I've been writing for Castanet since 2013 and I have written only about strategies for acquiring property.
But now that we are in the full throes of a boom cycle, my best advice to many will be to sell. Sell anything that isn't a cash-flow rock star and take the cash, ready to re deploy for the right opportunity.
Many of us, myself included, are sitting on properties that aren't serving us well. We have too much equity in them, they don’t have good cash flow or they don't fit our current model.
We would have sold these cash vampires years ago, but the market wasn't right. Well, here we are at the edge of summer 2016, in the busiest market we’ve ever had, with inventory at levels reminiscent of 2006/2007.
If ever there was a time to seriously consider selling, it's now.
Some might argue that there's more appreciation yet to come. I would agree, but the largest returns on property are when you add value to them.
Take the cash out, and sink it into something where you can get the full three-course meal — immediate value gains with renovation, strong positive cash flow, and the rest of the appreciation this boom has left in ’er.
Having cash back in the till during a boom and, even more important, during the slump that follows every boom is paramount. What would you have done during the last slump if you had been sitting on a large sum of liquidity?
Now, there’s selling a property, and then there’s selling a property. I’m talking about specific steps you can take to create a bidding war and get over list price on your terms. There’s a formula, and I’m going to share it with you free of charge.
This is divided into two sections. What to do in advance of listing to get the value as high as possible, and what to do to create a frenzy for the property when its time to go to market.
- Get a consultation on the most profitable renovations you can do before hitting the market. It’s not uncommon that $5,000-10,000 wisely spent will return 15,000-20,000 or more on the sale price. This consult is free from an investor-focused realtor.
- Bring in the stager – Now, it's time to get the decor right, from minimizing clutter to adding the right accents. A staged home will sell for up to five per cent more than an un-staged one. The cost is only a couple hundred dollars and it returns thousands.
- Get it inspected – It's common practice in the U.S. and Australia. A pre-listing inspection has a few not so obvious, but major benefits.
Buyers will negotiate a price before inspection and often attempt to re-negotiate once issues are uncovered. Dealing with them ahead of time prevents this often adversarial and costly renegotiation at the 11th hour.
It creates more trust and good will. Again, having the inspection open on the counter puts buyers at ease, allowing them to get out of defect-detection mode and back into deciding if their life fits in the space.
You get more for a home in great condition than one that comes with a list of deferred maintenance. Fixer-uppers appeal to only experienced buyers or ones looking for a deal. They often take longer to sell and are more likely to attract lowball offers.
By investing in an inspection, you greatly increase your chances for a multiple offer situation, of having a bidder come in without any conditions, because you made it safe for them to do so. You can even get a one-year warranty for around $300, like a certified pre-owned car. We know those go for more.
Now, to the actual launch of the listing.
- One week out, place a coming soon sign in the front yard to build demand and intrigue for the home, but don’t show it just yet.
- Next, get 35 plus architectural digest quality photos taken of the property for use in your marketing to get buyers.
- Create a video walk through because buyers in Vancouver and Calgary will often buy homes sight unseen because they know they don’t have the luxury of time to fly out when the market is this hot. A good video broadens who can bid on the home.
- Go Live on a Thursday afternoon. When you hit the MLS is a subtle nuance that can make a heap of difference. You are only on the hot sheets for 24 hours, so let's make the most of this small window. Realtors are far more likely to see your listing if its featured between 3 p.m. Thursday and 3 p.m. Friday than competing for their attention as the weekend hits.
Now, you should get a ton of showings for the weekend. Make it clear that you will be entertaining offers at 5 p.m. on Monday and then let the demand and competition build for the property until then.
Come Monday, if all goes as planned you will have your choice of offers some well above your asking price. Just remember, you don’t get what you deserve, you get what you negotiate.
Well there you have it, not my typical cash flow investment, real estate centric article, but one thing I’ve learned over the years is that part of being a good investor is knowing when to it’s time to cash out and look for the next deal.
If you would like a list of the service providers I’ve mentioned in this article including my trusted Inspectors, appraisers, stagers, contractors, photographers, videographers, please email [email protected] and I’ll send it to you.
Hot market mayhem - and how to escape the insanity
All we hear about these days is that the Kelowna real estate market is on fire, houses are selling in multiple offer and for over list price.
This is not untrue, but it doesn’t tell the full story. Adding to the mayhem is a massive influx of Vancouver investors pouring into Kelowna right now, driving up the price of our cash flow properties, be it suited homes, downtown RU6 property or duplexes.
Inventory is low, but did you know it is now down to near 2007 levels?
It is most certainly a seller’s market in that we have far more buyers than we do sellers right now. The average days on market are plummeting, and it seems all we hear about are the bidding wars, especially with investment properties.
Proportionally we have almost 50% more properties selling to investors this year versus last. This translates to hundreds of investors set up on auto searches, waiting for that next hot listing.
While everyone is waiting for the ping of an alert from their new property search, there is a secret pocket of inventory equating to roughly 25% of the total inventory on the market for over 100 days.
