Advice for first Real Estate investment - Page 2
Page 2 of 2 FirstFirst 12
Results 11 to 16 of 16

Thread: Advice for first Real Estate investment

  1. #11
    Senior Member
    Join Date
    Mar 2016
    Posts
    441
    To the OP, JAG has given you good advice. Stay away from negative cash flow properties.
    FWIW my advice would be, before you buy, to look at lots of properties, do the numbers on them. Get good at this. Get to know the areas of town that you may be interested in. Even if you miss a deal or two, if this is your first property, it is better to be patient. Even if it takes a year or so.
    JAG has lots of experience so can likely spot a deal and work the numbers pretty close, in his head.
    You will be competing against guys like JAG but there are not many out there like him. And often when a deal looks really good, people get nervous and wonder what is wrong. That is where market knowledge, including comparable sales, local rental rates, cost of reno's etc comes into play in making a quick calculation in whether you want to proceed and investigate further. You can always put in lowball offers to see what comes out of the woodwork - and I mean 20 to 30% lower than what you think market is.
    When I am looking, I keep an eye for empty houses where the owner may have been transferred or bought another house, long listings, houses where the closets look 1\2 empty and either no men's or no women's stuff( divorce), or crappy ugly paint jobs or poor looking cosmeticly that can be easily and cheaply changed. Other than in really hot markets, these can dramaticly lower the selling price.
    Be aware that just because it is a bargain compared to other houses does not necessarily make it a bargain for rental purposes.


  2. #12
    Junior Member
    Join Date
    Nov 2015
    Posts
    22
    Quote Originally Posted by Just a Guy View Post
    Pre-approval doesn't mean much, banks can still reject you at any point for any reason. Of course it's best to know how much money you have access to beforehand. In a good deal situation, you'll be competing against people like me who'll make an unconditional cash offer, so you're going to be at a disadvantage to start with. It may force you into overpaying which is never good.

    That being said, I expect the market to crash eventually, which would mean plenty of properties to choose from. Of course, if that happens, your also facing tighter lending standards and banks that have been massively burned. Again, people like me will have the advantage.

    As for realtors, that can be tricky. Most don't understand what makes a good investment property. Those who do may pick them up for themselves, but most will talk you into something the truth isn't a very good deal.

    Set up a criteria of what you are looking for in a property. For example 1 bedroom places under $X, 2 bedroom places under $Y and have the realtor send you listings as they are entered into MLS.

    You may want to check out www.easysafemoney.com or the youtube channel by Matt (another forum member). As a good beginner reference to real estate in Canada.

    As for the corporation's numbers, you need to get the financials from the condo, usually there is a reserve fund study (which says what repairs are needed going forward), the meeting minutes, etc. You want to find out as much about how the company (condo) is running and what the plans and conditions are of the building. That way you'll know is there are cash calls are coming.

    You shouldn't worry too much about what others value the property at (except for the bank appraiser), as the only opinion hat matters is your own, everyone else (except the bank appraiser) you want to think it's as low as possible, especially the seller and the tax man.
    Wondering about the "unconditional cash offer". To get the cheapest price and sign the deal that day, you would be willing to pay the price of the property in full? Wouldn't that tie up your capital for one property? Or would you somehow re-finance and take money out once the deal is done?

    Thanks for the links on easysafemoney.com and Matt. Coincidentally, I've read the book The Simple Solution to Canadian Real Estate Investing Rules for Playing the Real Estate Game to Win (need to read again to get more out of it) and currently going through Matt's videos. .

    Thanks for all the advice. Greatly appreciated.

  3. #13
    Junior Member
    Join Date
    Nov 2015
    Posts
    22
    Quote Originally Posted by twa2w View Post
    To the OP, JAG has given you good advice. Stay away from negative cash flow properties.
    FWIW my advice would be, before you buy, to look at lots of properties, do the numbers on them. Get good at this. Get to know the areas of town that you may be interested in. Even if you miss a deal or two, if this is your first property, it is better to be patient. Even if it takes a year or so.
    JAG has lots of experience so can likely spot a deal and work the numbers pretty close, in his head.
    You will be competing against guys like JAG but there are not many out there like him. And often when a deal looks really good, people get nervous and wonder what is wrong. That is where market knowledge, including comparable sales, local rental rates, cost of reno's etc comes into play in making a quick calculation in whether you want to proceed and investigate further. You can always put in lowball offers to see what comes out of the woodwork - and I mean 20 to 30% lower than what you think market is.
    When I am looking, I keep an eye for empty houses where the owner may have been transferred or bought another house, long listings, houses where the closets look 1\2 empty and either no men's or no women's stuff( divorce), or crappy ugly paint jobs or poor looking cosmeticly that can be easily and cheaply changed. Other than in really hot markets, these can dramaticly lower the selling price.
    Be aware that just because it is a bargain compared to other houses does not necessarily make it a bargain for rental purposes.
    Great advice. I feel very strongly with what you are saying. I think the first property either makes or breaks the potential investor. A good first property would give a solid foundation for the future, whereas a negative cash flow property would only cause fear.

