March 30, 2011 - Profits and Pitfalls of Purchasing Investment Properties
It seems that with all the great press about Windsor’s growing economy that now more than ever people are considering entering into the investment property game.
By most accounts when you ask a successful person what their best investment was the answer is always their home. As the single largest purchase most people will ever make it is also the investment that can have the biggest impact in their overall long term wealth building.
So why don’t more people jump into the rental property game?
The reality is that even with all the preparation in the world, research, courses, etc., etc., etc., there are still things that undoubtedly will come up.
Being a landlord is not for everyone. As the owner of the rental property you are generally responsible for all maintenance and repairs. When the phone rings at 10:28pm on a Friday night and you learn about a basement flood, it’s your problem to deal with.
Finding reliable tenants is a process as well. There’s of course showing the rental units, screening the tenants, back ground checks, negotiating a fair price, and then hoping that it all works out long term.
When a renter leaves there’s sometimes a bit of work left to get the unit back up to snuff to get it rented out quickly.
All in all being a rental property investor is a job that requires work. There are many cases where someone gets into the game only to realize that they didn’t read all the rules.
So why bother?
The reality is the number of decent and honest people looking for a place to live greatly exceeds the number of people that are looking to move in and trash your place and stiff you for the rent.
If you provide a fair price for a decent place and stay on top of the maintenance and repairs as they come up, you will be appreciated as a good landlord. This is a relationship where your tenants trust you to take care of your end of the bargain and you are counting on them to take care of theirs.
Vacancy rates in Windsor as per CMHC projections are looking to dip under 10% by the end of 2011. The recent peak in 2008 was 14.6% followed by 13% in 2009 and 11.8% in 2010. Well managed properties typically see a much lower vacancy rate with large buildings 50+ units having a rate of around 3%. Likely this is due to the building being run professionally from screening to maintenance and everything else in between.
There is help for the smaller investor looking to get their start with a few units. Professional property managers will take the guess work out of the process and follow systems that have a track record of success with other similar buildings. Having help can be the difference between success and regret.
My opinion for the final note... If you look at almost any market in Canada over a 25 year period (the typical amortization period for a conventional mortgage,) you will see appreciation in property values. When looking for a property set a budget for maintenance, vacancy, management and all other expenses. If you can still make a small profit while charging rents that are below the area average you will keep your tenants on a more long term basis and have fewer headaches. For some investors it’s all about the equity.
January 27, 2011 - Some quick tips on renovations and upgrades
If you are like most homeowners who take pride in their property, you may have a list of home renovation projects planned that will not only improve your quality of life but also, hopefully, increase the value of your investment.
Here’s my take on a few upgrades to consider if your focus is on resale and on getting the biggest return on your investment.
Kitchen remodelling. Sources say that on average a kitchen remodel will show a return of between 87% and 94%. In other words if you spend $5,000 you will likely realize a return of $4,350-$4,700 when reselling. This of course assumes that you have spent the money on the right upgrades. Granite or Quartz countertops, upgraded hardware and kitchen cabinets, high-end faucets and sinks, and of course flooring. For maximum return your kitchen should have needed the work in the first place. (If you are replacing nice ceramic tiles with nice new ceramic tiles then you may not see the same results.)
A second bathroom. At 80-100% ROI (return on investment,) a second bath can be both an excellent investment and also make a huge difference to the lifestyle of your busy family. A simple, neutral half bath with a classic vanity and gentle colours is sure to represent the form and function it offers while appealing to all potential buyers down the road. If you want to go with a particular theme, try to make sure that the decorations placed can be easily removed when it comes time to sell.
Paint. Quite possibly the cheapest upgrade you can contemplate and one that can make a huge difference. Spend a weekend taping the edges and rolling out the paint. Spend the next few days feeling muscle burn in places you didn’t know you had muscles. Spend every day moving forward appreciating the new clean look of your walls and ceiling and for all this... spend very little cash. When selecting your paint colours consider the decor and furniture in the room already. Choosing the right colour can bring it all together. For every $1 invested in a new paint job, experts estimate your return to be between $0.50 and $1.
A few things to consider before any renovation projects...
Know your neighbourhood and the approximate values of the homes in the area. To access records of what individual homes have sold for you can head down to the local Land Registry office or you can contact your local Realtor. If your home is the nicest one on the block there’s a chance that the surrounding homes will suppress the value of your home and vice versa.
Just like when you see $5,000 shiny rims on an old beat up car, some renovations should only be contemplated after other needed improvements have already come off the checklist. Consult a professional for advice on what upgrades will generate the highest return. Plan your project with the future in mind.
January 6, 2011 - Hire a Buyer Representative – especially if you are a first time home Buyer!
Finally. You are ready to find your place. The one you’ve always dreamed of calling.....home.
Many first time home Buyers don’t know about service available to them to ensure that they get the best value for their home purchase. This service is generally FREE and could save you thousands of dollars.
Rather than call off the sign on the lawn and speak with someone whose job is to get the most money in their Sellers pocket, hire a Buyer’s Representative. Get your own Realtor!
Why? A Buyer representative’s duty is to assist in not only showing homes and drawing up offers but also offer help and advice on many other facets of your real estate investment.
The first step of course is getting your financing in place. Most Realtors have relationships with several banks and mortgage brokers and can recommend a specialist to assist with your needs. Get a great rate and save on interest.
Once you are good to go out shopping, your best advantage in working with a Buyer’s agent is the fact that they get the MLS listings when they post. Some of the best deals are gone before the public even noticed the sign on the lawn.
Of course you can look at private deals with your Realtor too. They will give you access to the market data and you won’t have to rely on assurances that “it’s a really good deal!”
What about the history of the property? Most Windsor residents have heard of the friend who bought a home for 30 cents on the dollar and then fixed it up and resold it for a huge profit. The question is does the labour and materials really justify a 300% increase in value?
When it comes time to write an offer your Realtor will advice you on clauses that will protect you. Most people know that they should get a home inspection and have a financing condition until the bank approves but what about satisfactory insurance? Imagine writing an offer with a few basic conditions only to find out that an insurance policy you budgeted $75 dollars per month will run you $150 per month for as long as you own the home. What’s 25 years of $75 extra each month going to cost you?
Buyer’s agents can recommend home inspectors that have done more than just take out an ad in the yellow pages, general contractors and handy men that don’t always advertise but can offer deals because they work only on word of mouth, and excellent lawyers to assist in closing.
Important to note of course is you should work with a Realtor that you are comfortable with. If you don’t think they are working for you to get you the best deal possible and develop a long term relationship with you, move on and find one you know you can trust.
Happy house hunting!