What’s a landlord to do?
A few tips.
- Go easy with your rent increases this year, especially if your units are rented at market value. If tenant-turnover will force you to review your rents downward, why not work to minimize it?
- Work to keep your tenants happy, especially if they’re paying market value. A vacancy might not bounce the ball in your favor this year.
- Be aware rental season is likely to be a bit difficult. It’s time to think about incentives (like offering one month free) or clever marketing (professional photos). In a rent-controlled environment, these strategies are better long-term than dropping your price.
- Keep your eyes on the rent control mechanisms. If you let your rents get adjusted down, it will be difficult to increase them again. Try leasing your units at pre-pandemic prices and offering a discount.
Don’t forget : The Tribunal Administratif du Logement (or the artist formerly known as the Regie du Logement) released the Calcul 2021 this week.
Find it hereRental & increase season is upon us folks!Data for this article:https://montreal.ctvnews.ca/montreal-rental-vacancy-rate-hits-six-per-cent-highest-in-years-but-prices-don-t-seem-to-be-dropping-1.5277351
Challenges & Opportunities for Real Estate Investors in 2021
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?
1. Invest in Coaching.
2. Purchase Instructional Videos
3. Focus on How You Can Leverage Technology
4. Audit Your Personal Habits
5. Separate Enduring Changes From Temporary Ones
Real Estate Advice for Covid-19: What The Wealthy Renter Has to Say About Investing Now
How Are You Using your Covid-19 Crisis?
Covid-19 Crisis has us transforming confinement-psychosis into new pass-times. Amateur bakers and hair-stylists are popping up all over the place.
I admit I’m going through a lot of flour these days, but I also decided to have as many interesting conversations as possible. My goal is to connect with people who have insights, especially on Real Estate investing during the Covid-19 Crisis. Last week, I spoke with a favorite real estate author of mine, Alex Avery. His book, The Wealthy Renter, changed the way I look at home-ownership.
Is this a good time to get into the Real Estate market as a home-owner or an investor? See what the author of The Wealthy Renter, Alex Avery has to say. Here’s some of his Real Estate Investment Advice During the Covid-19 Crisis.
Is Your Home an Investment?
Avery’s thesis is that home-ownership (in the principal residence sense) isn’t the “investment” it’s touted to be. He’s suspicious of the advice that we must all “stop throwing money away on rent”. When he unpacks this statement, it appears as questionable investment advice. Home ownership makes investment sense as a premise if – say – a savings of 2000$ or whatever per month on rent justifies using a large amount of seed-capital (read: down-payment) to then carry a (possibly larger) mortgage payment.
Use Your Capital Wisely
- It provides no cash flow or dividends.
- Maintenance- and interest costs are out-of-pocket and not tax deductible.
- Home owners have a tendency to spend MORE money on maintenance, upgrades and extras than owners of rental properties.
- The mortgage on our homes get with after-tax dollars (read: with 50 cents out of a possible 1$).
- We don’t have tenants to help pay our mortgage.
- Yes, a principal residence is an appreciating asset, unlike – say – a car or a washer/dryer set. But then rental properties appreciate too.
Your Home as Consumption Not Investment
Avery’s distinction can be summarized as follows: the money you put into your home – in the form of a down-payment, as upgrades or as mortgage payments – is basically a form of consumption. If you have disposable capital and cash-flow that you want to “consume” in a single-family home as a lifestyle choice, go ahead. Avery himself admits to being a home-owner. But it makes more sense to view a principal residence as an object of consumption and not as an investment.
How Do I Make My Real Estate Plans in the Covid Crisis?
Avery has a few points of advice on this question.
- He advises that, if you have plans to buy a home, it may be wise to review how much leverage you take on. The economic downturn, he projects, will be more check-marked than V-shaped.
- As an asset class, Avery sees residential rental buildings doing fairly well. Federal and provincial governments have launched stimulus plans that secure the minimum income of the vast majority of workers. As a result, he doesn’t see massive residential rent defaults in the cards.
