Good To Know: Detailed Expenses

I would say half the time, if not more, when I ask for the income and expenses for a listed rental property I am given two numbers. One for income and one for expenses. You probably have as well, or you will.

If you are a seasoned real estate investor, you know to get more detail. If you are new to investing in real estate, be sure you request more details.

First you'll want to know what the property taxes as been in the past year or two. You will also need the have the cost for property insurance. Utilities, make sure all is included; water and sewer, electricity, heat, water heater rental if applicable and so on. Snow and garbage removal.

These next two, are the ones missing most of the time. Vacancy. I allocate a minimum of 5% of the total rental income. Even if the property is advertised as low or no vacancy. It also wouldn't hurt to contact local property managers and inquirer about the rate of vacancy in the area of the property. Maintenance. Unless it is a brand new building still under builders warranty, there is going to be maintenance fees. Even if it was brand new, there will still be clean up between tenants. I also allocate 5% of total rental income. If the previous owner is recording a higher amount to maintenance, make sure to run your calculation with the higher amount but you may want to questions why that amount is so high. Was it for renovations? If so what was done in the renovation? Was the work done with city permits? Was it to replace the water heater? What was wrong with the old one? Did it burst was there water damage?

Most of these questions I would ask once the property is secured with an accepted offer. Once it is under contract, it is the time to verify those expenses. Ask for copies of bills and statements.

What Are You Reading: Who Moved My Cheese

When cooking a roast my mother would trim off both sides of the roast before putting it in the roaster. One day, I asked her why she did that. She said, "that is the way my mother as always done it." So, I called my grandmother and asked her why she trimmed both ends of her roast before cooking it. She also answered, "because that is how my mother has always done it." So, I called my great-grandmother and ask her, why do you trim both ends of the roast before cooking it. She said, "because it didn't fit in the roaster"
 

We are creatures of habits. We will do something again and again because that is the way we have always done it. We rarely stop to evaluate whether it is supported with good reasons, we simply go about our business the same we always have.

Who Moved My Cheese? by Spencer Johhson. In this story, there are two mice and two "littlepeople" that live in a maze. Everyday they get up and go to a section of the maze where there is cheese. One day, when they get there, the cheese is not, it's gone. The mice, possessing simple brains and good instinct, do not over analyse the situation and takes off looking for new cheese. The littlepeople have complex brains and emotions, one gets angry and shout about the unfairness of it all, the other was quiet and in denial. The next day, they go again, hoping the cheese will miraculously be back, but it's not. They analyse the situation, discuss what happened to the cheese, but ultimately they do nothing.

This book is an amazing little book about dealing with change in your work and in your life. It is less then a hundred pages, so perfect for a quick read; no excuses.

It reminds me of the stock market. How many of us, invest in mutual funds? How many of us saw the whole of our investment dwindle to crumbs in the crash of 2008? Some of us weren't able to retire as planned. Now how many of us, knowing the risk in the stock market, are still contributing to those mutual funds every month or year, hoping it will there when we need it? Aren't we like the littlepeople going back to the same spot looking for the cheese that is gone?

If you haven't already, read this book.

Tools Of The Trade: Scanner

In real estate investing, if you are finding your own deals, you will be sending out offers. Many, many offers; hundreds. If you invest like I do; most of those offers will not be face to face with a realtor in your home town. So these offers will be done over e-mail.

Most of the time, offers gets sent, then the other party will change something and send it back. Then you will initial the changes and send it back. Over a fax machine, the final copy of the purchase contract is almost unable to be read. I much prefer the use of a scanner, not only can you read the document clearly  but it looks a lot more professional.

When I was selecting my scanner; one of the feature I really wanted was that it could scan multiple paged into one document. I have had a realtor that must be using a printer top scanner. He would send me the copy of the purchase contract one page at a time. There would be eight documents for the eight pages he sent me. It was king of annoying having to deal with all the different documents to go over the contract, even more when one was out a sequence.

The scanner can be of more use in your real estate business. When preparing your bookkeeping you can scan all your receipts and send them to your accountant over email avoiding having to schedule a meeting just for droping those off. If you take the time to sort them before scanning them as well, your accountant will be very grateful, making his work load lower and diminishing your accounting fees.

Also in the event of a joint venture, you would be able to provide all partners with copies of leases, contracts, statements and bills as well as any other pertinent documentations that may be relevant to your combined business.

The first deal I closed on was in Nova Scotia. I live in Alberta. It wasn't possible for me to sign off on all the documents face to face with my lawyer who was in Nova Scotia. What he did was email me the paperwork. I printed everything off and met with a local lawyer to notarise them. My local lawyer warned me this deal would not close on time with all the paperwork being in Alberta. So, I scanned every documents, signed and notarised and sent them the PDF copy. I shipped the paperwork express post and scanned and emailed them the copy of the shipping confirmation. I closed on time at the agreed date.

Maybe more so then my printer, my scanner as become the most important tools in my office. I'm not telling you to run off and get a scanner right now. But if your budget permits, I think it is a sound investment.

