IN the Words of Annie Lennox - I need a plan

[nubiwan]

OK, so Annie Lennox never said plan, but I got your attention.

A little background on me. Guess I am now a fully fledged real estate investor, though many of my friends still laugh at me when I tell them that is what I do. Is there a better name for it? Property Manager? Unemployed Speculator LOL?

I currently own 4 investment properties. This includes 5 actual rental units. These assets are appraised over $800K and my total debt position on them is around 450K. My income from rentals, before debt, utils etc. is over $50K per annum. I reckon about 40% of that is cashflow. My wife has a decent income, so we`re able to lock in about $200K or more in HELOCs against all this. We already have a decent living, but we don`t own a house on the lake, a boat or a condo in Florida yet. Just comfortable.

My plan so far, if you can call it that, has been to buy cheap dumps, and I mean buy houses for what the land was worth, and then reno them, and rent. I do the work with my uncle who`s a carpenter. We do some nice finish work and about 80% of the overall job. We leave the electrical and roofing to the adults.

I did have one for sale recently, but deferred it to a rent to own, which, I must say, offers a pretty attractive income (cashflow). Plus my buyer is happy with the nice cheaper home he is getting, while I am seelling for full price in 12 months. Rent to Own would do well here with the price of houses being inaccessible to many average earners.

My question to the forum is this? Where do I go now? You see, I have no plan. I am doing o.k. but I have not set any targets (never mind my Belize statement). I can just keep going as I am, buying dumps, and that is where I am comfortable, but I fancy I might be missing out on some bigger opportunities. Even moreso, as I have access to a decent amount of cash.

I think it is significant to mention that I live in Newfoundland. The market here is just effin nuts (excuse the language). There are new buildings going up eveywhere and the prices for a basic new home are in the $250K-$300K. Larger homes and refurbed homes in downtown fetch $500 to over 1 million. This may not seem a lot to some, but 10 - 15 years ago, you could probably pay half that amount for new homes and a house downtown might be $50-100K. The oil trade is largely to blame. There have been some other decent provincial developments lately too.

I am currently reading Don`s ACRE book, so pehaps that will enlighten me as to my next steps. I guess I wanted to throw this out to the forum for some suggestions on where to go.

Perhaps it is time for me to look at soing a JV. I`ve considered buying land and putting my own 4-plex on it, either to rent or sell. I just don`t know. Not sure if my situation is unique, but there it is. Sorry if my post goes all over teh place, but I was just trying to blurt it all out. Much like my investment strategy

Thanks
Nubiwan

 

[gwasser]

QUOTE (nubiwan @ Dec 3 2010, 07:42 AM) OK, so Annie Lennox never said plan, but I got your attention.

Thanks
Nubiwan


How do you know Annie Lennox never planned?

Regarding setting your goals. Well you sound young so I would aim for $20 million net worth by age 55. How does that sound? Would that make you happy or do you have a more specific vision of how your life would look like by that age? I bet in five minutes time you can do better. And don`t forget that you can always change your goals. It is better to call it your Belize or your "where I want to be plan when I am 55" than just a plan.

So here are some questions: By the time you are fifty-five do you still plan to be married to Annie Lennox? Do you see umemployed fisherman children? No children? Children that are happy to have a university education in fishery or whatever else makes them happy?

How do you see your life at age 55? Summer cottage in Sedona to escape the icebergs? A nice house in St Johns with a basement filled with screech? Or do you prefer to live near the mountains in tropical Calgary? Do you still want to be active by that age or do you foresee spending enless winter hours on the Newfy beaches? BTW there is nothing magical about 55. It could just as easy be 50, 35, or 14 (well...) .

Once you have defined your `Belize` lifestyle it is just a matter of planning how to get there? And although I said it jokingly at the beginning of this post, there is probably an estimate of net worth and financial indepence involved.

Next decide what your current position in life is. Are you happy with it? If not, you can make changes right away and hopefully these changes also will bring you closer to your Belize. Catalogue your strengths and weaknesses. Sometimes knowing a weakness may motivate you to do something about it. Other weaknesses or dislikes may motivate you to delegate. Do all this with your "Belize" in mind. Delegating you can achieve by hiring staff or team members to which you contract out some of your work. So this is the point where you can plan your Real Estate Dream Team.

