Is there ever a bad time to invest in rental properties? i am asked this question a lot and usually I reply that if you want shade from the sun, when is the best time to palnt a tree? Today or 3 years from now?

 I have always preached buying investment properties for the long term, keeping them in great shape which will ensure good tenants.

 The following article in The National Post is well done and relates to my conviction that wise real estate investors are patient and understand that time, just like compound interest,  is an amazing tool in building true wealth.

Here is the article.

  My key real estate investor is retiring and it's my fault. He and his wife made too much money and at 52, they are off touring the world for awhile.

  How this all happened was I met them about 4 years ago at one of my listings. They were buying properties and fixing them up and then selling them. Over a period of a few months, I got to know them better and they, me.

  I said to them that the way they were doing things was fine but why not step it up a notch? You see, from time to time I come across properties that need work or perhaps the property owner is financially challenged or needs to sell a property quickly for personal reasons.

 I had some clients who could buy a property at 65 cents to 85cents on the dollar, but they could only buy 1 or 2 a year if at that and I was always educating new buyers on the process and if they weren't business people who can make a quick decision, the opportunity to buy was lost. Or, they knew more about the business than I and they would do it their way or re-invent the wheel.

 My retired couple were smart enough and wise to see that if they did 8-10 properties a year, buy them, fix them, either rent them or have me re-list them, they could turn a tidy profit, year in and year out.

Keep in mind that there were some months that nothing good came along and some months there were 5 or 6! We just set some rules, if the property fit the rules, the deal was done.

So there you go in a nutshell. I  could buy them and do the same but I am past that era of my business, plus, I would be conflicting with my one a year investor clients.

So, if you think you fit what I am looking for, you are not a B.S.er and are serious and have some business skills, we should talk. Please don't waste my time or your time if you are a dreamer, a pie in the sky investor or you watch too many real estate reality shows and think it is easy.

Its not easy, there are risks.

   Over the past 3 months I have been fortunate to have worked with 11 investors who purchased everything from condo apartments, duplexs, triplexes, Fourplexes and a 27 unit apartment building to a small commercial property.

  When a serious buyer (I only work with committed serious buyers) want to purchase a property, they want to see ALL of the property and hopefully be able to see some sort of a reasonable financial income and expense record of said property.

Other than price and condition of the income properties I showed, here were the biggest drawbacks as to why we did not put offers or even consider putting in an offer.

• The agent never called us back! Wow, as an owner and your agent has a $337,000 property and they don’t call you back? After 3 attempts? (By the way, that building is still listed for sale!)
• My clients and I arrive but can’t get in to see the units. The tenants say they were not notified or given enough notice. (I give a minimum 48 hour notice before requesting a viewing.) Whether the tenant is right or not, it would behoove me as a landlord or an agent to ensure that ALL tenants are notified and reminded before a showing.
• In a tri-plex or a duplex, we can only see one of the units, or, and get this, the keys don’t work!
• The stated rent roll is unrealistic or the comment “If fully rented, it would fetch this”. In my experience, tell it like it is, someone willing to buy your property is not dumb or lazy, and they want real numbers, not B.S.
• Will not cooperate with a Fire Marshall’s report or ESA Certificate, or, is not a legal duplex or triplex and try to tell me, “Don’t worry, it’s been like that for years, nobody will ever find out”. Yeah, right!
• Listing with an agent who does not have a lot of experience with investment properties. Residential listing and investment listing are quite different, can be more complex and takes a different skill set to handle.

The above are just a few; I did not get into full disclosures, correct information as to property size, room sizes, taxes, etc. Or, outstanding work orders from the city, or city violations to building code, or that there are 3 mortgages and liens on the building!

Just as investors are different, the properties are different, tenants and area of town are different but one thing that is constant, money does not lie! People do; but; money either increases or decreases, it is your choice! 

The folowing was written by Mark Weisleder, a lawyer, columnist, author and speaker to the real estate industry.

 Two recent rental stories have created quite a stir. Owners of the popular Real Jerk Caribbean restaurant, a fixture on Queen St. East for the past 28 years, were told by their new landlord that they were going to have to close at the end of the month.

In another story, it was announced that Porter Airlines was raising the rents of its tenants on the Toronto Island by 300 per cent, with as little as 45-60 days’ notice.

Many readers have asked me how a business landlord can act so quickly to kick someone out or raise their rent while a residential landlord has no such ability. Even if a residential tenant is not paying rent, it can sometimes take months before a landlord can evict them.

The main reason is that business leases are governed by different laws than residential leases. In a business lease, it is all about the contract between the landlord and the tenant and almost anything goes. In residential, no matter what you say in the contract, you are always subject to the Residential Tenancies Act, which is essentially consumer protection law for tenants.