Step On It: Find A Mentor

Last week, if you have been reading this blog and following my advice, you have set up your goals. If you haven't, no problem, do it now. Dreams will only ever be a dream unless you take action. If you find yourself making excuses, that if your fears and doubts interfering. We will not all attain our dreams and some of us will take longer then others but the secret is to take action. Even if it's just a small act to start. Take action.

Now that you have set your goals, you know what you want and what you need to do to accomplish it. I am using real estate to take me to my dream and if you are reading this the chance is that you are too. If not, simply apply the concepts to your situation.

Sometimes the steps you need to accomplish are not always clear, or they may be clear but the process is not or you may be on a road where you know what to do and how to do it but it could always be tweaked to be improved and more effective. You can make it work by trial and error. Try something and see if it works. Buy a house and find renters; and VOILA you are a real estate investor. Not so hard is it? But are you a good real estate investor? If you do not keep track of your records, first of all, you may not know. You may find that the property you've bought once all the expenses are taken into consideration does not have a positive cash flow. That's ok, live and learn, next property you run some numbers. You may end up with tenants that pays their rent late if at all or that they trash your property. Next time, you'll know to screen them more closely. You will eventually learn lots of lessons, making you a better investor and may actually start making good money on your real estate investments.

If you are in your early twenties, you may actually also have the time to do all that and be successful by retirement. Or you may be lucky and get a decent return on your investment from the get go. But if you could, from the get go, be making sound successful investments with minimal head aches if any; wouldn't you want to? Wouldn't you want to compress the years of learning by trial and error into a few months and start being successful now? Of course you do, we all do, but how do we do that? That is where a mentor comes in.

 

 

A mentor should be actively doing what you are aspiring to do. That is why your goal needs to be clear. You won't get much help getting ahead in real estate if you are taking advice and guidance from, let say a dentist. Unless that dentist is investing in real estate and doing so successfully. But he's a dentist and a very successful man. Yes, he's successful at doing dentistry. I know this seems very obvious but it's amazing how we seem to put successful people all in one basket and by doing so actually overlooking completely the successful real estate investor.

In fact, I remember a conversation with a pharmacist once, when I was talking to her about our real estate investing. She said: "I have a friend, a doctor, he is very smart. He's a doctor. He did real estate for  a while and it didn't work like he hoped it would. And he's smart! He's a doctor". She made it quite clear that in her mind only successful people could get success, and if they where successful in their career they should be able to show success in all other fields. When her successful friend the doctor couldn't make it work with real estate. It was because real estate didn't work. Not the fact that this successful doctor didn't learn how to make real estate work.

So when looking for a mentor, do not go looking only for successful people. Look for someone who as had success in real estate investing. Make sure they are doing it in a way that would suit you. It would probably not do me a whole lot of good in my mentor is successful at real estate investing by putting in millions of his own money when my available capital is slightly (maybe more then slightly) lower then his. His techniques would probably not work in my situation.

So how do we find these mentors. Look no further, I'm already here! Just kidding, well kind of. Unfortunately people don't go around with a sign around their neck advertising their line of work and investments. But like minded people have a tendency of finding each other. Look for investors groups, or cash flow events. Attend those events and talk with people, explain your situation with investing where you are and what you want to accomplish. People who are passionate about what they do love to talk about it.

There will have to be a certain level of give an take. In the case of my courses, my mentor was compensated for showing me what I needed to know. In some events, partnership are created. If you partner with someone on a real estate deal, it is reasonable to expect to be able to learn from that deal. You don't have to. Many people like to finance a real estate investment that is set up and manage by their partner and not trouble themselves by the details and simply enjoy the money coming in. That is perfectly okay. Sometimes it will be a mutual mentorship. You will connect with people and share information and details of each your experiences and learn and grow from each other.

However not everyone is in a position to finance a deal, or have knowledge and experience in real estate, or willing and able to obtain that knowledge through professional investors in real estate courses. I don't think it would be reasonable to expect for someone to teach you all they know with nothing in return, but here is what I would recommend. Ask to be added to their contact list so that you will receive the information of any real estate investment they come across. When you received those details, pass them along. Start creating a contact list of your own. If you arrange for them to be connected with an investor, their in your debt. I normally offer a finders fee, but you can bet that if someone connects me with an investor for my deals and they express to me they wish to learn more that I would take them under my wing.

So, get out there. Meet people doing what you wish to do and find a mentor or two.

What A Life: Mutton Busting

Every year, Didsbury host a local rodeo. Last year my boys asked me to do the mutton busting. I was very surprised they wanted to participate. I asked a few times if they where sure, but they said yes every time. Alright then.

So when the time came, I got them signed up and ready for the mutton busting. I was very proud because when I came to it and they are in line waiting for their turn, watching kids ahead of them falling off the sheeps, nerve where running high. It would have been a lot easier to change their minds and walk away, but they controlled their fears and took action.

This was Jerome's ride:

 

And now Patrick's ride:

I told Patrick to hold on good and not let go. He did just that. They both received a trophy. Fun times.

Rich Dad Radio: Congressmen Ron Paul

This week on Rich Dad Radio, the guest speaker was congressmen Ron Paul. He shares is view on the current economics in the United States.

