How‌ ‌to‌ ‌Find‌ ‌a‌ ‌Real‌ ‌Estate‌ ‌Agent‌ ‌that‌ ‌Adds‌ ‌Value‌ ‌How‌ ‌to‌ ‌Find‌ ‌a‌ ‌Real‌ ‌Estate‌ ‌Agent‌ ‌that‌ ‌Adds‌ ‌Value‌ ‌

The first realtor I worked with latched onto me like a leech. I was twenty-six, inexperienced and looking at buying my first rental property: a triplex. The man was from a firm that (I later discovered) was known for fake leases, cash in suitcases and fraudulent financing. After I called to visit a property he had listed, he basically attached himself to me. He kept calling and calling, pressuring me to see buildings and to work with him. I didn’t know how to get rid of him!

After two weeks of searching, he pressured me into making my first offer. I wasn’t sold on the deal, but I was also insecure and after he kept the pressure up, he “closed” me and I signed on the dotted line. 

The property ended up being profitable and relatively trouble-free. I still own it today. But our relationship was very unpleasant. I can still remember the stained wall-to-wall carpet and fluorescent lighting in his office and the way he pressured me to make a decision I wasn’t ready for. 

When it came time for my next purchase, I vowed to do things differently. 


Do Realtors Add Value?

While Real Estate agents have a reputation for being sharks, I do believe they add value. 

When I buy and sell properties today, I work with a broker, even though I am a licensed realtor and have enough experience to manage my transactions personally. A second opinion—a professional one—and the second pair of eyes is worth the commission cheque. 

If you’re starting out, the value-add of a realtor—the right realtor—is even greater. Here’s why.


Negotiation

Realtors negotiate for a living. Negotiating is both an art and a science. Getting the best deal depends on knowledge of the market. Realtors see a lot and therefore know a lot. It’s their job to keep their nose in the marketplace. They’ll have access to comparable sales. They’ll know the reputations of other realtors—which ones are crooked, which ones ethical. Their knowledge is a value-add.


Professional Networks

Realtors also have a professional network behind them, including inspectors, contractors, lawyers, architects, etc. This team of professionals will advise both you and the realtor if there is any uncertainty. For example, when I have doubts about a transaction, I call the director of the brokerage firm I’m affiliated with. When I’m unsure how to structure a complex offer or build protection into a deal, I, unlike my clients, have someone more knowledgeable to speak to. All of this is part of the value-added by working with a competent realtor. 

And why not? For the buyer, it’s essentially a free service.


The Real Estate Board

In terms of due diligence, the real estate board heavily penalizes realtors if they don’t follow prescribed processes. Your agent will need to check the tax bills, any liens, the leases, the certificate of location, and so on. They will also be better at doing due diligence than you are. This is how they obtained their Real Estate license.


Professional Insurance

Realtors have professional errors and omissions insurance. If they overlook anything, are negligent, or jeopardize the transaction, there’s insurance coverage for you, their client. Working with a realtor offers you a certain level of security that private sales don’t.


Don’t Trust the Listing Agent

If you visit properties on your own and end up dealing with just the listing agent, don’t think you’ll end up in a better bargaining position. Many people think that the realtor will cut his or her commission to give them, the buyer, a good price. Don’t be fooled. The listing agent wants to do a deal and their first allegiance will be to the seller. This won’t put you in a position of strength in the transaction. You’ll also end up paying commission anyway (indirectly as part of the sale price). 

Get a broker in your corner. Being represented by your own realtor will likely add no cost to you. If you work with someone competent, it will almost certainly save you money through the negotiation process. There’s basically no downside to being represented by a realtor when you shop for a property.


Show Me The Money

One caveat: Real Estate agents make money at closing. From a business standpoint, their motivation is to make the sale. Your realtor wants you to buy a building. Preferably without too much lollygagging. You, on the other hand, want to purchase the right building. Notice the difference in motivation?

Finding a property that meets your needs can take time. No matter how ethical, realtors want you to choose any building in the least time possible. Their commission will be the same whether you visit one property or twenty. Consider the pressure this puts on them. When realtors push people to make a purchase, it can be because they’re simply motivated to close the deal. 

Then, factor in that not all sellers pay the same amount of commission. Realtors make between 2.0% and 3.5% on a sale. Do the math. On a property worth $450,000, that’s a difference of $6,750! This places realtors in an ethically difficult position. They’re expected to present properties neutrally despite vastly differing commission amounts. As a realtor, it’s difficult to avoid encouraging your clients to buy a building where the seller offers more commission, whether consciously or unconsciously.


Realtor or Investor?

Conflicted motivations aren’t the only thing to be aware of. How much do you know about the qualification process for becoming a realtor? It has nothing to do with investing. Many agents are great at making deals but they may not know whether a property is a good investment. While they can negotiate and fill out contracts competently, most residential realtors don’t know much about cash flow statements, leases, or tenant issues. 

When selecting an agent. You’re going to need to pick someone who knows rental property. Learn how to select an agent. 


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How to Manage Contractors When Investing in Real Estate

Who doesn’t have a horror story about dealing with contractors?

Getting gouged by greedy and incompetent construction men is almost a right of passage for investors.


