How to get started ?

Thomas Beyer

Senior Forum Member
REIN Member
Frequently the issue of any new investor is: where to start ?

First of all you should assess your CASH situation. CASH is a combination of "real" cash, committed friends and family's cash and a HELOC (Home Equity Line of Credit) or short: LOC. On a LOC you have to pay interest only on the portion you use, which is good. So don't use it all immediately to buy a yacht or a fancy condo in Hawaii.

Research the market, decide what AREA of the world you wish to invest in and then what type of property.

This is a big world, so is it Lower Mainland, Edmonton and area, S-Alberta, rural SK east of Saskatoon, Northern Manitoba, Florida, Phoenix, Vietnam, Singapore, Venice, Turkey, ... ?

Any area takes time (and a little bit of money for driving time, flying there, donuts, lunches, research material ..) to research. The bigger the area the bigger the time commitment .. BC takes more time to research than Lower Mainland which takes more time than Greater Vancouver which takes more time than North Shore which takes more time than North Van east of Hwy 1 which takes more time than Deep Cove.

I suggest you start with a VERY VERY small area .. say a suburb of one of the Top 10 REIN towns in BC, AB or ON.

Then, decide on a TYPE of property: townhouses ? condos with oceanview ? single family homes older than 50 years ? new sub-divisions ? pre-sales ? acreages ? horsefarms ? trailer parks ? office buildings in crappy parts of town ? high end luxury condos with high end finishings ? land with sub-division potential ? strip malls ? defunct shopping centres ? warehouses ? storage facilities ? fixer upper homes ? ANY of these property types allow you to make money once you know what you are doing.

Then spend a TON OF TIME BECOMING AN EXPERT the property type in an area. THEN AND ONLY THEN should you start writing offers and buying.

And yes, better several smaller properties than one huge one. Many properties allow you to sell one if you have to. One mistake in a big project .. and this could be the end of this property and possibly the one securing the HELOC.

More on why an HELOC (vs. a mortgage) is such a good vehicle is here: http://myreinspace.com/threads/what-is-better-a-mortgage-or-a-line-of-credit.2271/

The market right now (late spring 2008) is NOT so hot in most markets .. so take your time ! Better to pass on a "deal" than realizing 6 months in your paid too much for it and it is both a money and time drain.

For each piece of real estate you have to hang in financially and emotionally.

This means realistic assessment of cash situation (inc. closing costs, vacancies, upgrades required in addition to "normal" expenses like: mortgage payment, taxes, utilities, condo fees, insurance, management fees ..). It also means realistic assessment of mental "toughness" or time commitment. Vacancies will arise. Basements will flood. Tenants occasionally have to be evicted. Maybe the police gets involved. Boilers break .. sometimes at mid-night. Get used to it .. or anticipate it. Be prepared to handle those things yourself, or preferably, hire a property manager that does it for you, but then be prepared to pay this person or company well. So, ask yourself: who will manage this property impeccably ?

Cash to close comes in 2 forms: real cash and a mortgage. To get a mortgage, you need various documents including property documents and personal documents showing the bank that you are credit-worthy. REIN calls this the "networth binder". Spend A LOT OF TIME preparing this document, find a mortgage broker to get you a mortgage, or at least tell you what kind of mortgage you can get roughly, depending on the type of property listed above. Horse farms are treated differently than trailer parks than condos ..

Before closing ensure you have someone in that market to manage the property impeccably. That could be you, yourself, although a professional with in-depth market insight, knowledge of legalities and local knowledge is likely better. Spend some significant time finding that special someone, as good property managers are VERY hard to come by.

Once the deal makes sense .. you got the money (cash + mortgage) .. and the manager .. ask yourself if you will be able to hang in emotionally and financially .. if so: CLOSE.

Happy Hunting !

P.S.: many hours are wasted when hunting and walking through the mud or underbrush .. many more hours just waiting in the right spot .. but then one day: BAMM .. ! Hopefully you were awake then ... as sometimes that moment is short .. and perhaps the opportunity passed or a better prepared hunter got to the target first. So, be prepared .. and ready when you should be ready!
 
