“Oh my gosh, your life must be so stressful. Dealing with collecting rent, evicting tenants, doing repairs, showing apartments. You must never get a break!”. These are some of the most common reactions I get from people when I mention that I invest in real estate.
Now let’s discuss how “stressful” it really is.
I’ve been investing in real estate since 2010, a total of ~60 months. During this period I’ve had to evict two tenants, one which left amicably and the other which took a 2 month process to evict. I’ve also performed mostly routine repairs every couple of months. The one non-routine emergency repair that I’ve experienced was a unit that experienced frozen pipes two winters in a row and required a few dozen hours to fix properly. Oh and I’ve also had to purchase a spray foam insulation kit and spray the basement walls in one of my units which had excessively cold floors above during the winter months.
Today you have your annual physical at the doctor’s office. You wake up and enjoy a hearty breakfast and then head out for your appointment. All looks well and you’re sent for the typical tests that accompany your annual physical and then your appointment is done and you’re off to work. One week later you get a call from your doctor’s office asking you to come in to discuss your physical. You oblige and head in as instructed.
The receptionist calls you in and you sit down on the patient bed. The doctor walks in and closes the door. He flips through his notes, looks at you and slowly mutters the words “I’m afraid I have some bad news.” Your heart skips a beat as you hear him mutter some words about results and re-focus long enough to hear the dreaded words “I’m afraid you only have one month to live”.
Perspective is a major factor in everyone’s happiness. Two people can live the exact same scenario yet somehow they will almost always interpret them entirely differently. Let’s take a look at a similar scenario described by two different people. Which perspective do you want to frame your mindset with?
What can $100,000 buy you?
- Home expansion / renovation (~500-750 sq. feet)
- Luxury car & costs for 5 years (insurance, gas, maintenance, etc.)
- Camping trailer, insurance & lot for 5 years
What can $100,000 earn you?
Alternately, if you deposited the $10,000 saved each year over the duration of 10 years instead of spending on one of the luxuries above and then earn an average return of 7.8% each year for the next 30 years you would own investments valued at $694,763.08.
Real estate is one of the best investment vehicles for your hard earned monies. Although it is not a passive investment, it offers numerous benefits over other vehicles:
- Low barrier to entry
- Easy to learn as you go along
- Most decisions are common sense (e.g. a tenant doesn’t pay -> evict; repairs needed -> perform repairs; vacancy -> advertise, etc.)
- Allows you to leverage other people’s time (e.g. property managers, lawyers, accountants, real estate agents, etc.) & money (the bank, private lenders, etc.)
But before you consider investing in real estate it is vital that you invest some time to learn the basics.
It’s important to be organized when you acquire new investment real estate because there’s a list of documents that are required for each and every deal. When you have a few weeks to obtain financing approval, the last thing you want to be doing is stressing because you’ll need time for inspection, closing, auditing leases, etc. Here’s a list of documents you should have ready:
- Purchase offer (including all counter offers), dated, signed and accepted
- Proof of down payment
- Updated and signed net worth statements of all co-owners / primary shareholders if purchased through a company
- Tax reports & appendices on income and expenses of each rental property
- If purchased through a company, financial statements of the company for the last 3 fiscal years
- Detailed income list for all rental properties you own
- Current copies of all current leases (along with documentation supporting rental increases that have happened over the years for longer-term tenants)
- Detailed mortgage financial statements for all properties
- Detailed financial statements of all investments held (stock, real estate, etc.)
If you purchase real estate a few times a year take the time to organize and update these every few months. These documents are the lifeline to growing your portfolio.
Founding Partner, Amplified Investments
Investing in real estate
Personal blog by our founder, Brent Mondoux
December 15th 2011
Just as any other work day, I awoke to the sound of the alarm clock. Sleeping on the opposite side of a king-sized bed, I was forced to crawl across to silence the irritating buzzing. As I went to move a sharp jarring pain radiated from the center of my back outwards. I couldn’t move, I was frozen in pain. I tried to breathe through it, assuming I had just pulled a back muscle as I had done previously, but the pain wouldn’t subside. I forced myself across the bed, struggling through the pain and silenced the damn alarm.
It felt like it took forever to get myself out of bed and into a vertical position. Getting dressed that day felt like the most tormenting ordeal I have ever endured. Far worse than an abscess tooth; far worse than a broken wrist; it was awful. I made my way downstairs to face my wife (Nat) and my son (Aiden). They knew right away that something was wrong. Visibly anguished, I bemoaned that I needed to go to the hospital. Nat looked at me and asked in concern “What happened? What did you do?” to which I confirmed “I don’t know. I must have pulled something in my back while sleeping but I can’t take this pain. I need to get it checked”. She acknowledged my comments and proceeded to get Aiden ready to drop off at school.
We drove up the street to drop Aiden off. Not wanting to alarm him, I put on my “big boy” face and grimaced through the pain as I got out of the car to hug him before he headed in. And then we were off. While heading to Ottawa, Nat was making small talk trying to comfort me from my pain, I could tell that she could sense my concern as well. She looked over at me and said “I think you should go to the medical center first. You won’t wait hours to be seen.” I agreed that it was a good idea.
The first step is to consider what area interests you the most; it’s always easier to choose something that you have some degree of interest in because you will be more likely to best absorb the materials and take action.
If you’re a beginner and not sure what area interests you most I recommend you read one of the following blogs I’ve written that are geared for beginners on these topics:
Taking the time to inform a realtor that you will not bid on a real estate investment opportunity and presenting him / her with the reasons why is an important step in the communication process for a number of reasons. It helps you to create a relationship with the realtor based on trust, transparency and shows a respect for his / her time.
Showing a realtor that you are experienced and have a set of investment guidelines that you follow while also informing that the property doesn’t cashflow provides the required information for him /her to discuss with the seller and assess their flexibility.
Performing your due diligence when considering a real estate investment opportunity is the single most important step to ensuring an investment that meets your expectations.
Unfortunately most real estate investors that I’ve mentored have shared with me countless tales of errors and assumptions that have cost them severely. For this reason I am sharing an email that I sent this morning to help novice investors to learn.
The following email with attached cashflow analysis asks the questions required to ensure that I can make an informed decision without assumption. It also shows the realtor that I am serious, experienced and respectful of his time.