The Mason From Hell 

My top debacle happened shortly after I closed on my third property. It was early in my Real Estate career and cash was tight. The building inspection report had mentioned an issue with the brick facade. I didn’t really understand the problem, but—I was sure of one thing—I didn’t have enough money to pay for expensive repairs. After getting three bids panic was setting in. Two quotes were for over ten thousand dollars! It was money I didn’t have.

The expensive firms gave me written estimates with technical drawings. They explained that to do the job properly, they had to dismantle the wall, install new anchors, and then rebuild the wall straight. “You can’t repoint brick that’s sagging,” they told me. 

The third guy gave me a verbal estimate that was a fraction of the cost of the other two. 

Which guy do you think I picked? 

We shook hands. I handed over my deposit and the cheap guy went to work.

He showed up on a Saturday with two guys in the dirty pickup. It struck me as strange that they were working on the weekend. Later I realized they did this to avoid city inspectors, who patrol job sites on weekdays. Of course, the “contractor” had neither a construction license nor a permit to carry out the work.   

Three hours after he’d started the job, the guy called me. “Re-pointing won’t solve your problem,” he said. “Brick is separating from the house. We need to take down the wall and rebuild it.”

He now wanted triple the price: the exact figure the other two contractors had quoted me! This guy had chucked in a low bid, knowing full well he wasn’t quoting the real price. With half my money in his pocket, the crooked mason was suckering me for more cash to do the job right. With no written contract, I couldn’t even argue about what was involved.

“Get lost,” I told him. “I’ll get someone else to finish the job.”

“I’m not leaving without the rest of my money,” he said.

I drove off in a huff. A few hours later, I found the mason and his two buddies parked in front of my house. As I tried to get in, they blocked my path. It was a bad situation.

In the end, after a shouting match in the street, I paid them for three-quarters of the job even though their work was useless. After calling back one of the more reputable guys, I paid for the job twice. The expense went on my line of credit, and it took me a year to pay it off.


Do It Right The First Time

Dealing with contractors can be a major challenge. Maintaining and repairing properties is expensive, and therefore anxiety-inducing. Construction attracts all sorts: from the expensive and highly competent to the fly-by-night and dishonest. Add this to the fact that at least initially—we, the investors—don’t fully understand the work we’re subcontracting out. 

Who fully grasps plumbing, electricity, masonry, roofing, drainage, and HVAC the day they close on their first property?! 

For me, the main issue when dealing with repairs has been the learning curve of knowing whether the intervention proposed is the right one. Often, different contractors propose slightly different solutions. If we don’t know fully grasp the principles at work in maintaining something, it’s hard to know which intervention is the right one.

Don’t despair! There are things you can do to minimize the headache and uncertainty and to educate yourself before you award expensive contracts. 


How Not to Get Hood-Winked

Here is a list of do’s and don’ts that will save you from the mistakes I made early in my career. 

  1. Always get more than one quote. Make sure the estimates are detailed and that each line item is properly explained. You’ll want to compare pricing, but you also want to understand the solution being quoted.
  2. Consult Uncle Google. If you want to know the state-of-the-art way to repair something, do a little research. Many construction firms post blog articles that explain the proper way to repair and maintain building systems. Do your homework before awarding a big contract!
  3. If you don’t completely understand the construction principles behind the work being done, make the contractor explain them. Get technical drawings. Make each contractor walk you through the proposed solution. Asking questions also serve to gauge overall competence and willingness to take time with you, as well as the quality of the proposed solutions.
  4. Compare the quotes. What are the differences? Are all the contractors quoting the same solution? Are you comparing apples to apples or apples to oranges? Be aware that the cheapest price might not address the whole problem.  
  5. Make sure the contractor is licensed. (The license number should appear on the quote.)
  6. If there are any changes along the way, make sure the contractor amends the original quote in writing. You always need to have up-to-date documentation reflecting what’s been done. This will serve not only to guarantee the work but also to protect you if anything goes wrong.
  7. Define your payment terms. This is a big one! Insist that an amount be paid on completion (ideally as large an amount as possible). This ensures the contractor doesn’t get fully paid until everything is done to your liking and all the debris is taken away. 
  8. Get referrals when you can. Consult other landlords in the neighbourhood or fellow investors before you ask Yelp or Facebook. What specialized firms have your investor colleagues used? How was their experience? Networking is a great way to find honest, reliable contractors.

Take Your Time

Whatever you do, don’t rush the process of awarding big construction projects. 

  • Focus on getting it right, not just getting the best price.
  • Take the time to understand what’s getting repaired and how. 
  • If you’re ignorant of the construction principles involved, learn about what you’re paying for. 
  • Get a feel for how contractors respond to you. Do they take the time to explain things properly? Return your phone calls? Show up when they’re supposed to? Is their paperwork in order? 

Construction jobs can be unpredictable. You might know where certain repairs start but not where they end. Make sure the person handling the project is honest, polite, responsible, and easy to deal with.  Treat the quotation process like a job interview: let each contractor show you who he or she is.

And, a final word of advice, always gets everything in writing!


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How to Make A Multi-Year Maintenance Plan For Your Buildings

How to Make A Multi-Year Maintenance Plan

For Your Buildings

Every landlord is also a maintenance manager. The day we pick up the keys at the notary is our first day on the job. If we researched buying Real Estate before making a move, very few of these hours are spent learning about building maintenance! 