- Beware of commercial Real Estate. Commercial rentals were on a downward trajectory before the pandemic. Retail had begun to move online pre-Covid. Many companies were already running experiments in tele-work. The Covid Crisis will accelerate both of these trends, probably irreversibly.
- If you want to invest, choose a market with “land constraints”. For example, Toronto is bounded by the Green-Belt, the island of Montreal by water, and Vancouver by the sea and the mountains. Avery sees these markets as being more “recession proof” than, say, secondary markets like Quebec City, Calgary or Kingston. In the American crisis of 2008, markets like New York fared better than, say, Las Vegas, where builders could keep constructing ad infinitum.
When Everyone Has an Opinion, Who Should I Listen to?
Covid or not, Avery’s last piece of advice turns on where we get advice on Real Estate investing decisions.
- Your father-in-law who bought his home in the 70s and hasn’t been in the Real Estate market since? Probably not the best source.
- Your real estate broker who makes commission on home purchases or sales? Also not the best source of advice, because there’s an obvious conflict of interest at work (he or she gets paid when you sell or buy ANYTHING, not when you make good investment decisions).
- Active players in the real estate industry. Investors, economists, experts with established track records in their field, or professionals make money whether a transaction takes places (accountants, independent consultants, property managers etc.). They are probably better sources.
Want to Learn More?
Purchase Alex Avery’s book The Wealthy Renter here.
Or check out my book The Mindful Landlord.
Factoid : Most Quebec leases end on June 30th, making July 1st “Moving Day” for the whole the province.
User’s Manual For Rental Property
Want to avoid common mistakes made by new property owners?
There’s now a user’s guide! Introducing a new Online Property Management Course for New Real Estate Investors
When you buy a washing machine or an air-conditioning unit, there’s always an instruction manual in the box or available online. Same goes for a new- or used car. When I want to know how to jump-start my car or change a tire, I take the user’s guide out of the glove box.
How many times have I wished that my buildings had a similar booklets!
Sadly, investment properties don’t come with a manual. That’s why I created my online course:
Affordable Online Real Estate Course
Few quality and affordable resources exist for small landlords to educate themselves. For years I wished that after helping a new investor acquire a property, I could refer them somewhere. I wanted a resource to help fledgling landlords know what to do with their new investment.
That’s why I created “Winning at Property Management in Quebec”. My course takes the guess-work out of property management especially in Quebec, where tenancy laws are some of the most tenant-friendly in the country. There’s now a user’s guide for new landlords in Quebec.
What Do I Need to Know as a New Landlord ?
My course aims to cover keys points in investment property in Quebec. My goal is to help you learn how to effectively set up your rental properties from top to bottom. I want you equip you to pursue the ultimate goal of real estate investing: solid, trouble-free cash flow.
You will learn how to:
- Maximize building revenues
- Understand and lower building expenses
- Effectively screen tenants to avoid problems before they happen
- Structure leases to your advantage
- Deal with typical problem-situations
- Create a renovation & maintenance game-plan to protect your investment
- Implement time-saving strategies that minimize headaches and risks
Finally, a bonus section will give you tips on Time Management in the real estate business.
Want to learn more?
Check out the course page here:
An Antidote to Confusion About Where to Start
Lao Tzu wrote: “The journey of 1000 miles begins with a single step.”
Ah, but which step? There’s the rub! Start with the wrong one, and you may travel 1000 miles in the wrong direction!
It’s precisely this fear that kills dreams in their infancy. Don’t let this confusion end your real estate dreams!
Here are some really simple steps you can take to begin your journey.
This doesn’t mean talking about your project to Uncle So-and-So who once owned a duplex, or Aunt Thingamajig who wrote her Real Estate exam, unless they were successful at what they did in a way you’d want to repeat. Seek out resources who have a proven track record. Before launching a networking offensive, either read some books, watch some videos, or take a cheap online course. With a base level of knowledge about Real Estate Investment strategies you’ll have more useful conversations.
As you branch out and start shaking hands and making calls, you’ll be happy that you took the time to understand some basic concepts and terminology.