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lurline

New Forum Member
Registered
Hi Thomas:

Just received your information. Thank you very much and it would appear that I am on the right track. Thank you and have a wonderful day.

Lurline
 

Thomas Beyer

Senior Forum Member
REIN Member
QUOTE (lurline @ Apr 24 2008, 12:39 PM) Hi Thomas:

Just received your information. Thank you very much and it would appear that I am on the right track. Thank you and have a wonderful day.

Lurline

FOCUS IS KEY !!
 

kreezo

New Forum Member
Registered
Hi Thomas,

First I`d like to say I`m a big fan of your postings. You`re always very insightful with lots of great information to offer. Its obvious that you are very passionate about this business!

You mentioned to focus on a very small area. I am from Toronto (been here for the past 6 years) but from my understanding Toronto is a slow/flat market. I rent a condo here for convenience to work however I don`t want to buy a condo here as the numbers don`t seem to make sense.

I`m looking at the Waterloo-Cambridge area since its much smaller and more manageable, one of the top REIN towns and the area has tremendous growth potential. The catch though - I know NOTHING about that area. I`ve never even been to the town. What are some action steps you would suggest in getting to become an `expert` in that area?

Just thinking out loud I would - check out the town, drive there and just get a feel of the place, go to local Realtors there and start talking to people, building connections, view listings of places, talk to people who live in the area (ie. university students - I know a couple who went to school there). Is there a particular order I would approach this at? Are there things that I can in Toronto before travelling there?

Thanks

Chris

QUOTE (thomasbeyer2000 @ Jun 27 2008, 11:31 PM) FOCUS IS KEY !!
 

Thomas Beyer

Senior Forum Member
REIN Member
QUOTE (kreezo @ Apr 21 2009, 03:14 PM) Hi Thomas,

First I`d like to say I`m a big fan of your postings. You`re always very insightful with lots of great information to offer. Its obvious that you are very passionate about this business!

You mentioned to focus on a very small area. I am from Toronto (been here for the past 6 years) but from my understanding Toronto is a slow/flat market. I rent a condo here for convenience to work however I don`t want to buy a condo here as the numbers don`t seem to make sense.

I`m looking at the Waterloo-Cambridge area since its much smaller and more manageable, one of the top REIN towns and the area has tremendous growth potential. The catch though - I know NOTHING about that area. I`ve never even been to the town. What are some action steps you would suggest in getting to become an `expert` in that area?

Just thinking out loud I would - check out the town, drive there and just get a feel of the place, go to local Realtors there and start talking to people, building connections, view listings of places, talk to people who live in the area (ie. university students - I know a couple who went to school there). Is there a particular order I would approach this at? Are there things that I can in Toronto before travelling there?

Thanks

Chris
flat is a description that fits most of RE in Canada these days ..

yes, smaller towns usually make more sense .. especially ones with a university, life-style, diversified industry base .. so yes Waterloo-Cambridge make sense ..

drive there once at least .. get a map .. talk to some REIN folks .. do some open houses .. check the paper .. find a realtor or better: 6 .. then narrow down the area .. a suburb or 2 MAX .. then ONE type of home, say a townhouse or a up/down bungalow .. as you must know if a TH for $200,000 in suburb X is a good deal or an average deal or a lousy deal .. and this is a street by street knowledge that takes weeks to acquire .. no rush .. as the market is not going to pop up 20% in a week ..!!

then do more research from afar .. MLS and off-MLS .. set up showings for a weekend or 1-2 days when you come back .. 4-6/day .. then do that 3-4 times .. so after the 6th visit you will be somewhat of an expert so you can start writing offers ..

There`s probably some REIN members there that you can shack up with or get the lay of the land over a beer (or 5) ..

Happy huntin`
 

invst4profit

New Forum Member
Registered
Excellent post Thomas.