Is it any surprise that this aspect of investing is a struggle for many new landlords?

Here are a few things you can do to simplify building maintenance. 


The Building Inspection

Maintenance begins with the pre-purchase building inspection. The inspection report is like a general medical check-up. When you purchase a building, one of the conditions of sale (hopefully) is having the property inspected by a professional. This service costs money, but the takeaway is normally a fifty-page report with photos and maintenance recommendations. A good inspector will also place time frames on the issues he or she identifies. 

A report is a tool you can and should use to negotiate a lower sale price.

But don’t put that precious document in a drawer and forget about it! 

Use your building inspection report to prepare a maintenance schedule. The inspector will flag issues in the report, coding them according to the level of urgency. 

You will them listed as follows:

  • fix immediately
  • fix within the next year
  • will need repair in one or two years
  • keep under surveillance

This report is actually a blueprint to plan and budget for these repairs. It does the work of planning timelines for you! 


Make a Plan

How do you turn the report into a plan?

Create a spreadsheet or print this form.

Follow this guideline in order of priority:

Before or Immediately After Closing

  • Fix any major issues that are not up to code (wiring, plumbing and fire-code violations).
  • Address items that are a risk to tenants (missing guard rails, electrical issues, doors that don’t lock properly etc.)
  • Fix or replace leaky plumbing, caulking, and insulation. Fix any water infiltration.
  • Address ventilation issues (bathroom fans that don’t work, humid crawl spaces etc.).

Ongoing

  • Organize a biannual check-up in spring and fall.
  • If you have a flat roof, get someone to inspect it twice a year. Make sure no leaves have accumulated. Make sure the roof drains are free and open. Add or spread out any gravel as necessary.
  • Check and empty the gutters.  
  • Check the caulking on the windows.
  • Check the basement and/or crawl space. Check the humidity levels and look for any water infiltration.
  • Check all bathrooms and kitchens. Look for mould. Check the grout and silicone seals to make sure they’re watertight. Look under the sink and counter to make sure there are no slow leaks. Check any fans and ventilation.

 As Per the Inspection Report

 Fix any issues in the following order:

  • Water. Fix any existing water leaks or infiltration that involve the building’s shell (windows, brick, roof, foundation, etc.). If you don’t have the budget for a permanent solution, patch what you can. Keeping water out is important while you save up to do the job properly.
  • Plumbing. Consider installing a backwater valve if there isn’t one. Make a plan to replace any galvanized or lead piping.
  • Structure. Address any structural issues with the help of professionals. Serious structural issues progress slowly. Although you need to formulate a plan to fix such issues, water leaks and infiltration are more pressing problems.   
  • Electrical. Have any electrical concerns been checked by a licensed electrician? If in doubt, pay for a written report. Electricians will provide a list of recommendations and/or a certificate attesting that they verified the installation and found it acceptable. Put this in your files just in case.
  • The shell. If major repairs to the building’s shell are required, get estimates for a proper job. Figure out how you’re going to finance this work even if you can put it off for a few years.
  • Other systems. If any of the building’s other systems (heating, AC, water heaters, etc.) show signs of inefficiency, have them checked so you can plan for what might happen if one of them decides to conk out.

Budget

Once you’ve determined your priorities, you can make a multiyear budget. The spending plan will allow you to save up through the winter so you’ll have money for expensive jobs that need doing over the summer—or vice versa.

Talk to the bank to obtain a line of credit with the lowest possible interest rate. You can sometimes get blindsided by expensive problems at the worst possible time. Avoid putting big expenses on a high-interest credit card when you’re in a pinch! Shop for a line of credit with a better rate before you actually need it. Banks are more likely to give you a better rate before you max out your cards or fall behind on payments.

Access to cheap credit is a kind of insurance policy. You don’t have to use it, and it costs you nothing if you don’t, but you’ll be very happy you have it when you find yourself in a tight spot.  


Revisit Regularly

Review your maintenance plan every quarter. Check off repairs that have been done and add any new issues that have come to light. A building is like a living organism. New issues appear as it ages. Cold, heat, pests and precipitation can cause different symptoms and weaknesses. 

Treat your investment as you would a patient of yours: keep his chart up to date and verify vital signs on a regular basis. This is the best way to make sure things don’t get out of hand and turn into full-blow diseases. 


Sample Maintenance Plan

The following is a copy of the maintenance schedule we use for our properties.  

Building Maintenance Schedule Date:_________________________

Property Address:____________________________________________________________________

 

Location Issue Time Frame Cost
Building
Unit 1
Unit 2
Unit 3
  • Immediate
  • 6 months
  • 1 year
  • 2 years
  • 3-5 years

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5 Secrets of Effective Networking for Real Estate Investors

When I started trying to build my Real Estate portfolio, I hated networking. My networking-incompetence was a handicap for my business. It also made me feel like a failure. The pattern went like this: I attended event after event only to anxiously stand in a corner chatting with the three people I already knew. 

Can you relate?

Building your network doesn’t have to be like this. Actually, if it is, you’re doing it wrong. Real estate networking is about methodically and purposefully building mutually profitable business relationships. There’s a science to this kind of networking and you can learn it!