One caveat : expensive Real Estate courses, while often of some value, sell information and coaching at a very, very high mark-up. If you’re willing to apply a little discipline and do some work on your own, you can easily educate yourself without signing five-figure cheques or paying thousands of dollars for mentorship or classes. Why spend your down-payment money on Real Estate classes when the information is available at a very low cost? Try these resources first.
Where to seek affordable education?
- You can check out the Recommended Readings on my website. Pay particular attention to the “Real Estate Investing” section, where you will find good “starter” books.
- Consult online education platforms like Teachable or Udemy. Both have Real Estate sections. Online courses sell for a either tens- or a few hundreds of dollars. They’re easy to follow and are usually consumed on demand. You can go through the material at your own pace, in the comfort of home, and even follow a few different subjects that outline the major strategies for making money in Real Estate (Flipping, Buy-and-Hold etc.)
- Organizations like the Real Estate Investors Club sell in-person/classroom or webinar training for a few hundred dollars.
You really shouldn’t pay any more that this.
Book An Appointment With a Banker or Mortgage Broker
Your mortgage banker or broker is a bit like a general practitioner in medicine. He or she will be able to give you a general bill of your financial health. Is your credit any good? What’s your borrowing capacity based on your current revenues? Very few of us know the answers to these questions, especially when we start out in the real estate game. Before defining your project, it may be a good idea to have a professional analyze your file.
Even if you’re sure you won’t qualify right now, it’s best to know what you need to do in the future in order to obtain financing. This will allow you to build a plan to get there. There are a million strategies! But, like that fateful visit to the doctor, if you don’t know where you stand, it’s very hard to move forward. Don’t let fear of bad news stop you! You need to know your starting position in order to plan your journey.
Bad credit? No down-payment money or insufficient revenues for conventional financing?
Okay. In this case, AFTER you’ve spoken to a conventional financing person and they’ve told you what you need to do to become creditworthy, go back to Step 1. There are a ton of resources out there to learn what’s called “Creative Finance”.
Network With Other Investors & Professionals
Remember what I said about Uncle So-and-So and Aunt Thingamajig?
Talking to them about their Real Estate debacles is NOT networking. If you want to succeed at something, learn from someone who is where you want to be.
I’ll repeat myself because this is really important: Take advice only from people who stand where you want to be! If you don’t yet know such people, no problem! It’s time to leave the house and start building your network.
If you want to learn more about how to network effectively, check out my blog article on How to network effectively.
You could also check out anything by author Ivan Misner, founder of BNI (Buisness Networking International).
Find A Mentor
A few months ago, a woman approached me at one of my workshops. She offered to take me to lunch.
“I want to learn from you,” she told me. Naturally I was flattered and I accepted. We went to lunch, and as we were chatting, she had another interesting offer.
“Let me work for you for free for some months,” she proposed. “I’ll do anything, I just want to learn the business.”
What do you think I said?
This situation is now a total win-win. Instead of paying thousands of dollars for private mentorship, my new intern has access to me 24/7. Her boots are on the ground meeting tenants, seeing construction problems, talking to every real estate professional around: contractors, notaries, mortgage people – everyone who is involved in my business.
Do you think I’ll give her free advice on her own investment decisions now? Of course!
Not only is she learning for free and building her own network in an organized way, she works maybe two evenings a week and an hour or two on the weekend. If she was taking a (paid) class, she’d have to devote the same time and IN ADDITION pay.
You’d be surprised how accessible successful- and knowledgeable people are when approached with a little flattery. An offer for lunch or a coffee might be all it takes. Try it!
Above all – don’t be afraid to look silly or make a few mistakes. Everyone who’s built success over many years remembers how little they knew at the beginning.
I tell my clients this, when they’re shy to ask what they think is a silly, basic question.
“We all start in the same place! With a dream and no bloody idea of how to make it happen.”
Anyone successful who’s acting puffed-up is doing so just because they want to feel big, NOT because you’re somehow unworthy or stupid. Don’t feel ashamed to be where you are.
“The journey of 1000 miles begins with a single step.”