Your posts always present in a well thought out and smooth manner as opposed to my often short erratic statements.
You tend to fill in the spaces I lack the patience to address.
Maybe due in part to the colour of our collars.
 

housingrental

Frequent Forum Member
Registered
The above posts covered this well

Chris give me a shout if you want my thoughts on any places or areas in Waterloo region

Pretty much for residential rentals there`s a few segments

Student rentals - High rent to purchase price, high collection, low vacancy - More management intensive and time consuming, easier to mess up, often best return if done right.

Single family houses and condo`s - Low rent to purchase price, easier to manage, periods of vacancy and non collected rent periodically, occasional tenant damage.

Non student multi-family plex`s - same as above with higher rent to purchase price but worse tenant profile / harder to manage. Good segment to be in only if you have big $$$ to purchase large unit count and have on site super... ie triplex = 110k + / door, twenty plex maybe only 70k/door ....even then would rather own student rental...




For area`s - Check map. Draw line from King and University to Lester and Columbia - Some of the surrounding streets and on other sides of universities can be good too - Check out every place for sale in area that you can afford.
 

InvestagainInc

Inspired Forum Member
Registered
QUOTE (kreezo @ Apr 21 2009, 05:14 PM) Hi Thomas,

First I`d like to say I`m a big fan of your postings. You`re always very insightful with lots of great information to offer. Its obvious that you are very passionate about this business!

You mentioned to focus on a very small area. I am from Toronto (been here for the past 6 years) but from my understanding Toronto is a slow/flat market. I rent a condo here for convenience to work however I don`t want to buy a condo here as the numbers don`t seem to make sense.

I`m looking at the Waterloo-Cambridge area since its much smaller and more manageable, one of the top REIN towns and the area has tremendous growth potential. The catch though - I know NOTHING about that area. I`ve never even been to the town. What are some action steps you would suggest in getting to become an `expert` in that area?

Just thinking out loud I would - check out the town, drive there and just get a feel of the place, go to local Realtors there and start talking to people, building connections, view listings of places, talk to people who live in the area (ie. university students - I know a couple who went to school there). Is there a particular order I would approach this at? Are there things that I can in Toronto before travelling there?

Thanks

Chris

Chris,

My company works with investors looking to invest in the Grand River region (KWC, Hamilton/Brantford). We have done the research, have the relationships in the area and know the market. We also manage properties in the area.

Please let me know if you are interested in learning more.

Thanks,
 

mplut

Inspired Forum Member
REIN Member
QUOTE (thomasbeyer2000 @ Apr 21 2009, 06:20 PM)
yes, smaller towns usually make more sense .. especially ones with a university, life-style, diversified industry base .. so yes Waterloo-Cambridge make sense ..



drive there once at least .. get a map .. talk to some REIN folks .. do some open houses .. check the paper .. find a realtor or better: 6 .. then narrow down the area .. a suburb or 2 MAX .. then ONE type of home, say a townhouse or a up/down bungalow .. as you must know if a TH for $200,000 in suburb X is a good deal or an average deal or a lousy deal .. and this is a street by street knowledge that takes weeks to acquire .. no rush .. as the market is not going to pop up 20% in a week ..!!



then do more research from afar .. MLS and off-MLS .. set up showings for a weekend or 1-2 days when you come back .. 4-6/day .. then do that 3-4 times .. so after the 6th visit you will be somewhat of an expert so you can start writing offers ..






Thanks Thomas,



You have provided me helpful info for the second time this weekend. Either REIN is a small world (NOT) or you are a very helpful person!



I have been setting my sights on Cambridge for the reasons you have mentioned. I will definitely take the approach you suggest. I'd also be interested in hearing from any successful single-family home investors in that location.



Margaret
 

eddyb1978

New Forum Member
Registered
Thomas,
I could not agree more!! Property Management lasts the lifetime of the real estate property!
I am learning this right now as I grew from 2 rentals to 11! I am trying very hard to hire the right ppty mgmt firm in Barrie/Newmarket without paying through my nose!