In a business lease, you may sign a three year lease. If there is no renewal option, your lease can immediately expire at the end of the third year. If you decide to stay and not renew the lease for an extended period of time, you are considered a “monthly” tenant. You pay the same rent each month you stay.

However, what this means is that either the landlord or the tenant, at any time, can end the lease by giving the other party one month’s notice. This is what happened with the Real Jerk lease. The only way to guard against this in a business lease is to provide for extensions to your lease when you sign it in the first place. That way you can later extend the lease and prevent the landlord from being able to cancel your lease earlier.

In a residential lease, there is no way to end a monthly lease if the tenant does not agree, unless the landlord has a legitimate reason, such as the tenant is not paying the rent or the landlord needs the place for a member of their immediate family. Even with a legitimate reason, the tenant can still fight it, and it might take months to get an eviction. In a business lease, if the tenant does not leave after getting proper notice, the landlord can bring in a bailiff and just lock them out, even if they are up to date on the rent.

In a business lease, the Landlord can usually raise the rent as much as they want once the lease is over. This is what happened on Toronto Island. For most apartments, the maximum you can raise the rent this year is 3.1 per cent.

If you are thinking of buying a business, one of the most important agreements you need to look at is the lease that the seller has. Make sure that you read it carefully because if the lease is coming to an end with no right of renewal, then the landlord can end it almost any time, and that could mean the end of your business.

When it comes to business leases, it is important to get legal advice in advance, to make sure that there is certainty with the rent that you will be paying, and that you have the ability to extend your lease without having to worry about an early termination.

Ty Lacroix: I should add that a good REALTOR would be a wise move to employ before you start your search. After negotiating a lease, being either the tenant or the landlord, your lawyers should also check the offer to lease BEFORE the offer is binding.

Control is a very, very important part of wealth-building. There are lessons all over right now about what happens when you don't control your investments. We all read or have heard of different Ponzi schemes and Bay and Wall Street ‘hand in your pocket’ plans.

Let’s start out with my definition of control:

Investing Control: The ability to influence or impact the future value and net income of your investment.

Investing control is important for almost any type of investment.

For the stock market, this means controlling a majority of a company’s shares. Now, this is extremely difficult for average people, like you and me. This is why we should invest a smaller portion of our money into the stock market.

For real estate, the best investors want active control over their properties. Active control can be obtained in partnerships and individual investments alike. Most people would rather be passive real estate investors. The tiny few who grow wealthy prefer to be active investors.

The majority of families focus their investments into assets they do not control. This is why they struggle to accumulate “real” wealth. This is also why many people will not have enough money accumulated when they retire.

In fact, it boggles my mind that most people prefer not to be in control of their investments. They would much rather have mutual fund planners, stockbroker or someone else control their money. “Done for you” wealth is not available. You are going to have to do much of it yourself. You do it by controlling assets.

It is perfectly fine to invest a small portion of your money into investments you do not control. But I would be very careful investing large sums of your money into uncontrollable investments.

If you study wealthy people, you’ll quickly see that they do the exact opposite of everyone else. They desire, fight for and cherish control. Everyone else desires, cherishes and pays big money to have no control. Notice the difference.

I remember reading a biography on Kirk Kerkorian, a billionaire. In every single investment Kerkorian made, he fought for control. When he didn’t have control over an investment, he quickly divested himself of the investment. Same goes for Wayne Huzienga, who built three separate billion-dollar companies (Waste Management, Blockbuster and Republic Industries).

I believe most people prefer passive investments because they are easier. Passive investments allow the investor to invest without having to take any responsibility. Passive investments do not require the investor to be decisive. Passive investments do not require the investor get his hands dirty.

Control requires that you take responsibility for your investments. Control requires you to be active. Control requires that you pay attention. Control requires that you be decisive. Control requires you to roll up your sleeves and get dirty every once in awhile. Some believe control is risky. I believe lack of control is risky.

Once you have control of your investment, you should work hard to increase its value. You increase value by increasing its income.

One of the most valuable wealth-building skills you can have in life is the ability to increase the net income of your investments. With this skill, you can literally write your own ticket.

You must strive for control over your investments. Control is critical for true wealth. Don’t be lazy. Don’t copy the masses and happily turn over control to your hard earned money.

The biggest advantage in small residential income properties (duplexes, Triplexes and Fourplexes) or investing in multi-family units is the most obvious reason: the monthly cost if any units are vacant to the owner/investor. Here is an example:

    Owner "A" has a Single Family home with 3 bedrooms and 2 baths that rents for $1500 with mortgage of $1700 per month. A slight negative, but one that the owner is able to afford each month. Now the property goes vacant for one month. Thus, Owner "A" must now come up with $1700 out of his own pocket to make the mortgage payment. Ouch.