Here’s how.


3 Kinds of Capital

Did you know sociologists have identified three types of capital—social, cultural and financial? Cultural and social capital can be leveraged to build financial capital. This is how people change their financial circumstances, by using other types of capital—cultural and social—to create opportunities to make money. 

Here’s how this works. Using cultural capital means leveraging what you know. This is why investors seek out Real Estate education when they get started. It’s to increase knowledge or cultural capital so that they can make sound investing decisions The other form of capital that can be leveraged are social connections: who you know. Networking—or increasing the number of people you have business relationships with—will impact your finances positively if you do it right.

Here are five key things you can do to grow your investor-network


Audit Your Peer Group

Our friends influence us. A peer group shapes how we understand the world. But most of us have peers by default. 

If you want to raise the limit on your current success, choosing peers that help you level up is one of the levers you can use. The opposite is also true. Certain relationships can drag your life in directions that don’t suit your objectives.

Think of the five people you spend the most time with. How do these relationships make you feel? Depleted? Energized? Are they elevating you or dragging you down? 

By being selective of who we spend time with, we create conditions for success, failure or stagnation. 

(See Chapter 19 of Mindful Landlord for the complete exercise to help you evaluate your Peer Group).


The “Call a Friend” Lifeline

Have you ever watched the game show Who Wants to Be a Millionaire? My favourite part is when a contestant calls a know-it-all friend. I’m always nervous in case the friend doesn’t answer the call! 

When a property-related question pops up and your million bucks is on the line, how can you ensure a competent person will—one—pick up the phone and—two—have the right answer?

Here’s how.

As you meet professionals in your Real Estate activities, sometimes you’ll feel an affinity. Make a conscious effort to build a relationship. Invite them for lunch. Discuss your plans for your investments and their business. Ask how you can help the person grow their business.

If you have a good feeling, nurture the relationship further. Call for a second opinion on something. Test their competence and overall professionalism. As the final step in the vetting process, hire them to do a small job. It’s better to carry out these steps as an ongoing process. Relationships develop best when there’s no immediate pressure. No one likes it when a person they hardly know asks them for favours! It’s also not always wise to rely on the unvetted. You can have bad surprises! 

Once you’re confident of a person’s competence, you can begin to refer them to investors and members of your network. If you don’t have any direct referrals, make a point to connect them with someone who does. 

Ivan Misner, the “Father of Modern Networking” and founder of Business Network International (BNI), once said, “Givers gain.” When you’re on the lookout to help a professional build their client list, they will always answer the phone when you call!  


Networking into Deals

Successful Real Estate players keep the best opportunities—the off-markets or good opportunities—for their preferred network. This is true of agents, construction companies, and other landlords. A great network is a source of great insider deals. 

Here’s how to get on the inside track. 

Start by identifying the types of professionals or players who have access to the kinds of deals you want. Realtors, bankers, mortgage brokers, notaries, bankruptcy trustees, general constructors, and other investors—all will have preferred access to investment deals. As an active investor, you’ll often get asked for referrals that can benefit these professionals. This makes you a valuable contact, both for fellow investors and for the professional players in your network. 

By making yourself valuable to a large number of people, you’ll be top of mind when they come across something that might interest you. Remember Misner’s words: Givers gain. By being helpful to members of your network, they become your property search team.

You must educate your network on what you’re looking for. This way they can look out for potential opportunities that fit your criteria. This is how referral marketing works. You build relationships with key people who have direct access to what you’re seeking. Over time, these people become your sales team. Referral marketing is a key tool for leveraging who you know into investment success.


Idol Dating

If you really want to boost your social and cultural capital, you will need mentors. But how can you find a mentor? A potential mentor is anyone who’s closer to achieving one of your goals than you are. This isn’t hard to find. Who are the leaders in your local industry? Who are your real estate idols? Who’s successful doing something you want to do?

Once you’ve identified a few potential mentors, it’s time to ask them on a date! Social media is great for this. LinkedIn, Facebook, Twitter, and Instagram all have messaging functions. Company websites provide contact details or have a contact form you can use to get in touch with people. Just go ahead and invite your idol to lunch, coffee, or a phone chat. Be sure to mention that you’re paying the bill. People love to talk about themselves! You’ll be surprised who you can get access to by simply saying or writing, “I admire what you’ve done. May I take you for a coffee and ask you how you did it?” If the person isn’t local, no problem! You can always set up a Zoom call.

Voilà! Now you have a mentor 


Business Networking Groups

Organized groups can also help you build a professional network. Business Network International (BNI) is the largest and most organized. Smaller organizations such as LeTip and Groupe Reso (GR) exist as well. There are also local and informal groups in each region.

These organizations usually have weekly meetings where you can build your network, share what you’re looking for, and maintain relationships with other professionals. There is usually only one spot per profession (e.g., one real estate agent, one lawyer, one notary, etc.) to avoid competition within the group. As a member, you’ll have regular homework: to bring guests and to meet with members individually to learn about their businesses.

While it can be a bit unconventional for Real Estate investors to join – memberships are usually reserved for small business owners and independent professionals – I have seen investors attend as regular members. 