I got home very late last night and tried to listen to the show and to blog about it. I would be typing and dosing off and waking up again to a combination of letters that did not form any words. So that is my reason for this post being late. If I would have done it on time, you wouldn't have understood anything anyways.

I found this week's radio show to be of great interest. Congressmen Paul discussed a few key points. Why the USA left the gold standards and go to fiat or paper money in order to support a big government. He also discuss whether politician can improve the economic recession, they sure can make it worst. Robert ask congressmen Paul why money is not taught in school, his answer is because the school are controlled by the government. He is a big advocate of home schooling and to keep the government out of our children's education.

As he often does on this radio show, Ben Bernarke, who is the current chairman of the Federal Reserve, took a bit of a beating. Why didn't he see, in his position, the development of the mortgage crash of 2008? He is a graduate of Harvard and MIT, shouldn't he be smart enough to have seen this coming, when others prophesied it? And why is the country looking to Bernarke and the government for a solutions when they missed seeing the arrival of the problem.

The radio show also discussed the drop in the gold price, and the reason behind it. Did you know the Feb as been shorting gold? If you are unfamiliar with the concept of shorting, it is when you sell a stock (in most cases it is stocks) that you do not currently own in the hopes of buying it at a later time to close your position at a lower price.

So to sum it up, great show this weeks, lots on interesting information. In fact if you would like to quickly learn more of the mortgage crash of 2008 I would recommend the movie Too Big To Fail.

 

 

Inspirational Corner: The Power Of WHY

The first time Adam read Rich Dad Poor Dad, he was really excited and handed it to me so I could read it. I read a few chapter's and put it aside. It was an okay book but it wasn't the fiction novels I had been reading and didn't have much interest.

Years later, he heard on the radio of a Rich Dad basic stock courses coming to Calgary and he signed us up. We had received some books and material at the registration event, and he had read it all. he was starting to get frustrated with me because I hadn't even looked at them. "You're not putting any effort into this" he would say. And, he was right. I wasn't, I had no interest, but to appease him, I glanced at a few pages. I was content with our situation and didn't feel the need to reach for something different.

At the course, I found the information interesting enough and I could see the potential so when he said he wanted to sign up. I agreed. I pictured myself as a very supporting wife, although at the time my intention was probably going to support him by letting him take the courses. I don't know that I had the intention of spending all that much time on them. But I was willing to let him try. I'm sure I would have set limits. I would still have expected for the same amount of his time to be spent with our boys and myself. Looking back now, I can see that I probably wouldn't have been really all that supportive, I would have being just barely enabling.

But at the end of the three day, the presenter asked that everyone described their WHY. The WHY is the reason we want to do this. The purpose that will keep us motivated and moving forward when we are experiencing a low.

I figured my why could be so that I am the one raising my kids instead of the day care. It's a decent why, it's fine really. But deep down, I know I didn't need stocks or real estate so reach that goal. I could work from home or we could live on one income.

Before my turn came to describe my why, it was Adam's turn. He explained how his parents had been hard working farmers their whole life, working 24/7 to maintain it. He explained their love and passion for their horses, and how if they could retire, they would be able to spend more time doing that. He explained how his parents where at a time when they should retire but they did not feel they could support it. He said "I want to be in a position, where I can buy their retirement"

Then it was my turn to speak, and I couldn't. Adam's response took me by surprise. I guess I expected his reason for wanting to do all this to be for more money so he could have more stuff. The presenter was waiting for me, and the other students. But I was crying, not just crying, but bawling! Snot running for the nose, unable to speak bawling. The fact that his reason was so pure; became my why. I had his back.

Then I was really on board, I even read all the books. It became all we talked about because it was all we wanted to talk about.

Two months later, Adam broke both his wrists in a motocross accident. Did I mention he was a motorcycle mechanic? Both his wrists, where in screws and external fixators for four months before they could cast it. That was four months of him not working and since he couldn't even scratch his nose, four months of me not working.

Think about it, if you take the income from your work away, will you last four months? We also had two young boys to support, they where 2 and 3 at that time. We probably wouldn't have if it wasn't for the amazing people in our life that helped. My boss at the time, paid me full wages, even though I was previously only working part-time, and that I was no longer working at all. The community organised a fund raiser. My in-law's kept our boys but brought them home for every meal so that we could still have family meals until Adam's pain and discomfort where under enough control.

It should have been the scariest part of our life. The doctor was clear Adam should not plan to go back to mechanic work. But we felt a lot of peace in the fact that we had a Plan B already in the works with our courses.

Since Adam couldn't do almost anything. We dedicated the time to learning our courses. Once we got our life back under a regular routine. We added more course at the end of 2011 to add real estate.

It's been an amazing journey with lots of ups and lots of downs. But if we knew then, what we know now. We would have taken the very same decisions.

Many people asks if we have accomplished our dream of the WHY. Well, my father in law, was diagnosed with cancer, and within a month, we lost him.

People pay attention! It is not enough to have a dream, you also have to go after them because you never know how much time you and the people around you have left.

 

 

We miss you Mike.