Sitting in a canoe and gazing accross the river won`t get you there. You have to map out a path to get there. To reach your Belize you have to visualize and plan a route as to how to get there. There may be detours, but you will have to have a route in mind to get you going in the right direction. On your way life may help you to get to your Belize faster by presenting opportunities. Not all `opportunities` are created equal so consider them carefully because some may turn out to be distractions instead.

When planning your route never forget to enjoy the trip. Most of your life you will spend on reaching your Belize and probably reaching other Belizes as well (once you reach your first Belize). So enjoying the trip is very important because it constitutes most of your time on this `plane of reality` - whatever that reality may be. Hummmm.... Hummmm.... Hummmmmm.

Sitting in a canoe gazing at the paddles won`t get you accross the river. You will have to paddle. You can visualize your Belize and work on affirmations and positive attraction but none of that will matter if it is just an excuse to gaze at your belly button. You will have to act and you will have to WORK towards your Belize.

I don`t want to give you specific advise because you know better whether you would enjoy managing a 15-plex or have a property manager do it for you. You know whether you like the risks of being a developer or just doing small low-risk renovations. I strongly advise though to have a paid job rather than jumping full time into the `real estate investor` thing. Because cash flow is one of your most important tools and jobs provide a lot of that.

Hope this helps.

 

[Thomas Beyer]

QUOTE (nubiwan @ Dec 3 2010, 08:42 AM) ... Where do I go now? ..
Ask yourself if the current "buy ugly + renovate" is what you like to do .. and also where you do it ?

If it ain`t broke, why fix it ?

You can probably do 3-4 houses a year with a helper .. sell 2-3 and keep one for cash-flow/rent !

What is wrong with this model for a while ?

Where is the bottleneck ? your time/passion/aching bones ? or money ?

Money can be found easily if you show people a decent business model to make around 6-10%/year, perhaps by funding 1-2 of your ugly homes for 50% of profit or with an RRSP loan at 8%.

 

[bizaro86]

I can`t help you with the Belize part of your plan, since that`s basically a personal choice. However, it sounds like your current real estate plan is working out pretty well, and I can`t see any reason why you`d NEED to change it. I suspect what you`re doing now will be at least as profitable per hour and dollar risked as developing a new fourplex. Plus you have the advantage of having done it before, which decreases the difficulty level and the amount of mistakes you`ll make.

On the other hand, I know I`ve certainly gotten bored with a perfectly profitable venture before, and decided to wind it down for no other reason than I needed a new challenge. If that`s you, and you need a new challenge/way to fill the days while your wife is a work, then maybe a development would be fun/challenging/profitable.

Michael

 

[nubiwan]

QUOTE (gwasser @ Dec 3 2010, 02:18 PM) How do you know Annie Lennox never planned?

Regarding setting your goals. Well you sound young so I would aim for $20 million net worth by age 55. How does that sound? Would that make you happy or do you have a more specific vision of how your life would look like by that age? I bet in five minutes time you can do better. And don`t forget that you can always change your goals. It is better to call it your Belize or your "where I want to be plan when I am 55" than just a plan.

...

Hope this helps.

Hate to disappoint you, but I am into my late 40`s and have 4 young kids. I`ve lived a pretty full life having seen most of the world already and not getting married till about 10 years ago. I got the real estate bug about 10 years ago, but really never acted on it till abut 2-3 years back buying my first property. Having 4 kids along the way made choices to quit jobs or put tim einto it rather difficult. Really just excuses as I look back, but also working capital was an issue too.

I guess my primary goal is to have enough income properties so as not to worry about retirement savings. Which I do not have given my misspent youth. I figure I am on my way there. Lets say, by age 55, 20 units bringing in 300-400 per month cashflow is not an unrealistic number for me to look at right now.

Outside my life Belize style goals, I was wondering how someone might qualitatively look at a strategic plan. That is, buy 4 houses a year, make one rent to own. Target 40 rental houses over a 10 year period. Something like that. Right now, buying 4 houses a year is probably too much effort in terms of fixing them up. I need to hear less time intensive experiences and ideas, so that I can balance my efforts. I do still like working on dumps, and find that is where the deals can be had in my market, and with my limited experience.

Thanks for all the great replies by the way.