The premise of such groups is that each person works to provide business referrals to the other members. In this way, each professional member grows their network of clients organically with the help of the other members. As an investor, not only do you gain a whole team of potential deal-hunters, but you will also be able to grow a professional network in a structured, self-reinforcing way. 

I was a member of two such groups for a number of years, with great results. Membership helped build my business, but the real takeaway wasn’t more contracts. The biggest benefit is that I learned a structured way to build a business network. It was a real aha-moment for me when I realized there was a methodology to successful networking. 


Networking for Dummies

Networking was my bête-noir for years! Once I realized that there’s a science to meeting new people and building profitable business relationships, everything changed. Instead of being a popularity contest or a high school dance experience, networking became about finding ways to add value for people I knew. I didn’t have to worry about being the coolest kid at the party anymore! I shifted from trying to impress people to trying to be useful.  

This is the principle of effective networking. First, reach out to people in an organized and relevant way, and—second—find ways to add value for those who are in your network. If you can find a way to add value—be it with positive energy, contacts or your own network—people will be trying to network with you! 

 

Should I Purchase A Single-Family Home?

Should I Purchase A Single-Family Home?

When I talk to my younger clients, one question comes up over and over: should I buy a single-family home or a condo? 

 The path to Real Estate success involves turning some conventional wisdom on its head. One area that can require reassessment is home-ownership, especially for younger investors who may not have as much capital to play with.


So, is homeownership a sound investment?

The Question

To evaluate homeownership as an investment, we need to view it through the lens of capital deployment. We also need a unit of comparison. 

First, if we’re comparing purchasing a home (read: appreciating object) to spending money on consumer goods (or depreciating objects), it makes total sense to become a homeowner. So yes, homes—because they are appreciating assets—gain value over time. 

But, if we’re evaluating an owner-occupied single-family home as an investment vehicle, we’ll face a different financial analysis. We’ll need to compare a home to other types of passive income generators like a rental property.


  1. Capital

As investors, we spend money or tie up capital to make a profit. That’s what a hard-earned bank balance is for. Deploy capital to generate the best returns. That’s the first law of investing. It’s actually the definition of the word “investing”.  

If your capital is the golden egg that will get you out of the rat race, are you sure it will mature properly if you place it to a condo or a residential property? The question shouldn’t be “Am I losing money on my single-family home?” It should be “How can I apply my hard-earned savings and capital to generate the most return?” 

To answer this question, you must calculate the rate of return on the cash you plug into a rental property, and compare it to what you save on rent plus appreciation on a single-family asset. This will give you two rates of return that you can evaluate side-by-side. 

Most people—when they think about owning a home—frame the mathematics of homeownership in terms of saving rent money. But they tend to forget about the golden rule of capital deployment. The golden rule is: spend money to make money or let your capital chase the highest returns. 

You mustn’t automatically assume that using your capital to save rent money is the best investment opportunity available to you. Seed capital must make a profit. If you take one expense—rent—off your balance sheet, will it truly open the door to financial freedom? 

You can find a sample calculation—of renting versus owning as an investment opportunity—in the Business Case section of my book.


2. Expenses

When calculating money “saved” on rent, don’t forget to factor in all the expenses that come with homeownership. Of course, there’s the mortgage. Payments are part principal (capital payments that decrease the overall loan amount), but initially, a lot of the payment is bank interest. 

Interest isn’t the only expense: homeownership comes with property taxes, the chimney sweeper, the insurance, the plumber, the exterminator, etc. Many homeowners like to do remodels and renovations. Because these upgrades generate no income, they are—in a sense—also expenses. 

Likely you will find homeownership, once you factor in covering all expenses, costs way more than paying rent.

To see P&L statements of renting versus owning as an investment opportunity check out the Business Case section of my book.


3. Tax Implications

There are tax implications to homeownership. When you own rental property, you can deduct mortgage interest as a business expense. All the renovations and maintenance are tax-deductible. Travel expenses, administration and home-office fees, part of your cellphone bill and accounting expenses—all tax-deductible. 

Wealthy people sometimes own rental property for tax planning! 

The same doesn’t hold for owner-occupied properties. Expenses associated with primary and secondary residences are not eligible for tax deductions. 

There is a capital gains exemption when you sell your single-family home (you do not have to pay tax on the appreciation of your property if you occupied it). The rental property comes with a tax liability that comes into existence at the time of sale: the capital gains tax. But this is akin to owning RRSPs (Registered Retirement Savings Plans). You accumulate wealth by investing for years and then when you cash in your investments, you pay tax. 

In Canada, capital gains tax is calculated on fifty percent of the appreciation. This boils down to a 25% flat tax on the appreciation of your rental properties. Depending on your tax bracket, it might be more advantageous to pay capital gains than to pay income tax! 


4. A Lifestyle Choice

Overall, home-ownership should be viewed as a lifestyle choice, not an investment. When you do the math, you’ll likely find better uses of capital than to park your nest egg in a single-family home. 

Should you buy a home then? The answer is, it depends on where you are in your investment journey. Once you have passive income streams and income-generating assets, why not splurge on lifestyle if you have extra capital lying around.

Mindful landlord’s advice: go through the exercise of evaluating return-on-investment before making a decision to purchase a home. You might be surprised! And at least you’ll be making an informed decision. 