Charity does not decrease wealth
I’ve been managing properties in the Montreal district of Hochelaga-Maisonneuve for over fifteen years now. The district has been good both to me as an investor, and to my clients who own rental units in the area. Property values have appreciated and gentrification has raised our rents.
These changes are not without their consequences, especially for poorer residents in the area. Hochelaga has become more diverse as higher-income tenants have begun to move in, and the amount of affordable housing has decreased.
Many of Hochelaga’s low-income residents have not benefited over the same time-period. 32% of households were considered low-income by the latest Canadian census. Hochelaga-Maisonneuve is also one of the districts with the highest rate of elementary school students living in poverty.
A Complex Issue
I’ll be honest: I don’t have a magic-bullet solution to propose to these problems.
Real estate investors have done well in Hochelaga. The area is close to downtown. As rents in the downtown core have appreciated, the rental market has changed in HoMa. Foreign- and local students have moved in. So have young families and young professionals fleeing the now-expensive areas of the Plateau and Rosemont. Investors have been all to happy to accommodate them: renovating crumbling properties that were in need of some love and increasing the rent accordingly.
These profits haven’t been shared with many of the local residents. Gentrification has changed the types of stores that serve the area: fancy and expensive cafés and local fruit markets have replaced pawn- and discount shops. Low income tenants now have less places to shop. The number of affordable apartments is decreasing every year. Given the choice, landlords move out low-income residents when they can, raising their profits in the process and avoiding many social issues common with very low-income tenants.
It’s not easy to know what to do with this if you want to have a social conscience and make money in real estate.
Is the solution to somehow stop investing in Ho-Ma? To impose tighter rent control? This will discourage investors and perhaps gentrification, but it will have the same effect as rent control more generally in Quebec. The Regie’s policies for raising rent creates disincentive for property-owners to invest in maintaining their units. As a real estate professional working in Quebec, I can tell you this unintended consequence of rent-control is ubiquitous. No owner will invest to redo a unit to see a 10$ increase in rent. It makes no economic sense. The result is our buildings crumble, and low-income tenants live in ramshackle and decaying apartments that no landlord will invest to fix.
My gut instinct would be to say we need more social housing and perhaps higher municipal taxes to help finance them. This might increase the overall standard of housing available and benefit everyone – investors and lower-income families – alike. But I’m no sociologist.
Give Back to Ho-Ma’s Low-Income Families
Just because we don’t have a magic bullet doesn’t mean we should do nothing. That’s analysis-paralysis. Politics and large-scale, top-down solutions are important, but we don’t have to stand by while the politicians create them. There are simple and politically uncomplicated ways to make a difference. This holiday season, we’ve chosen to support CAP St-Barnabé, a charity organization that aims to fight poverty and increase the standard of living of theHo-Ma’s low-income residents. CAP St-Barnabé has a year-round food bank and special initiatives for the holiday season.
You can send cash donations here: https://www.canadahelps.org/fr/organismesdebienfaisance/carrefour-dalimentation-et-de-partage-st-barnabe-inc/
This holiday season we’ve set up donation-points for non-perishable food items that will go to their food bank. You can find the drop-off boxes at our two locations before December 13th :
3835, Wellington Street (Verdun) & 3965, Saint-Catherine Est (Hochelaga-Maisonneuve) during office hours.
Just find these boxes & drop off your donations.
Or how is wanting properties like wanting a six-pack?
“I really want to make more money!”
This is often where conversations about investing start. Is this really the true reason why we want to invest?
Think about it this way. How many gym memberships are bought with the words: “I want a six pack for summer…” ?
Do we really want the six pack? Or are we after something else? Wouldn’t it be better to feel fit, healthy and confident when you wear that bikini or pair of board shorts to the beach?
My guess is it’s more about how we want to feel and less about the six pack itself. Maybe the six-pack is just shorthand, because we’re a bit too lazy to think about what will really make us content and confident in our skins.
Perhaps the gym membership is only part of the solution.
Why Invest in Real Estate?
