failure of your business venture.  Don’t fall into the trap of thinking that real estate is a passive investment.  A passive investment is buying a share of Apple or Google, where they have executive teams running the business.  In real estate investing, YOU are the one running the business.  Mentally prepare yourself for this before diving in.  Don’t forget: if you don’t have a Property Manager, you ARE the Property Manager.

15. Consider Owner-Occupied

If you’re going to live in it, you have an incredible advantage!  An owner-occupied property that is still an investment property essentially is taking advantage of the House Hacking strategy, whereby you could live in one unit/room and rent out the units/rooms.  Owner-occupied can potentially mean less downpayment (as low as 10% in certain instances), lower mortgage interest rates, being able to use up to $35,000 of your RRSPs tax free towards the downpayment via the RRSP First-Time Home Buyer Plan, Land Transfer Tax rebates (for example, in Ontario up to $4000 and in Toronto up to an additional $4475), First-Time Home Buyer’s Tax Credit worth $750, as well as other benefits.  This makes a big difference for first-time investors!

Ready to take the next step? Book a complimentary Advisory session to plan the roadmap to your first investment property!

How to Make an Extra $50k When Selling Your Home

Volition was featured on HGTV.ca to share strategies for getting top dollar for your home – you can check it out here.

As usual, we have more to say. Read on for the extended version!

To get top dollar for your home, you need to be strategic.  We’re going to go beyond the “regular” advice (i.e. staging, remodelled kitchens, curb appeal, etc.) and challenge some of the preconceived assumptions around getting top dollar for your home.  Any run-of-the-mill Realtor can throw something up on MLS and hope for the best… What separates an average realtor from a great one is their strategy and their market knowledge, and their ability to create a personalized Market Strategy for your home.  Also keep in mind: Investor Realtors make the best Realtors!  Investor Realtors work with regular home-buyers and home-sellers as well, and are trained to have higher-order thinking skills and possess the ability to see value where others can’t, leading to better outcomes and higher sale prices for you as the seller.  

Be Strategic

  1. Realtor Strategy: You need to be strategic about who you select as your Realtor.  Your Realtor is the quarterback for the entire transaction, so don’t hand out this responsibility lightly.  And definitely don’t go with someone just because they are “cheaper”: you may very well be stepping over pounds to pick up pennies.  The $5,000 you may save could mean that you’re leaving $25,000 or even $100,000 on the table – it’s not always “all things equal” because you may not be getting the absolute top sale price for your property.  You wouldn’t want a discount heart surgeon; why would you settle for anything but the best on the biggest financial transaction of your life?  Do your due diligence and find the best; you owe it to yourself.  What makes the best Realtor?  Keep reading to find out.
  2. Market Strategy: not to be confused with Marketing, a market strategy will help you understand the inner workings of your particular market, and give you deep insights into the current market environment, including important considerations such as supply/demand, mortgage interest rates, new government-imposed vacancy property taxes, pending tenant law policy changes, etc. – and more importantly, what this means for you and selling your home.  A good market strategy would then create an ideal target buyer persona and determine how to best position your home in light of the market conditions, and then cater all activities toward trying to attract that particular buyer profile.  If your expert Realtor develops a personalized Market Strategy for you and your home, then everything else flows naturally from this… marketing, renos, staging, descriptions.
  3. Reno Part 1 – Reno Strategy: Now that you know who the intended audience is, does your home already fit your particular buyer profile’s needs, or do you need to make upgrades to cater to their desires?  Don’t just make changes on a whim, or because you read an article about it.  Your Realtor expert should be able to clearly identify with laser precision what fixes or upgrades need to be done in order to attract the right buyer and what increased selling price you can expect as a result.  It’s even better if your Realtor expert has the renovation team internally (for example, Volition Properties has done many $25k kitchen upgrades resulting in an increased $75k sale price for clients!) or at least has partners who will do the renovations under the supervision of your Realtor expert.
  4. Reno Part 2 – Best Reno Bang For Buck:  That begs the question: will spending $25k on a kitchen remodel always yield an extra $75k in selling price?  Will I get a better ROI if I finish off the basement or if I improve curb appeal?  Contrary to popular belief, there is NO one size fits all answer – every property and every market is different.  Perhaps your property is a starter townhouse and your target buyer needs a move-in ready home because they won’t have any money left over for renos, in which case it makes sense to do renos prior to listing and you would see the ROI in the increased sale price.  There are lots of simple, general, easy to understand, but wrong, answers to this very popular question.  Get expert advice from your Realtor as your starting point.
  5. Reno Part 3 – Knowing When To Do Nothing At All:  Sometimes, you just aren’t going to get the money back, and the ROI isn’t worth it.  In a hot sellers market, perhaps you just need to get it listed ASAP to catch the hot market.  Timing could be everything, especially if you’re trying to get sold prior to new stricter mortgage regulations coming into effect, or other proposed changes that could affect the market.  Or maybe you do nothing because in your particular property in your particular neighbourhood, buyers require a blank canvas to put their own finishing touches on.  In addition to reno costs, other things to consider are time/energy spent, additional holding costs, living through renos or moving out, approvals/permits, and additional headache that you may not wish to take on.
  6. Listing Strategy: It’s not just maximum exposure that you want, you want the right exposure.  Your Realtor will create a Listing Strategy, which will demonstrate how they plan to target your ideal buyer, while simultaneously getting you maximum sale price.  What is your pricing strategy, should you have an offer date, and is this best served as an Exclusive Listing?  Should you be advertising in foreign language publications and marketing to overseas buyers?  How is your Realtor going to target their list of private buyers/investors?  Your Realtor’s marketing plan should demonstrate how they will be highlighting the property against current market needs (i.e. during Covid, outdoor space, walk-out/rooftop patios, and dedicated office nooks demand a huge premium).  Keep in mind – much of the “advertising” that regular Realtors do is really just to generate more business for themselves, and does very little to actually sell the property for a higher price.