     Whereas, Owner "B" has a duplex, each unit has 3 bedrooms, 2 baths that’s rents for $1300 each unit ($1300 + $1300 = $2600) with a monthly mortgage amount of $2000. If one unit goes vacant for one month, Owner "B’ still receives $1300 from the occupied unit and now must come up with only $700 to make his monthly mortgage payment. A MUCH Smaller problem than what Owner "A" has to deal with. Plus, if you noticed, Owner "B" also had a monthly positive cash flow!

    Both of these properties are real life examples; located in London and show why investing in a Duplex, Triplex or Fourplex is a MUCH BETTER way to go in creating wealth though Real Estate investing, along with good real estate education. The numbers may change, but the finally results will be the same.

So why put your money in one residential unit like a single family dwelling if you’re an investor, when you can spread the risk among 4 units like in a fourplex and create a better CASH FLOW for yourself and create future wealth.

Anyway, that is just one reason why investing in multi-family units (duplex, triplex or fourplex) is a faster way to Real Estate wealth then simply buying a single family home.

The Cost Per Unit Typically here in the London market, on average a single family home goes for about $228,000 a nice duplex will go for $170-225,000, like wise a triplex for $250-$300,000 and a four plex around $350-$400,000.

Yes, the monthly mortgage will be higher for the fourplex then the single family dwelling, BUT you will have FOUR FAMILIES paying you rent towards that mortgage payment. The "Per Unit Mortgage" amount is less with the fourplex and the opportunity in collecting rents to cover the monthly mortgage is much greater then the single family dwelling.

Owner verses an Investor As an owner/buyer of a duplex, triplex or even a fourplex who lives in one of the units; you have many advantages over the ownership of a single family home. For example if you buy a duplex. Banks like to loan on owner occupied duplexes because they know that part of the mortgage payment will be coming from the other unit (the rental unit) and part from the owner (owner occupied unit) thus reducing the amount that the owner would need each month.

Also, you can write off some or large portions of your repairs. Like for example if you installed a new roof on a owner occupied home, the homeowner gets NO immediate TAX benefits (the benefit kicks in at time of selling as an "adjustment to the cost basis" of the home). Whereas, the owner occupied duplex can write 1/2 of the roof installation on his/her taxes that year.

With a 20% down on a duplex you may still have a small negative cash flow (some areas with 20% down you can have positive cash flow) but the time it takes to go from a negative to positive cash flow is much shorter then the time it will take you with a single family home.

THE CITY OF LONDON'S CTR / REHAB ASSISTANCE PROGRAM

The City of London's Convert-to-Rent/Rehabilitation (CTR/Rehab) Assistance Program financial assistance will be up to $48,000 per self-contained rental unit, to a maximum of seven (7) units or a maximum of $336,000 per property. This is a fully forgivable loan, which will not have to be repaid, provided the proponent meets certain conditions.

The program encourages the conversion of vacant, unused second and third floor space above street-front commercial establishments & street level space behind store fronts to self-contained rental residential units and the redevelopment /conversion of vacant and/or underutilized residential and non-residential structures to create new rental units.

This program is available in the Downtown Business Improvement Area, the Old East Village Business Improvement Area, the properties between these two areas fronting on Dundas Street, Hamilton Road Business Area and the SOHO District Community Improvement Area. Exceptions to these geographic areas will be reviewed, on a case-by-case basis, for specific properties outside the program area that meet all other criteria.

The document for the 2012 Convert-To-Rent/Rehabilitation Assistance Program and an Application Form are available below:

• Convert-To-Rent / Rehabilitation Assistance Program 2012
• Application
• Other loan/grant opportunities
•  CMHC SEED Funding Program

     If you own rental real estate, you probably have a few “war” stories to tell of tenants from you-know-where. Most investors have these war stories about problem tenants, and in most cases these stories involve the investor losing time and money.

  The 80/20 Rule, also known as Paretto’s Principle, states that for many events, roughly 80% of the effects come from 20% of the causes. In rental real estate, this means that the majority of our problems come from a very limited number of factors.

   I work with many real estate investors in London Ontario who still think they have to have a minimum  20-25% down payment when buying income residential properties such as duplexes tri-plexs or 4 or more units. Below is a CMHC features and benefits and if you go here, you can read all about it.

CMHC Mortgage Loan Insurance enables Approved Lenders to help borrowers purchase multi-unit properties with a minimum of 15% down. Borrowers can also access competitive interest rates for the life of the mortgage and enjoy reduced renewal risk.

FEATURES

 Purchase – Loan-to-Value ratios up to 85% of the “as is” or “as improved” value.

 Flexible financing terms available including extended amortization periods and fixed and floating interest rates.

 Available for first mortgages.

 With substantial capital improvements, projected rents may be used in valuation of “as improved” lending value.

 The loan during renovation / improvement can be the greater of 85% of “as is” value or 75% of “as improved” value.