Learn More

For a full detailed financial model that will help you compare the two scenarios—renting and owning as an investment opportunity—see the Case Study in my book.

Do’s and Don’t of Selecting an Agent

Template for Selecting Your Agent

In summary, a broker—the right broker—can add value. You need to be careful about how to choose one. The main qualifications should be unscrupulous ethics and familiarity with investment properties. Here’s how to run interviews to find the perfect broker for your investment deals. 


Do

  • Have them do a building cash flow statement (or two). Even if you have your own cruncher, this will give you insight into their level of competence when it comes to investment buildings. 
  • Speak to previous clients, especially investors. Getting a referral from someone who’s purchased a single-family home won’t tell you whether a realtor is any good with rental properties. 
  • Check if the realtor has owned rental property. If you can shop with someone who has the eyes of a landlord, awesome! 
  • Ask about other deals they’ve done on the type of property you’re looking for. For example, if you want to purchase a multiplex property and you’re working with an agent who deals mostly in condos, you might not have the right person for the job. A realtor’s willingness to discuss other recent deals will give you a sense of how active they are in your niche market.
  • Interview more than one agent before you award business. 


Don’t

  • Work with someone who has no investment property experience even if they’re your cousin or your father’s best friend or your sister-in-law. They might be ethically beyond reproach and very astute at making deals, but they won’t be able to help you if they don’t understand the market. Sorry!
  • Work with someone who’s unfamiliar with the area you want to buy in. Tenants, construction techniques, building age, and so on vary a lot by the district. If you work with an agent who’s used to doing business only in suburbs where buildings are recent, lot lines are clear and straight, and by-laws are simple, they’ll be out of their depth pretty quickly in older neighbourhoods where these lines are blurry and the buildings are older.
  • Sign an exclusivity contract with a broker, but do be fair to them. Keep in mind that realtors get paid only when they make a sale. If your agent is doing their job right, they’ll put a lot of work in for you. Be mindful of this. Don’t act in a way that will cause them to lose out on payment for the job they’ve done. 
  • Feel that you need to sign a binding contract that requires you to purchase only through them. You want to be able to jump ship without being penalized if at some point in the search process you become dissatisfied with their service. Just make sure to be transparent. Don’t work with more than one agent at a time. You’ll burn relationships that way.
  • Be pressured, coerced or guilted into working with the wrong person. Many realtors are highly motivated by commission cheques. Their pressure tactics are good for one-time deals, but because their service is transaction-focused and not client-focused they need new clients all the time. Repeat business goes to competent and pleasant professionals, not unpleasant sharks. As a result, it’s normal that, at first, you meet more sharks. Don’t despair. Pleasant and competent agents exist and they can make your life a lot easier!  

Above all, listen to your gut. You want to have a feel for a person’s ethics, level of competence, and familiarity with the market you’re doing business in.  Your realtor’s competence directly affects the quality and types of deals available to you and their professional style will affect how you experience making your investment decisions. 


Learn more on how to select an agent. Get your copy of the mindful landlord.


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Confessions of a Damage Insurance Broker: Making Choices in a Changing Insurance Market

Interview with Jacques Amzallag: Top Damage Insurance Broker

The insurance industry is changing. Premiums are going up, and so are claims-exclusions.

It’s  a good time to hear from an expert in the field!

I recently had the pleasure of interviewing Jacques Amzallag, top damage insurance broker at Racine & Chamberland.

Here are some of the highlights of the interview.

Towards a “Hard” Insurance Market

What’s the difference between a “hard and “soft” insurance market?

 The insurance industry is cyclical, just like any other market. According to Jacques, the industry is moving into a part of the cycle called a “hard” market, where premiums go up, and criteria of admissibility for coverage goes down as insurer appetite for certain risks drop. Depending on the carrier, additional exclusions to coverage wording can also find their way into your policy.

 While some of this may be due to changes in climate and social and political situations such as the pandemic, we do well to remember that the insurance industry is a market like any other:  risk is priced into premiums based on coverage availability and loss potential. When additional carriers enter the space and offer coverage, this forces the remaining insurance companies to drop premiums to be competitive. In contrast, if insurance companies tighten up and exit from certain market segments, premiums to rise. It’s the law of supply and demand as it applies to insurance.

 Long story short, as we enter a “hard” market, we mustact with the knowledge of what this means 

Over- And Under-Insured: How Do I Know?

How do you know if you have enough coverage?

In a hard insurance market, landlords concerned with the price of insurance may be tempted to decrease their coverage to control costs. This usually isn’t a good idea, according to Jacques.

Before making decisions, make sure you understand a few key aspects:

·         Reconstruction cost: Many landlords opt to skimp on reconstruction costs in order to reduce the price-tag on the premium. This may not be the best idea, according to Jacques.

There are two problems. First, in the case of a total loss, the insurer might not cover the value needed to rebuild. In this case, the client can face trouble with the mortgage lender or with the rebuild of their investment.

Reconstruction value is also an issue in event of a partial loss. If you make a claim for a partial loss of the value of your property, the insurer will calculate replacement value and verify that you have priced the value of insurance correctly based on the co-insurance clause applicable in your contract. If the landlord has insured his property below the required ratio, the insurer will require him or her to become a co-insurer towards the claim.