Cheers,
Eddy
 

RosePellar

New Forum Member
Registered
QUOTE (eddyb1978 @ Jun 17 2009, 08:52 PM) Thomas,
I could not agree more!! Property Management lasts the lifetime of the real estate property!
I am learning this right now as I grew from 2 rentals to 11! I am trying very hard to hire the right ppty mgmt firm in Barrie/Newmarket without paying through my nose!

Cheers,
Eddy


I just acquired a student rental in Barrie - bad timing I know - will be posting on Kiji and Places4Students.Com. Can you offer any help as to what steps I should be taking right now. The property doesn`t close until August 28th but vendor allowing me to have open houses for students to come in and look. Also, would like to use a property management so no late night phone calls because I am at least half an hour away from the property. Were you successful in finding one you would like to share with me?
 

housingrental

Frequent Forum Member
Registered
Hi Rose
Contact all local schools - they should have off campus housing postings and should be able to give you thoughts as to where else to advertise and approximate rates.
 

ltam68

New Forum Member
Registered
Thanks so much Thomas for sharing your wisdom. This is a fantastic post for us newbies.
 

multiroger

New Forum Member
Registered
QUOTE (eddyb1978 @ Jun 17 2009, 07:52 PM) Thomas,
I could not agree more!! Property Management lasts the lifetime of the real estate property!
I am learning this right now as I grew from 2 rentals to 11! I am trying very hard to hire the right ppty mgmt firm in Barrie/Newmarket without paying through my nose!

Cheers,
Eddy

Hi Eddy:
I just joined the forum and found your posting. Just wonder if you have found a ppty magt firm in Newmarket area.

Thanks.

Roger
 

Thomas Beyer

Senior Forum Member
REIN Member
QUOTE (ltam68 @ Oct 10 2009, 11:27 AM)
Thanks so much Thomas for sharing your wisdom. This is a fantastic post for us newbies.


Welcome "newbie" .. you will find REIN inspirational, educational and motivating !!
 

dchow

New Forum Member
Registered
Thanks for posting this wonderful post Thomas.

I "invested" in real estate almost 10 years ago and JV`ed with my brothers on a townhouse. However, we were "upside-down" from the get-go, but held on since we were building equity. We sold the townhouse during the go-go times and "made" some money from the appreciation. We were lucky that the appreciating market saved us from our folly.

At the moment, I am looking to "jump" back into the investment fray. However, after the recent ACRE event in Vancouver, Don has opened my eyes. It is truly an inspirational and dare I say, "life altering" experience. I had to travel to get to the event -- and boy am I glad I made the investment and the trip. I met a lot of wonderful, like-minded people and it was very empowering. Through Don`s analyses and explanations, I have found out why certain towns don`t work even though their property prices keep on going skyward. It`s maddening trying to find a property that even cashflows $10!

I am currently in BC (with no intention of moving) and would very much like to invest in Alberta -- notably Edmonton and Calgary. However, I don`t have a team there at the moment. Could you share some of your experience on how to get started? I`ll so need to perform due diligence on the potential team members as well to make sure I don`t get taken to the cleaners -- if you know what I mean.

Thanks again for your help Thomas. Looking forward to hearing from you.
 

housingrental

Frequent Forum Member
Registered
Hey dchow
Go through the rein material on this step by step for due dilligence on team members
Try giving a shout to some of the forum members that are in those area`s that could give you perspective on what returns might be possible in those area`s - Brent Davies and Brett ("redline`) come to mind
 

Rickson9

Senior Forum Member
Registered
QUOTE (dchow @ Jun 22 2010, 02:01 AM) It`s maddening trying to find a property that even cashflows $10!

Ain`t that the truth!
 

Thomas Beyer

Senior Forum Member
REIN Member
Here's chapter 62 "How to get started in real estate" of my upcoming book "80 Lessons Learned on the Road from $80,000 to $80,000,000"




Frequently, the question on any new investor`s mind is, `How do I start?`



While it`s possible that you may be able to use other people`s money on your first transaction, it is not likely. Investors who should be using other people`s money on their first deal are few and far between. Most likely they brought some other form of experience to their first deal that allowed them to raise joint venture money immediately. With that disclaimer out of the way, let`s talk about the steps to take when getting started.




