Margins of Safety

[Thomas Beyer]

As we had into a difficult 2009 with a recesson, what are some margins of safety to live by ?

I come up with:

1) don`t overpay

2) sell when prices have gone up "irrationally high" .. like into 2007 ..

3) make prudent assumptions about rent levels, costs, vacancies, values, interest rates

4) buy only in growing economies / cities / areas (a key REIN philosophy)

5) buy with enough cash-flow (or price to rent ratio aka 8-10% rule) so you can hold during bumps like 2008 / 2009 ...

6) seek advice / help

7) hire a decent property manager even if it costs you $100/month or 5% of rent collected !

8) have the right partners: marriage, investors, business teams (realtors, lawyers, mortgage brokers, educators, property managers, ...)

9) have a prudent cash reserve

10) have low expenses that are in line with business goals


Your thoughts ?

 

[DOZAH]

stop living on credit (beyond your means)

 

[mortgageman]

Treat your tenants fairly and with respect in all market conditions

 

[Lucas]

QUOTE (thomasbeyer2000 @ Nov 24 2008, 09:20 PM) As we had into a difficult 2009 with a recesson, what are some margins of safety to live by ?

I come up with:

1) don`t overpay

2) sell when prices have gone up "irrationally high" .. like into 2007 ..

3) make prudent assumptions about rent levels, costs, vacancies, values, interest rates

4) buy only in growing economies / cities / areas (a key REIN philosophy)

5) buy with enough cash-flow (or price to rent ratio aka 8-10% rule) so you can hold during bumps like 2008 / 2009 ...

6) seek advice / help

7) hire a decent property manager even if it costs you $100/month or 5% of rent collected !

8) have the right partners: marriage, investors, business teams (realtors, lawyers, mortgage brokers, educators, property managers, ...)

9) have a prudent cash reserve

10) have low expenses that are in line with business goals


Your thoughts ?

Further into 1)...Be patient purchasing and make alot of offers. Not only try to `not overpay` but try to purchase below whatever the current market value is at the time of purchase.

Lucas

 

[Nir]

In addition to reducing business expenses (#10), spend less personally. Any $100 you spend less a month is like buying a new property generating $100 a month for you (cashflow-wise).

 

[DrewBetts]

Target properties where you can create value. We`ve all been lucky in the last few years because the market has been doing all the work for us. The best investments still work, even when the market is going down.

Build a strong relationship with your lender. When money is hard to find and you`re competing with many other strong opportunities, the relationship with your banker enables you to continue acquiring and getting attractive terms.

Step up your marketing. When times are good, even poor marketing will suffice and bad habits are learned. In more competitive times, marketing (high quality rental ads, pro-active property managers that know how to sell, property positioned buildings, exhaustive marketing mediums - online, print, lawn signs - , and building a proper niche) will set you apart from other landlords.

Build a sandbox your competition can`t play in. When times were rough in the rental market in Grande Prairie, at the beginning of 2008, everyone started competing on price. All the PM firms and Boardwalk started pushing down rents. We realized we can never compete with the big players like that and why would we want to? Instead, we niched ourselves as the customer service oriented, high-end rental company. It worked well. Customers frustrated with the mediocre apartments and poor customer service of Boardwalk came and rented from us. It didn`t hurt that we also fliered their apartment buildings offering to cover the tenant`s moving costs

(oops!)

 

[Thomas Beyer]

QUOTE (DrewBetts @ Nov 25 2008, 12:03 AM) ...

Build a strong relationship with your lender. When money is hard to find and you`re competing with many other strong opportunities, the relationship with your banker enables you to continue acquiring and getting attractive terms.

Indeed .. we have an excellent relationship with PeoplesTrust, the premier CMHC multi-family lender in W-Canada. However, sometimes lenders change their criteria or recently have become MUCH more conservative. So having a few banks or a good mortgage broker is even better !


QUOTE (DrewBetts @ Nov 25 2008, 12:03 AM) Step up your marketing. When times are good, even poor marketing will suffice and bad habits are learned. In more competitive times, marketing (high quality rental ads, pro-active property managers that know how to sell, property positioned buildings, exhaustive marketing mediums - online, print, lawn signs - , and building a proper niche) will set you apart from other landlords.

indeed .. plus: Don`t forget the guy/gal answering the phone and the associated voicemail ! You can tell a good from a bad onsite manager or property manager by their voicemail !

Plus sales skills / friendliness once the prospective tenant arrives !

 

[brad]

"It didn`t hurt that we also fliered their apartment buildings offering to cover the tenant`s moving costs (oops!)"



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