    What you said about finding bargains seems the most logical way to make money in real estate. It seems the money is made on the buy. If can find a bargain property that is easy fix-up then the appreciation value speaks for itself rather than leaving it up to the housing market years later. Great points, duly noted.

    Thanks.

  4. Remove Advertisements
    CanadianMoneyForum.com
    Advertisements
     

  5. #14
    Senior Member
    Join Date
    Mar 2012
    Posts
    3,291
    An unconditional cash offer is just the way the seller sees it. I usually never offer list price, I offer my price. The seller has to decide if they want to take my deal, or hope to get more money from someone else who's conditions may allow the deal to fall through. In the case of a foreclosure, where you're dealing with a bank, often protected by cmhc to the downside, not to mention a small price to them in the first place, they usually go with the cash deal.

    On my end, I usually finance the deal on something like a line of credit. I can then approach the bank at any time to get a mortgage. There is a side benefit to this as well. When you finance a "clear title" property, they send out an appraiser and often the sale price doesn't play a factor in determining the value. If you get a mortgage as part of the sale, the appraiser almost always comes back with a value of +/- $10k of the sale price, regardless of what it could sell for.

    One thing to remember, if you plan to be a a landlord, the value of the house is meaningless after the date of purchase. Since you're never really planning on selling the house, the value of it becomes pretty meaningless, besides it can fluctuate. There are a couple of things you'll also want to remember...

    Just because you can get a huge loan, doesn't mean you should. The bank may offer you more money back than you need, this isn't "free money", you still need to pay it back. You also don't need to borrow the whole amount the bank offers, especially if you don't have a need for it. Borrowing more than you need can kill your cash flow. I usually only aim to get my cash back out of the deal, however a little more is okay, since it could cover cash calls, repairs, or my next purchance (but remember, I purchase regularly). In the end, I always keep an eye on my debt. In this environment, even with my cheap properties and high rent, I usually pay down my properties quite aggressively.

    Sometimes a property increases in value to the point where it doesn't make sense to hold onto it anymore, so some landlords sell them, and buy cheaper replacements. That's not my style, but it does work for others.
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

  6. #15
    Junior Member
    Join Date
    Dec 2016
    Posts
    10
    Nice!

  7. #16
    Junior Member
    Join Date
    Feb 2017
    Posts
    1
    Quote Originally Posted by splatapus View Post
    I'm looking for a real estate investment opportunity, it will be my first. The city is Ottawa, and the property that matches most closely with the 1% rule (monthly rent is is 1% of property price) is a townhouse condo. I would like to briefly describe the property and the numbers, what I think about the property, and then most importantly get the opinons of you seasoned real estate investors.

    The Property:
    • 3 bed, 2 bath, townhouse style condo built 1978. no garage. 1 dedicated parking spot.
    • Good location: 20 mins from downtown Ottawa, 5 mins to nearby schools, 10 mins to shopping centers
    • Mainly hardwood (good I think), electric baseboard heating (I'm concerned about this)
    • Condo fees: $346 includes home insurance, water, and property management
    • List Price: $155,000


    The Numbers:
    • Current tenant pays $1300/mo, pays own electricity. Plans to stay
    • Mortgage: 3.69% interest for 20 year amortization period, 20% down ($155k*0.2=$31k), =$730/mo
    • Property Tax: $2000/year = $167/mo.
    • Condo Fee: $346/mo.
    • Add on 10% for vacancy/repairs


    Rent: $1300
    Expenses: ($730+$167+$346)*1.10 = $1367

    So not cash flow positive.
    This is the best deal I could find in Ottawa so far. Biggest pro is that there is an existing tenant who would like to stay. Biggest con is that it is still not cash flow positive and I don't want to gamble on resale value appreciation years down the road.


    Could I get your opinion? As a safe investment, should the cash flow positive rule always apply? In current environment, is it possible to find a cash flow positive opportunity, or is it best to sit on hands and keep looking for better opportunities?
    As a real estate expert I think there are plenty of reasons to think that property is a sound investment.
    1. Find a good bank or mortgage broker
    2. Talk with other investors
    3. Pay Down Debt First
    4. Calculate Your Margins
    5. Find the Right Location


Page 2 of 2 FirstFirst 12

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •