Q&A Network Event

My oh my what fun we had last night!!!

I love attending and hosting network event. Real estate talks are a plenty and the topic is so fascinating. Believe it or not, most people around me don't want to talk real estate and investment. I know, shocking right!

Well last night I was surrounded be willing chatters. More then that, we arrange for a Q&A during the event. Everyone who attended were given the chance to write down real estate investing questions and we answered and discussed each one. What an amazing learning opportunity that was. Also each questions entered them for a door prize. Congrats to Sarah who was our winner last night.

That's right, we wrote our questions on "$1000 dollar bills".

Here are some of the questions we discussed last night.

Q:  Is Kijiji really a good tool for real estate investor? How would you use it?

A:  Yes! Kijiji is a great tool, if you are a real estate investor you should use it. The most important aspect of a real estate investor's business in the connection we make with others. Real estate is a team sport. You will need renters, sellers, and buyers. Kijiji is a great way of finding them. Place an add, "Handyman Special" to look for flip buyers. "Stop Renting" to locate tenant-buyers.


Q:  Should I renew my existing Kijiji add or create a new one?

A: Create a new one. Let there be a few adds for a few different offers. In fact you should have an ongoing presence on Kijiji. I try to place adds weekly. Let them scroll through and find a few from you. It will make you look like an active investor, not a tire kicker.


Q:  Which are the best group of people to sell your properties to? Investors or non-investors?

A: Well if you have a multi-unit you will need to approach investors. These will not appeal to first time home-buyers. But if you are working on wholesale or rehabs, basically for a single family house. You can easily sell these to either an investor or a non-investor. However, educated investors knows that having a property under contract is still not a completed deal. Due diligence will indicate if it will be a go or not for example. However, when a homeowner puts pen to paper for a purchase contract; that is a done deal in their mind and will most likely close on the property.


Q:  What exit strategy do you use?

A:  Your first level of exit is the exit clause in your purchase contract. These are a must. Never EVER sign a purchase contract without exit clauses. EVER!!
Wholesale is the universal exit strategy. No matter with property or which strategy you are concentrating on, always be ready to wholesale. When in doubt, wholesale it out!
For a rent-to-own, if the tenant-buyer can not close at the end of the term, there are a few exit option. Extend the term if they are still a good candidate. If they leave the deal, then you can find a new tenant-buyer, sell, wholesale, or rent.
For a flip (rehab) you could always turn it into a rent-to-own, wholesale, or offer a VTB (Vendor Take Back) in hopes to attract more buyers.


Q:  What is your favourite tool that you have used for real estate investing?

A:  With this questions we took turns describing out favourite tools so here are a few ones that was discussed. DocuSign. I have talked about that app in a previous post. In fact you can view it here. DocuSign give you the ability to sign PDF files directly on your phone or tablet and email the signed copy. So when I am on the road, if I have a realtor send me a purchase contract I can sign and send it back from my phone and not delaying giving the chance for other investors to put in offers in before me.
Team Viewer. This program give you the ability to access the desktop on your computer at home from anywhere. This gives you easy access to all your files and programs no matter where you may be. "Let me call you back when I get back to my office" will no longer be a viable excuse. OneDrive is a similar program available. Of course there are so hacking concerns, be aware.
You can do business from anywhere. You can fill your day with which ever activity you which and maintain your business as needs arise from wherever.


Q:  What should I know about purchasing a house for a bank for a wholesale deal?

A:  Don't. The wholesale strategy is purchasing a property with equity. By law, in Canada, a foreclosed property must be listed and sold by a realtor at or as close to fair market value as possible. So basically that means there will be no equity in this deal. Not only that, foreclosure have a reputation to be a great deal (even if they are not). Therefore many buyers look for foreclosed property and then they offer top dollars to secure the properties causing for these properties to sell for sometime more then fair market price. So to recap, you could find a good deal in a foreclosure, but the fact that it is a foreclosure does not guarantee for it to be a deal.


Q:  How do you get a money partner to pull the trigger on a deal?

A:  This question triggered a great group discussion and a few key points where brought up. It is harder to deal with new investors. If this is going to be their first "deal" that they will be involved with, they will be more nervous and they will be easily get cold feet. The best strategy to use here, in my opinion, is to keep the process of investing with you simple. Keep them out of the minutia as much as possible. Also do not drag on the process. Here is an example: "To invest with me, it is a simple three step process. One - qualify you with a mortgage broker. Two - information review (in a nicely compiled rapport, all at one time not bombarding them with tiny details every few days.) Three - Sign contract. Get a signed commitment of some sort before removing condition on the deal. Ideally get the money prior to that (in trust with the real estate lawyer). But having them put pen to paper, even if it's just on a letter of intent requires a level of commitment. If they hesitate at that stage, they will not likely close.
Our door prize was also the ideal answer for this issue. Pitch Anything is about how to present and close on deals. I have posted on the topic of that book in the past. You can view it here.

There will be more network events and there will be more Q&A. If you would like to submit questions even if you can not attend, email your questions to me here and get in the learning. Every questions submitted will be entered in a draw for a digital gift.

Why Helping With Financing Is A Benefit For The Seller

Have you ever had a property for sale, but there were no buyers? Or you had a buyer with a desirable offer in place but the financing fell through? Or your real estate agent as been recommending you lower your price again and again, so that after paying your realtors fees you are left with very little from the equity of your property?

It can be very disappointing to have been working so hard paying down the mortgage on your property to build up the equity just to see it disappear in the details of the sale. There are different ways to maximize the amount that goes in your pocket from the sale of your house. Today I will be concentrating on assisting with the financing.

For a first time home buyer, they should be able to purchase a property with a deposit of 5%. So for a $300,000 home that would be $15,000. That's not so bad. It gets a little harder to obtain when you think that a big majority of first time buyers first attended college or university. They might have been concentrating on paying down student loans instead of saving for a down payment. 

Not only that, but banks and CMHC have been changing their rules surrounding mortgages, making obtaining a mortgage a little harder and sometimes needing a larger down payment. In fact, CMHC as just increased their rate to insure a home mortgage by about 15%. It might be easier to obtain a mortgage without going through the regulation of a CMHC mortgage. But in order to do so the down payment would now need to be 20%. For that $300,000 house that is now $60,000. On top of paying off student loans.

For commercial mortgages, the necessary down payment is 35%. On a $300,000 purchase price that would be $105,000. Down payments are so high in commercial mortgage that assisting in financing is very common. The most common form of assisting is with a VTB (Vendor Take Back mortgage). There would still be a regular first position mortgage with the traditional lender (Bank). Then the seller would hold a second position mortgage against the equity of the property.

On that $300,000 example, lets assume the bank is holding 65% on a first position mortgage ($195,000) and that the seller is agreeing to holding a VTB for 20% of the property value ($60,000) this would leave the buyer with the responsibility of supplying a down payment of 15% ($45,000). This would make the whole transaction much more feasible for the buyer since he now as to come up with only $45,000 for the down payment instead of $105,000.

Now, lets discuss what is in it for the seller. First, he is getting the property sold when the large deposit of this deal might have scared potential buyers away. However he is not getting the full asking price up front. In fact in this example he would receive $240,000 at closing. But he did not have to lower the price. The remaining $60,000 is still due to him in the form of a mortgage. And not only that but it is secured against the property he just sold. The terms of the mortgage was determined between the buyer and the seller during the negotiation of the sell. 

I have in the past, posted about the types of rates you can expect for holding a second position mortgage. You can review that here. Based on that information, lets assume the seller and buyer in our example agreed to an interest rate of 10% and for a term of 5 years. For simplicity sake lets also assume that they agreed to make the payments interest only. (As a investor buyer, I prefer interest only as it gives me a smaller monthly payment therefore improving my monthly cashflow. As a seller, it gives me more money in the long run.) In this example the seller would be receiving a monthly payment of $500 ($60,000 x 10% which is then divided by 12 months). So after the 5 year term, the seller would have collected $30,000 in payments on top of being paid back for the $60,000 VTB. By offering a VTB, in this example, not only was the seller able to facilitate the sale and get his asking price; he also collected an additional $30,000.

Sometimes, there is not enough available equity to offer a traditional VTB, mostly if there are realtor fees involve. This is where Arm's Length Mortgages could be used instead.

Within your registered account, such as an RRSP; you can hold stock and mutual funds. But did you know you could also hold a mortgage? These are called Arm's Length Mortgages. They can only be used on property you, or a close relative do not own. Hence the term Arm's Length Mortgage. Just like the VTB the terms of the Arm's Length Mortgage would be negotiated between the buyer and RRSP owner. As an RRSP owner you could offer to hold an Arm's Length Mortgage on any properties (not mobile homes) that the buyer is purchasing or is owning. But you could also offer that service on the property you are selling if there was no equity for a VTB of if you are in need of that equity right away.