First of all, you should assess your cash situation. Cash is a combination of real cash (in your bank account, or a sock, or under a mattress), or the cash of a committed friend or family member. If you don`t have enough real cash, then the next source might be a Home Equity Line of Credit (HELOC) or (for short) Line of Credit (LOC). On a LOC you have to pay interest only on the portion you use, which is good.





So don`t use it all immediately to buy a yacht or a fancy condo in Hawaii. These luxury items can wait. The likely result of spending cash or lines of credit on superfluous luxury items is a lifetime of being behind the financial eight ball. On the other hand, if you invest your LOC into a cash-producing asset, you will begin the process of getting ahead. But if you`re reading this book, I suspect you`ve already figured that out.



The next step is to research the market. Decide what area of the country you wish to invest in and then what type of property you wish to invest in. This is a big country, so will it be the Lower Mainland of British Columbia? Edmonton and area? Southern Alberta? Rural Saskatchewan east of Saskatoon? Toronto and the GTA? Kitchener-Waterloo? Ottawa? Montreal? You get the picture.





The key point is that you are not looking for a `deal``you`re looking for a very specific deal in a very specific place, based on a very specific type of property. Only once you know your market extremely well will you even know what a deal looks like.


Is there a secret knack for finding deals? The secret knack isn`t so secret`it comes from first knowing what a non-deal looks like in a certain area, by knowing both an area and a property type really well, or by having a team that brings you those deals based on their very intimate knowledge of this very specific area.






Once you`ve chosen the area and the property type, spend a ton of time becoming an expert on that property type in that area. Then and only
then should you start writing offers and buying. When you`re starting out, it`s better to have several smaller properties than one huge one. Many properties allow you to sell one if you have to.





For example, if you focus on townhouses, you must know after your research (also referred to as due diligence) if a 1,200`square-foot townhouse facing north is worth more than a similar one facing south, how much more a 1,400`square-foot townhouse is vs. a comparable 1,200`square-foot one, how much a finished basement is worth, what the rent would be for the 1,200square-foot one facing north vs. the 1,400`square-foot one facing south, etc.




You have to be an expert, because you must be able to discern within minutes if a `deal` is actually a sound business investment. Thus, you must know if $138,000 for that 1,200`square-foot south-facing townhouse is market price, overpriced or a screaming bargain. You must assume you are not the only person looking for a townhouse, and if you know it is a bargain, $20,000 below market, so will others.



It takes time to research any area. It also takes a little bit of money for driving time, flying there (if it`s out of your hometown), donuts, lunches and materials to research. The bigger an area is, the more time you will have to commit to researching it. The entire province of British Columbia takes more time to research than the Lower Mainland which takes more time than Greater Vancouver which takes more time than North Shore which takes more time than North Vancouver east of Hwy 1 which takes more time than Deep Cove. More time researching could lead to good things, or it could lead to a paralysis of analysis, a condition in which you are `handcuffed` from taking action.



I suggest you start with a very small area, for example, one suburb of one of the Top 10 REIN (Real Estate Investment Network) towns in B.C., Alberta or Ontario. Perhaps the best town to research is the one you live in. It will certainly reduce your management headache when you eventually buy.



Then, once you`ve decided on a very specific area of a city or an entire small town, you must decide on a type
of property. A representative list is as follows:





1) townhouses


2) condos with an ocean view


3) single-family homes older than 50 years


4) new subdivisions


5) pre-sales


6) acreages


7) horse farms


8) trailer parks


9) office buildings in crappy parts of town


10) high-end luxury condos with high-end finishing


11) land with subdivision potential


12) strip malls


13) defunct shopping centers

14)le="font: 7pt times new roman;"> warehouses

15) storage facilities


16) fixer-upper homes





Any of these property types allow you to make money once you know what you`re doing.