Real estate investing isn’t that different.
Most of us start out thinking it’s all about the money. But what do we want more money for? When we really look at our motivations, we may find that we’re really after something else… something that will be better than a big bank balance.
To find out more, watch the first video in my five-part series on the basics of real estate investing…
We all know real estate investing is a good way to create wealth… but why exactly?
The answer: passive income. Real estate is such a powerful tool, because when we invest, we use capital to generate passive income. Maybe you’ve heard the word “leverage”?
Do you really get how it really works? How is investing different from working a job?
Let’s find out!
Do you have a J.O.B. ?
We first need to distinguish between passive and active income.
If you have a job, your income can be calculated with the following equation:
Number of hours worked x Hourly rate = Income
See the problem here?
There are only two ways to increase your wealth.
- Work more hours. For obvious reasons this isn’t a good idea, especially if your quality of life matters to you. Even if you overwork yourself, you only have a finite number of hours. Your time is the upper limit on how much you can make.
- Increase your hourly rate. This strategy may work if you put time into educating yourself or running after promotions, but sooner of later your industry will place a cap on the value of your time. Promotions aren’t a silver bullet either. They often come with more responsibility, more stress, and more hours, and there may come a time when getting promoted becomes a law of diminishing returns.
You need to find a way to unhook your income from your time and your hourly rate.
Professionals & Salespeople
So, you’re a professional – an accountant or lawyer maybe – and you think I’m not talking to you.
You don’t escape this problem just because you have a high hourly rate and no boss. Your income is still limited by the number of billable hours you have to sell.
Want more money?
You have the same options as an employee: raise your rate or work more. Either your clients will eventually balk at your fees or you’ll get too tired and overworked. It’s the same issue served with a different sauce.
Real estate agents, independent brokers and salespeople of all kinds – you’re in trouble too! While the money you make for an individual transaction may be high, your income still depends on the man-hours you have to create money.
Your income will be limited by the hours you have to put into generating business.
What is it? Why is it so good?
Passive income happens when you own a system that doesn’t obey the equation of hours x hourly rate = income. Think business ownership, stocks or real estate investments.
Passive income systems generate money whether you get out of bed or not. This is why creating or buying a system for producing passive income is the key to building wealth and to gaining control of your time.
Passive income is the means to escape the trap of selling your hours.
How do we create passive income?
We create passive income with leverage.
In real estate investing, you use capital (a down-payment) to set up a system that generates income with other people’s money and the market. Tenants pay the rent. You property appreciates. All this happens without you having to get out of bed.
Real estate investors also – perhaps without knowing it – leverage knowledge and social capital. Investors have networks that help find deals. The professionals, advisors, and contractors they work with help make good decisions, which end up making them more money. Knowledge about the property- and rental markets, tenancy laws, and so on can be leveraged to increase the profitability by making smarter and smarter moves.
This is another kind of leverage.
Of course leverage isn’t only to be found in the real estate sector. It’s a property of how businesses work. Business owners leverage specialized knowledge and human resources (other people’s time) to create income generation systems.
You’ll probably do this too when you become a landlord. Think of the concierge’s hourly rate versus yours. If his hours cost less than yours, you’re leveraging human capital to make more money.
Leverage is a powerful tool, because it allows you to move away from selling your time.
You can learn to use different kinds of capital – social, financial, and cultural – to create systems that provide return on investment in a way that is basically not tied to the amount of time you work.
This is how leverage and passive income fit together.
Should I Quit My Job?
“I understand passive income, should I tell the boss to take a hike?”
Not so fast!
Building passive income systems takes time. If you start investing today, it’ll likely be years before your passive income begins to exceed what you earn at your job. Real estate – like investing in stocks or starting a business – is a long game.
So, should you tell the boss to bite it today?
Probably not yet!
Should you start building a passive income system that will free you from selling your time?
Absolutely! Start right now!
And if you’re not sure how, pick a passive income vehicle (real estate, stocks, business) and educate yourself until you know how. Otherwise, you’ll be trapped selling your time for the rest of your productive life.