Here is how this would take place. You sell you property for $300,000. The bank is providing a 1st position mortgage of $195,000. The buyer as a deposit of $45,000. You would have $60,000 of your RRSP moved to a self manage RRSP which would then be transferred to a Trustee (such as Olympia Trust) that would facilitate the mortgage. The trustee would then create the mortgage which is registered against the property and at closing a cheque would be issued and sent to you. At closing you would receive, $195,000 from the bank mortgage, $60,000 from the Arm's Length Mortgage as well as the $45,000 deposit from the buyer. For a total of $300,000. So even though you are helping with financing you will be collecting in cash the full asking price.

Going forward regular payments would be deposited in the trust account (back into your RRSP). At the end of the term, the seller would refinance the property and pay off the Arm's Length Mortgage which would return all the remaining principal and interest due back to your RRSP. Take note, the RRSP money was only ever transferred within the registered account and therefore never created a taxable event. Also the interest made on the mortgage was also within the RRSP and is as such under the same protection had it been made in the stock market. But I think we will all agree that the RRSP secured to the property is much more secure then an RRSP holding stocks or mutual funds at the mercy of a volatile market.

One of the disadvantage of holding an Arm's Length Mortgage is that the additional money made from holding the mortgage ($30,000) is held within the RRSP account and technically should only be used at your retirement. But seeing as this is extra money that you would not have made with a traditional sale; I think the trade off is fair.

Single Family Home vs. Multi-Unit Rental

In my line of work I come across many people who are investing in real estate or people who want to invest in real estate. The majority of the time, new investors want to get a single family home and rent it out. Aggressive ones may concentrate on single family homes with a basement suite. Now it is my belief that getting involve in real estate investing is great, even if it's starting with single family homes.

If your strategy is holding a property for rent, and you start with single family homes, it will take many properties to make a significant difference in your financial situation. It is still possible and some people have succeeded that way. Many will run out of capital and borrowing power before reaching financial independence however.

My personal rules for rental properties is four-plex or larger; the larger the better. So why is that? There is reason to my madness. Let me explain further.

I had received income and expenses on a few properties I had been working on during the same time I had a few accepted offers in place. I was a little tied down with those, so I presented the income and expenses to two other investors to see if some of those properties was of interest to them. There was about twenty different properties varying from four-plex to 50-unit building. We were sitting around the table running numbers on these properties. I watched both of them pick up and immediately discard the larger properties. When I asked why, they explained it was too big, too risky.

They believe this because they are looking at the price tag attached to it. Is there a difference between purchasing twenty-four single family homes, six four-plex or one 24 unit building? The price might be similar (it probably would be more expensive to purchase twenty four single family homes). But it is my opinion that the 24 unit would be safer and easier to purchase.

Why safer? Well each property would have their own set of expenses; property taxes, utilities, insurance. The expenses per unit would probably be lower in the 24 unit building than for each single family homes. The rent from those properties is the income to cover those expenses. It is true that rent might be slightly higher for a single family home then for a unit in an apartment building that will even out a little the income to expense ratio. But let's look at vacancy. Vacancy is part of the rental market, you will be dealing with vacancy. Between tenants you will have to refresh the property and find a new tenant. There may be a quick turn around, but you will need to deal with vacancy. While you have an empty unit, believe it or not, you still have to pay the expenses on the property. So if you have a vacancy on a single family home, 100% of your income is not coming in and you will still have to pay 100% of the expenses. In a 24 unit building; one vacancy represent 4% of the total income. Can you see how a vacancy will not hurt as much? Therefore making the 24 unit building a safer investment.

When you want to purchase a single family home, before lending you the money the bank will require a down payment (20% for a rental house) and they will be looking at your personal financial situation to ensure you are able to cover the expenses and mortgage payment. That makes purchasing twenty four single family homes a little challenging because before long you will no longer qualify with the banks. When it comes to the 24 unit building, the chances of your personal income being able to cover the expenses and mortgage payment are so low that the bank won't even bother looking at your personal income. They will concentrate on the income of the property itself. Also they will be more willing to allow second position mortgage, lowering the percentage of down payment you will have to provide. So really, what really matters is how good the deal is. I'm no longer limited in how many properties I can procure. Or at least not based on my personal income.