Most likely, the best one to start with (as there is plenty of supply and plenty of seller motivation) is a small house or a townhouse. I don`t recommend you start with a condo, as you can`t control costs of the condo association. It`s probably not best to start with a big house either, as this type of property is usually more expensive and consequently harder to cash flow, although in a fix-and-flip deal that might be okay`if and only if the numbers work very well for a successful resale.






You often make the most money with properties that lack curb appeal and need repairs. Many prospective homeowners look for a pristine property that requires no work. (I happen to be married to such a buyer`maybe you are too?) Therefore, you can often negotiate a substantial discount for a property that needs TLC. Be careful, though! You must be able to accurately gauge how much it will cost to fix the visible, and frequently less obvious, invisible problems. This is where the four (of five) ways to make money come in, as you use your own cash, and that of others to fix an asset, investing your own time and that of others for your often substantial gain.





You have to decide how much time you want to spend working in this asset`it may be several weeks of full-time work in a rundown property. Do you have the time? Early in my real estate career I was running a busy software-consulting firm with frequent travel and I did not have that kind of time to devote to turning around such a property. That`s why I eventually bought an entire apartment building where others would do most of the work.



If you make one mistake on a big project, it could be the end of your tenure as successful owner of that property`you may lose the property (and possibly the property that is securing the HELOC you used to buy it).



When you`re starting out, you might be tempted to rush into a deal. But it`s better to pass on a bad deal than to realize six months into your ownership that you paid too much for a property and it is a drain on both money and time.



For each piece of real estate you have to hang in there financially and emotionally.




This means that you must make a realistic assessment of your cash situation (including closing costs, vacancies and upgrades required, in addition to `normal` expenses such as mortgage payment, taxes, utilities, condo fees, insurance, management fees, etc.). It also means that you must make a realistic assessment of your mental toughness or time commitment. Vacancies will arise. Basements will flood. Tenants occasionally have to be evicted. Perhaps the police will get involved. Furnaces break down (sometimes at midnight). Get used to it, or anticipate it. Be prepared to handle those things yourself, or preferably hire a property manager that does it for you, but then be prepared to pay this person or company well. This obviously implies that you`ve purchased a property that cash flows well enough to afford management.





You also need a small team around you: a realtor, or two, a lawyer knowledgeable in real estate and licensed in the province you buy in (not where you live !), an accountant or bookkeeper, a mortgage broker and most likely, a property manager.



Ask yourself: who will manage this property impeccably? If the answer is, `I don`t know,` then by default it is you. If doing it yourself requires you to neglect your family or health, then spend some time reconsidering, and hopefully you`ll find a property manager, as without one your team need to also include plumbers, painters, gardeners, electricians, roofers, cleaning crews and eviction experts ` an overwhelming amount of selection, coordination and supervision work for a part-time investor in most cases




Cash-to-close on a property comes in two forms: real cash and a mortgage. To get a mortgage, you need various documents, including property documents and personal documents showing the bank that you are credit-worthy. Prepare a binder with all of this information in advance so that when you show up at the bank you`re ready. Today I have all my tax information online going back four or five years, since banks always ask for it. I also have a summary and detailed property information on every property we own, as banks always ask for this as well when you apply for the next mortgage.



Spend a lot of time preparing this set of documents, then find a mortgage broker to get you a mortgage or at least tell you what kind of mortgage you can get, given the type of property you`ve targeted. Horse farms are treated differently than trailer parks, which are treated differently than condos.




Before closing, ensure you have someone in that market to manage the property impeccably. That could be you, although a professional with in-depth market insight, knowledge of legalities and local knowledge is likely better. Spend some significant time finding that special someone, as good property managers are very
hard to come by.



Once the deal makes sense`that is, you`ve got the money (cash plus mortgage), and you`ve got the property manager`ask yourself if you will be able to hang in emotionally and financially. If so, close on the property!



Happy hunting!



Oh, and by the way, many hours are wasted when hunting and walking through the mud or underbrush. Many more hours are spent just waiting in the right spot. Then one day: BAM! Hopefully you are awake then as sometimes that moment is short, and perhaps the opportunity passed or a better prepared hunter got to the target first. So be prepared and ready when you need to be ready!
 
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