Ex:

Example 1: Compliance with the Co-Insurance Rule

Cost to rebuild the building

1 000 000 $

Insurance limit in the contact

800 000 $

Cost of the claim

200 000 $

Co-insurance rule

80 %

800 000 $

X 200 000 $ = 200 000 $

800 000 $ (80 % of 1 000 000 $)

You will be compensated at 100%, which corresponds to the total value of the damage.

Example 2 : Non-Compliance with the Co-Insurance Rule

Cost to rebuild the building

1 000 000 $

Insurance limit in the contact

400 000 $

Cost of the claim

200 000 $

Co-insurance rule

80 %

400 000 $

X 200 000 $ = 100 000 $

800 000 $ (80 % of 1 000 000 $)

Because the condition was not respected, you become co-insurer proportionally. Instead of being compensated at 100%, that is for 200 000$, you will receive a compensation of 100 000$.

In an environment like today, it’s especially important to understand the rising costs of reconstruction. Most policies automatically increase the reconstruction amount from year-to-year to protect consumers, but as you renovate and as construction costs rise, these increases may no longer be sufficient.

Want to be 100% certain? Consider having the building evaluated for reconstruction cost by calling on a professional evaluator.

·         Replacement value: What’s the difference between insuring for depreciated value and replacement value?

It can be a lot of money in case of a claim!

Insuring for depreciated value means the insurer will pay out a proportion of any damage claims, not the full amount. If you have a claim, the cheque you receive will be for what it would cost to repair the damaged portion of your property, minus an amount for the age of the property. Careful: if you have a big claim, the discrepancy might be very large.

Make sure you understand the implications before accepting to insure for depreciated value.

 

·         Water damage insurance: The most common type of claim in Canada is related to water-damage. Given this is the case, scrutinize your policy or insurance quote for two things. (1) Any exclusions pertaining to water damage and infiltration. The most common fine print here has to do with hot water tanks, infiltration from the roof or sewer back-up.

Second, make sure you’ve correctly evaluated the cost of insurance required for repairing any issues. For example, sewer back-up insurance often comes in 10k slices. But are you sure 10k is sufficient coverage should you have sewer trouble? You could consult your damage insurance broker or a license contractor to give you a better idea to make sure your ball-park estimate is sufficient.

·         Earthquakes, Floods & Other catastrophes: Worried about being Chicken Little or having a Noah moment? Understand that the likelihood and cost of insuring for a specific risk is priced into the premium.

For example, flood insurance is usually pretty cheap. If you can get it, you may want to consider adding it. Unless, of course, your property is in a known flood area, in which case this coverage might not be available. That’s a detail you might want to pay attention to! If the insurers don’t want to go, it’s a possible indication that that particular risk is high, and likely expensive.

Earthquake insurance also causes a lot of head-scratching, especially in Montreal, where it’s hard to imagine this could ever be of serious concern. The add-ons for earthquake insurance are also quite expensive. Why – in a lot of cases with multi-unit properties – does the bank require the landlord to have earthquake insurance? You may want to do a little research. I almost jumped out of my seat when I read about this: Stilling quake risk in eastern Canada demands greater focus, awareness and effort: Swiss Re Canadian Underwriter

Want to learn more?

Watch the full interview here

Listen to the podcast here

How are you showing up in your Real Estate projects?

Are you a carrot, an egg or a coffee bean?

Let’s find out!

I had the opportunity to interview Canadian Real Estate personality, Russell Westcott in a recent episode of the Real Estate Investors’ Club Podcast. With twenty plus years experience in investing and in motivating and coaching others, this master of sound-bites and West Coast wisdom has some great nuggets for both the more- and less experienced.

I’m going to share one really meaningful one here.

(For the rest, you’ll have to actually watch or listen to the episode!)

Russell relates a little fable to make his point.

The story begins with a teenage boy who’s down about the vicissitudes of life in the COVID moment. He comes into his mom’s kitchen shoulders slumped and begins complaining about the slings and arrows he’s facing.

His mother tells him: “Son, I’m going to show you something. Get three pots of water.”

The woman puts the three pots of water on the stove.

Once they’re boiling, she instructs her son:

“Go get me some carrots, some eggs and some coffee beans.”

The boy does this, and she has him throw each ingredient in a separate pot of boiling water.

After ten minutes, the woman says: “Let’s see what happened to what’s in the pots!”

First, they look at the carrots.

“They went in hard, now they’re all soft and mushy,” says the boy.

“What about the eggs?” asks his mother.

“They went in soft on the inside, and they came out hard.”

“Now what about the coffee beans?” she asks.

“Oh coffee!” exclaims the boy. “I love coffee.”

“You see?” says his mother. “The coffee beans changed the environment. The other two let hot water change them! All three had the same stimulus: boiling water. But only the coffee beans changed the state of the water, instead of being changed.”

Concludes Russell: “Every day, you have a choice. You can let the pressure make you hard. You can let the pressure make you soft. Or you can change the environment. You choose what you want to be – a carrot, an egg or a coffee bean!”

For the rest of the interview, click here to Watch  or listen to the episode.

Special Report on the 2021 Q1 & Q2 Rental Market in Montreal

In planning for the up-coming rental season, it’s good to know what sort of weather we’re heading into. Are we talking about a flurry of vacancies or scattered showers of good tenants looking to move?