BENEFITS

More Flexibility – Borrowers can obtain mortgage financing up to 85% of the lending value of the property.

Lower Interest Rates – CMHC insured financing provides access to competitive interest rates for the life of the mortgage.

Reduced Renewal Risk – CMHC Mortgage Loan Insurance offers product features that meet project financing needs and

facilitate renewals.

Availability – Available for new and existing multi-unit residential properties including rental, student housing, retirement and longterm care facilities located from coast-to-coast-to-coast. 

                           Tenant Turnover & Vacancies

This week I was asked by an out of town investor with 11 units if I could assist her in understanding why on paper she should be doing better financially , but in fact, her income was way down because of tenant turnover, vacancies and questionable property manager fees. (I was not her real estate agent when she purchased the income properties).

Her buildings are in a decent part of London, have had major upgrades and her rents are a little below average. In a nutshell, here is what I discovered:

·         The property manager not properly screening prospective tenants with references, credit checks or a police check.

·         No For Rent Signs on property & upon researching past tenant prospecting, little or poor use of the internet (example: Kijiji), social media and other avenues where prospective tenants may search for apartments to rent.

·         The investor not setting and communicating her standards and or detailing exactly what and how she would pay for repairs and maintenance.

As you can see, poor tenants are very costly which is why I preach that I would rather have a unit vacant than a poor tenant. I realize it is a catch 22; mortgage payments, utilities, taxes & maintenance are due every month regardless if your units are full or not.

Yesterday I heard about a new tenant in a 4-plex that was causing loads of problems which in turn the other 3 long term tenants where threatening to move out. By the way, that tenant is 2 months behind on his rent! (The property manager gets paid, regardless!) Hmmmm!

I am not picking on property managers; there are some really great ones out there, as well as a few who are not. Whether you have a basement apartment or a duplex, 10 units or a 100, set tenant standards and live by them.

Do the math, tenant eviction, unit clean up & repairs, finder’s fee or commission fee for finding a tenant, one month free rent incentive, etc. It can be double or triple what one month’s rent is.

90+% of the time, it is less costly to find the right tenant than to rent to anyone who can breathe.

Sorry, Sold Out!

Most of you now know why I roll my eyes when you ask about a certain management company or why I am very selective in whom I work with. Or those who want to get rich quick in real estate after reading a book or watching some real estate guru spout off about stuff that only Hollywood could think of.  I still limit myself to working with only 4 investor clients per month and there is 1 spot left for April 2012.

If you are thinking of income properties in and around London Ontario, either as an investor or you wish to sell your holdings, sign up for some insightful articles and a 6 level course I am conducting this year. I have limited it to 100 clients and the course will be done by webinar, CDs and 9 manuals and 4 spreadsheets, plus 2 one on one phone consultations.

At present, there are no openings left, and the cost was only $279.00. I have started a waiting list and have asked a leading well known financial consultant to help do part of the course, plus add her insights and share her sold out seninar material with my clients.

Last year, I took on 150 and it was way too much for me, in time and energy. Of those 150, 126 have signed up so far for the advanced one on one e-course at  $631.00! You know I am a believer in a rock solid rate of return and utilizing resources carefully. Three of my more successful investors who took the first course I ever did, say they got a 5000% return from my 'stuff'.  I must add that they were driven, they worked  a tremendous amount of hours, applied diligence in choosing who they worked with and after questioning their math, they were close!

I can't guarantee the future but one thing I can guarantee, you will learn stuff they definitely do not teach in business schools and if you don't make money in real estate, you also won't lose any either( other than your original $279.00 you invested in the course). 

We all have heard about people making a killing (a lot of money) in buying and selling real estate and just lately (last 3 years) we hear of those who have lost everything!

Is it greed? Luck? Uninformed?Unprepared? Misinformed, or all of these?

I have seen some of these traits in some or all in people who should not even buy a lottery ticket with a 50/50 chance of losing!

On the other hand, and which brings me to the point of this blog, over the last 5 months I have worked with over 60 clients who have purchased or sold real estate.

Some were on the top of their profession but when it came to money, they were out of their comfort zone. And then, from the least expecting source, average income earners who were cautious yet wise in their spending habits, could buy twice the house they eventually did buy and most had no or little mortgage.

Regardless what the economy will be, these folks cannot get 'killed' with real estate or any other investment.Some owned  income producing properties and in a few years will be wealthy with tenants paying their mortgages.

We will get along real fine if you are in the latter group. If you want to make a killing in real estate, get away from me!I work too hard to get killed along with you!

In a recent CMHC (Canadian Mortgage and Housing Corporation) news release, the vacancy rate in London is down to 3.8% for rental apartments!

This is comforting news for those who are contemplating getting into the rental market for the first time or for those who wish to expand.

This is an area of income properties that I have been directing my clients to as I see a great opportunity for passive long term investors.

Here is the report.