Putting an Investor Hat On

  1. Be Flexible: Buyers may value certain things that aren’t important to you as the seller.  The key is to hone in on those aspects, and offer them to the buyer – especially since it’s no skin off your back.  This could include offering flexible timing on closing, or allowing the closing date to be extended at the buyers’ sole discretion (to a limit, that is). Perhaps if the buyer is planning for an extensive renovation, you could allow unfettered access to the property, allow permits to be drawn up and submitted prior to closing in your name, and then transferred to the buyer at closing.  You’re only limited by your imagination – Volition’s Investor Realtors have the depth of expertise necessary to conceive and negotiate these considerations to get you top dollar.
  2. Be Creative:  Creative deal-making can be an excellent way to get an extra boost in sale price.  If you don’t need the entire proceeds from the sale, you could offer the buyer a  Vendor Take Back, a form of Seller Financing in which you act like the bank and receive regular interest payments by lending the equity in your home to the buyer… and if this is not your Principle Residence, a VTB reduces your capital gains tax by deferring it over many years.  Other forms of creative deals include Rent-To-Own, Agreement For Sale, Sandwich Leases, Joint Venture with a contractor prior to sale, etc.  Caution: these are advanced-level strategies; make sure you are working with an expert Investor Realtor like Volition on these.
  3. Get Your Rents Up Before You Sell:  As an investment property, one of the primary ways that a buyer valuates the property is by looking at the rents it generates.  The higher the rents, the higher the ROI and therefore the higher the property value.  This means staying on top of rent increases every year.  Depending on your province, this also means investing in an area where there is a more transient tenant profile where you can increase the rents upon tenant turnover.  This also means looking for creative ways to boost income sources; for example, coin-operated laundry, renting out the garage separately, renting out parking spaces separately, etc.
  4. Create Value For The Buyer: this isn’t necessarily for the novice home owner, but you can create tremendous value though change of use.  Examples include putting in a basement rental suite, getting approvals for an extension or a laneway suite prior to sale, changing a single family home into a legal luxury triplex, severing/assembling a large plot of land for development use.  If your land is well-positioned for a land assembly by a big developer, perhaps band together with your neighbours in a united front to demand top dollar.  Change of use can, but doesn’t necessarily always involve, expensive renovations but time/energy will definitely be put into the planning process
  5. Work With Your Tenants: Investment properties can be more challenging to sell due to them being tenanted.  This often means that you can’t stage the property, access can be restricted, sometimes the units can be messy due the tenants, coordination of schedules can be difficult, etc.  One of the best tactics is to incentivize tenants: gift cards to Tim Hortons or Starbucks often work well in exchange for cooperation with showings, keeping their unit tidy for showings, vacating the unit for showings, agreeing to house their pets at their parents’ place for the listing period, etc.  More extreme action could include asking them to temporarily move out for the listing period and you put them up at an AirBnb as a mini vacation for a week, or maybe if you need the property completely vacant you could negotiate a mutually beneficial scenario.  Volition Investor Realtors are experts in navigating these tricky scenarios and mediating these discussions with your tenants for you.
  6. Is It All About The Money?:  Although as sellers we always want top dollar, it’s also worth considering the non-monetary aspects that are important to you.  A quick sale may be an important factor for you.  Minimized headache might be your most important consideration.  Perhaps reduced disruption to your lifestyle is paramount.  While maximum sale price is typically the #1 goal, have a frank discussion about this with your Realtor expert about what your priorities are, and this should be incorporated into your Listing Strategy as well.

Ready to sell? The Volition team is here to help. Get in touch with us at info@volitionprop.com

 

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