 

The data is wonky right now, and so we need to delve a little deeper to prepare ourselves properly.

 

According to data published on Rentals.ca and Padmapper.com average rental prices have declined across most Canadian cities. In Montreal, Rentals.ca reports a modest increase (4%) year-on-year while noting a month-on-month decrease of 1%. Padmapper’s stats are more depressing; their stats show rents have decreased an average of 13% in the past year.

 

What’s going on? How can rents go both down and up at the same time?

 

First, let’s correct for rent-control. As rent controlled units “turn over” and prices are corrected to market standards, rents are inevitably dragged upward. Consider a rent controlled unit (let’s say a 5-1/2 renting for 700$) where the tenants leave. The landlord renovates and rents the unit at today’s (pandemic afflicted) market value (let’s say 1200$ instead of 1400$ in 2019). The statistical average of rent prices across the market may increase even if current market value goes down.

 

Vacancy rates are high at the moment in Montreal (6%), according to CORPIQ.
This could lead one to understand that current market value for rent has and will continue to come down (say from 1400$ for a 5-1/2 to 1200$), but that rent controlled units turning over can still be corrected upwards.

 

What’s a landlord to do?

Economic and demographic trends right now will make it difficult to rent units at the same dollar amounts as July 2019. Sorry folks, but the cavalry probably won’t arrive by July this year. Foreign students and immigration likely won’t be back to normal levels by summer, and neither will tourism. Forget about maintaining the rental value of higher-end units in the downtown core and elsewhere. You may have to adjust your expectations downward by a few hundred dollars to attract decent tenants this year.

 

In lower-income brackets, the same might be true. Low-wage earners have been hit hard by the pandemic (CIBC estimates a 20% unemployment rate). Good tenants for lower-end units will likely be harder to come by this July.

 

A few tips.

5 Ways to Make the Most of Covid Restrictions

Challenges & Opportunities for Real Estate Investors in 2021

“Not so fast,” said 2021 to those of us who were hoping to leave the Covid mess in 2020. Funny story from the property manager’s desk: bathroom tile is non-essential in Quebec. The plumber can make holes in the wall, but the maintenance guys can’t always buy the material to fix them.

 

**Shrug**

 

For all of us, boredom and social isolation are compounding like credit card interest.

No one said these next months are going to be easy, BUT – people – the time will pass anyway. Why not have something to show for it?

The question we should be asking is: how can I use this time wisely?
Here are some ideas.
 

1. Invest in Coaching.

 

Social isolation can be depressing. It can also be difficult to stay motivated and accountable if you don’t have to put pants on in the morning. One way to create deadlines and inspiration is to hire a coach, especially if the program they sell has action-items or deliverables. A bonus is the added FaceTime with someone (hopefully) inspiring to you.
Consider defining what skills you want to learn or level-up this year and invest in some coaching. What better way to use the March break budget?
 

2. Purchase Instructional Videos

 

What aspects of your game do you want to level up? Want to learn more about creative financing? Finding deals? Putting together joint ventures? There’s no time like the present to focus on the parts of your Real Estate game that might be lagging behind. Instructional videos are a cost-effective way to accelerate your levels of knowledge.

 

3. Focus on How You Can Leverage Technology

 

Environmental pressure is the biggest driver of evolution. In the face of stress in the ecosystem, species adapt or go extinct. Technologically there is a giant leap forward going on. A year ago, very few people used Zoom or ordered groceries online. Today my parents in their late-70s use these services. The rapid advancement, adoption and deployment of technology is going to be a lasting aspect of the Covid-crisis.
How can you leverage or become proficient at apps or online services that industry leaders use? How can you use technology to become more efficient in business and in your personal life?

 

4. Audit Your Personal Habits

 

Are the choices you’re making every day hurting or supporting your health, energy levels and success? Maintaining a healthy routine is definitely made more challenging with gym-closures and lack of access to social energy. The home office is also dangerously close to the fridge.
Wake up call: the choices you make now will have lasting effects, either negative or positive.
Take 5 minutes this evening to scan your personal habits and see if anything needs a bit of correction.
On the flip side: are you open to “hacking” your personal habits with technology? WeightWatchers has an awesome app for tweaking (or overhauling) your diet. You can also get the most out of your home gym with a work-out app like FitBod. It adjusts daily workouts to your equipment and fitness level, levelling up as you get fitter. It’s also a great way to combine points 3 & 4.

 

5. Separate Enduring Changes From Temporary Ones

 

When mass-extinction events have taken place in the past, the species that have ended up with a bigger “slices” of ecological Real Estate are the ones who’ve managed to adapt. As we go about our (constrained) daily lives, try to identify the trends that are going to be long-lasting.
Perhaps tenants- and home-buyers will continue to favor larger units as working- and training at home become enduring fixtures of the post-Covid world. Will the move to online education diminish the number of exchange students? How will this affect downtown rentals? Are the trends in the short term rental market likely to outlive Covid? What about the low-interest environment?
As you look into the medium-term future, do it with a mind to adapt to permanent changes, while not over-reacting to those that are not.

 

Yours in Real Estate Investing,
Terrie