Long Distance Investing

I get a lot of questions about investing in a different province and how I go about obtaining a new rental property without ever seeing it. In fact I received an email about just that this week so I decided to make it the topic of this Q&A.



If you have more questions on this topic or if you would like to submit a new question for future Q&A please e-mail me here. Be sure to put Q&A in the subject line.

What Is The Desired Result?

A Fresh Re-Start:

2013 was when I decided to fully concentrate on real estate, as a part of that I started this blog and published my first post. My intention was to blog about different topics, once a day. I am pleased with the information that was made available through my blog but as you may have noticed my last entry was in November 4th 2013.

It is time to re-evaluate.

I find the best way to figure out what needs to be done is to concentrate on the desired result. What am I looking to accomplish with this blog? What do I want out of it? That is right, I have a motive. It wouldn't be worth all my effort and time commitment to maintain this blog if I was not getting something in return. I look to obtain mostly four things out of this blog.

• Networking: I'm a mother of young boys living in a remote area. Although I am well aware that in real estate investing, networking is key; my lifestyle doesn't easily support evening network events. So this blog as become my indirect network tool so that fellow investors can connect with me on some level. Can you feel the connection yet?
• Educating: Anyone who is going to invest in real estate should have a certain level of education on the subject to do so safely. Not only is it important for myself to be educated in real estate investing but I believe that my financial partners should be as well. They need to be able to interpret the deals I am presenting to them so that they can see the value and be confident and comfortable to move forward with investing with me.
• Learning: Posting on this blog is forcing me to keep up to date with my own education. It makes me learn the lessons in the experiences I am confronted with. It makes me seek the necessary information I need to move forward and to do so well enough that I can turn around and teach it to someone else. That is when you know the information you are learning as being fully absorbed.
• Offer Support: I am a real estate investor, just like you. The hurdles I have come across, you probably will as well. The information I have needed will most likely be useful to you as well. So although blogging is a great benefit to me, it can also be a great benefit to my fellow investors like you.

Now that I am clear with the results I want from this blog, one obvious thing comes to mind. I can not maintain daily blogging. It takes away from the time I need to dedicate to my business and to my family. And lets be honest, do you really read my blog each and every day? I didn't think so. I can still provide the same level of quality information at a slower pace and that will allow you more time to absorb. Going forward I will try to blog once weekly.

Q&A:

The Q&A's have provided amazing insight for me, and I trust is as for you as well. However due to the high cost of the meeting software I was using, I could no longer offer the service for free; and I was uncomfortable collecting a fee for it. 

The Q&A's had such great value that I also do not wish to drop the whole concept. So going forward, the Q&A will be continuing (YAY!!) but they will no longer have a live component. I will ask that you submit any questions, and a video or interactive presentation will be made available to view here along with the other past archives.

Step On It:

Monday was back to school for us. After weeks of having taken advantage of the easy schedule with no  pressing reason to get out of bed (for myself, my husband was still hard at work with the farm); it was time to set the alarm again. I woke without too much grumbling and got the kids up, the lunches made and sent them off to the bus. I sat on the couch, and contemplated my options for the day. Should I watch some TV? Tidy the house? Go back to bed? Go back to bed was a definite favourite.

However, before I could put that great plan into action, I got a text from a fellow real estate investor with which I have informally formed a working partnership. The text said "Happy New Year! Are you good to go this morning?" With my warm bed calling my name I almost wanted to reply "Ugh NO!" But instead I said "Sure, I'm good to go". I am very grateful to her for having reach out and restart my momentum, it would have taken me quite a bit longer.

Without momentum, I wouldn't have actions, and without actions, I wouldn't have results, and without results there is no success.

The first thing we did when she arrived was to evaluate our current situation, we then reassessed our goals and set a plan of action. This was not complicated or over formal, we kept it quite simple. Took notes in a notebook and only after realised we had accomplished all those tasks.

• Evaluate Current Situation: We discussed ongoing deals, which stage it was at and what was left to accomplish.
• Reassess Goals: We discussed which strategy we had been concentrating on and if that was still were our interest reside.
• Plan of Action: We started listing off what we needed to accomplish, which task to do now and which would be for during the week and so on.

Just like that the momentum is started and picking up speed. I hope you get yours going as well if you have also slowed to a stop over the holidays.

Happy New Year!