Nubi

 

[gwasser]

QUOTE (nubiwan @ Dec 3 2010, 12:28 PM) Hate to disappoint you, but I am into my late 40`s and have 4 young kids. I`ve lived a pretty full life having seen most of the world already and not getting married till about 10 years ago. I got the real estate bug about 10 years ago, but really never acted on it till abut 2-3 years back buying my first property. Having 4 kids along the way made choices to quit jobs or put tim einto it rather difficult. Really just excuses as I look back, but also working capital was an issue too.

I guess my primary goal is to have enough income properties so as not to worry about retirement savings. Which I do not have given my misspent youth. I figure I am on my way there. Lets say, by age 55, 20 units bringing in 300-400 per month cashflow is not an unrealistic number for me to look at right now.

Outside my life Belize style goals, I was wondering how someone might qualitatively look at a strategic plan. That is, buy 4 houses a year, make one rent to own. Target 40 rental houses over a 10 year period. Something like that. Right now, buying 4 houses a year is probably too much effort in terms of fixing them up. I need to hear less time intensive experiences and ideas, so that I can balance my efforts. I do still like working on dumps, and find that is where the deals can be had in my market, and with my limited experience.

Thanks for all the great replies by the way.

Nubi


From what you tell me, I would first focus on gaining landlording experience. If your target is 20 to ultimately 40 properties, who is going to do the rental management? My experience tells me that having 4 kids which maybe teenagers within your first 10 year window will give you several hands full of work. It also may be a tough period in your marriage as you and your spouse may discover (as I did) that there were different view points and expectations afterall. Something to consider.

If you like renovating dumps but simultaneously you want to own a large number of rental suites, why not start buying rundown duplexes or 4-plexes (one at a time)? Depending on your capital you may need a JV partner. I would also try to concentrate in one or two nearby communities. Driving all over town back and forth for all kinds of rental operations is no fun. Also, this makes you an expert within one easy to handle area which allows you to better spot attractive opportunities. If you work near your residence then your kids will make you likely active in the area`s community (school, scouts, soccer clubs) and this may give you an advantage for spotting deals as well.

 

[Thomas Beyer]

QUOTE (nubiwan @ Dec 3 2010, 01:28 PM)
Hate to disappoint you, but I am into my late 40's and have 4 young kids. I've lived a pretty full life ..


Congratulations !!




QUOTE (nubiwan @ Dec 3 2010, 01:28 PM)
.. but really never acted on it till abut 2-3 years back buying my first property. ..




right at the peak of the boom .. poor timing .. and if you're still in business now you'll do MUCH better going forward !




QUOTE (nubiwan @ Dec 3 2010, 01:28 PM)
... I guess my primary goal is to have enough income properties so as not to worry about retirement savings. Which I do not have given my misspent youth. I figure I am on my way there. Lets say, by age 55, 20 units bringing in 300-400 per month cashflow is not an unrealistic number for me to look at right now.




20 houses times $300/month net = $6000 NET plus appreciation potential PLUS mortgage paydown of another $6000/month or so in tax free equity growth essentially .. yeah that is very doable !




QUOTE (nubiwan @ Dec 3 2010, 01:28 PM)
... Outside my life Belize style goals, I was wondering how someone might qualitatively look at a strategic plan. That is, buy 4 houses a year, make one rent to own. Target 40 rental houses over a 10 year period. Something like that. ..




4/year requires cash .. or loads of work .. where is the bottleneck ?



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[nubiwan]

QUOTE 4/year requires cash .. or loads of work .. where is the bottleneck ?

Thanks for all the great replies - guys!

I have about 200-275K Of capital at my disposal. So some form of JV might be what I should be looking for. I do have som friends with capital too. Certainly if I had in mind building a group of say 4 townhomes or duplexes, once or twice a year. Then rent some, RTO some, sell some. A main issue, if I did this personally withou help, is cost anf holding expense of acquiring the land. I`m looking at $80-$120K for land alone. I could buy two dumpers for that.

As for fixers, it takes me some time to find the right type of properties (price point) that I am willing to have a run at. I really do go for cheap dumps, and cannot afford (or refuse) to get burned. Many people here would not believe what I paid for some of my homes. Market pricing is such that many of the dumps are priced high at times.

As for work, I usually do a pretty full reno. Perhaps my problem right there. Can take 3-4 months for the work, and sometimes more time just scouring the market to find the deal. Perhaps I should be advertising my interest in dumpers. See! No plan...