One thing I can tell you for sure, those particular sellers have heard just about enough of realtors, the media, and the general public talking about how great the market is, while their home sits on the market desperately hoping for showings.
People forget about these listings that came on the market too high, got overlooked, and are now aging away being ignored as though they were last to be picked for dodge ball.
I get it, new is sexy, who wants what everyone else has overlooked? But that’s a follow the masses mentality.
It is the same reason why the vast majority of these “investors” were sitting on the sidelines when things were really depressed three years ago. Sellers were willing to throw in a kidney to get you to take their property, but it just wasn’t popular then.
In previous articles I have written about ways to let the numbers and cash flow potential guide your decisions around price. Based on that, every property is a good deal at the right number.
Consider this: A hot foreclosure listing just came on the market downtown on Walrod Street. It came on for 425k, the sweet spot for investors. Now all these people competing for this hot new listing will likely bid it up 30-40k over list.
So let’s assume it sells for 455k, to be conservative - although I expect it go for more. Is that a good deal? Sure, the winning bidder is happy as a clam, and the runners up go back, discouraged, to wait by their computer for the next one, telling themselves they will have to be more aggressive on their next bid. Euphoria ensues Euphoria ensues in a market like this, but. . . .
This is not the way, people. I can’t make it 2011 for you, but what I can say is, there are precisely 308 sellers of single family homes who have sat on the market for at least 100 days (I just checked). They are as close as you are going to get to a 2011 seller.
Some of them might be unrealistic and won’t listen to reason, but others have a real need to move on. They made a tactical error in the beginning by listing in what I call “no man’s land”, and now they are paying the price. These sellers would love to see an offer from you. They might even be willing to let you negotiate. Imagine that.
So, thinking back to the 425k foreclosure house on Walrod that will sell for at least 455k. Would it not be just as good, or potentially better, to approach a seller optimistically listed at $469,900 for 100+ days and offer them 450,000 or less?
In addition to the better price, you can actually get favourable terms and the dates that work for you. Go figure.
Now, armed with this info, it is your job to evaluate at what price and on what terms this property goes from being an overpriced stale listing to a home run investment that everyone else missed because they were all too focused on the new sexy.
For a specific list of properties in your price range that have spent no less than 100 days on the market, with sellers who would be thrilled to let you negotiate with them, just email me and I’ll send it right over.
Also, for those of you looking for a crash course on how investment properties are analyzed on the fly in the real world: On April 30th we are bringing back our famous Ugly House Tour. We have room for 20 on the limo bus on a first come first serve, click here for more info.
A personal story of joint venturing and how you can prosper
People often ask me to share the secret to building a multi-million dollar portfolio when not starting with a mountain of cash, or having banks tripping over themselves to lend you money.
The answer is simple, don’t go it alone.
One thing I learned early in life is the power of joint ventures. There is no chance I would be where I am today in real estate, if not for amazing partnerships. It is the key to getting started, or unstuck, because when people join forces to create win/win scenarios that otherwise would not have been obtainable, amazing things happen, and fortunes are made. A well structured JV is one of the most gratifying things one can do in business.
My personal story of joint venturing starts with my very first home. As a completely naïve 19 year old, all fired up after reading Rich Dad Poor Dad, I was ready to jump in head first.
One night in a bar, where most great ideas are conceived, I struck up a partnership with an acquaintance from high school. He had sterling credit, and I had a bit of cash saved up. We bought a basic bi-level home, put some sweat equity into it (read terrible DIY renovations the future owners couldn’t wait to tear up), and sub-letted our basement to our buddies.
As a couple of 19 year old home owners, you can bet we had a heck of a time living there (if those walls could talk). Little did we know, it would be the decision that gave us both a massive head start financially and a lifelong friendship.
Fun fact: The process of buying that house was what led me to take my real estate course.
The following year, I came across a downtown condo that I wanted real bad. Same problem, the banks can’t get new realtors out of their offices fast enough.
Give up? No way!
I approached a friend from baseball who also had terrific credit. We went 50/50 on the condo and held it for 10 years, running it together as a successful vacation rental. We recently sold it for a tidy six figure profit. I was sad to sell it, but joint ventures do end eventually. That little condo at discovery bay was a cash-flow rock star bringing in $1800/week through VRBO.
As an aside, I highly recommend those units as an investment, and believe they are still undervalued.
Now, it hasn’t all been sugar plums and lollipops for me, this next one haunts me to this day.
Days before my 24th birthday, the market is on fire, and I’ve got a serious case of hubris. I’ve joined forces with a client of mine to purchase ‘The Big One’, a 1.3 million dollar palace on two acres that had development potential. As this was out of our league, we went to a Vancouver business man, one of my partner’s contacts, and structured a joint venture to subdivide and build.
This was my first attempt at a something more complicated than your typical 50/50 JV - it included Investors and commercial financing. We formed a corporation, created a partnership agreement, and off we went. It was looking as though it would be a home run.
A few weeks later, we bull-dozed the home. The headlines surrounding the 2008 crash came out . . . aaaaannnd we were caught with our proverbial pants down.
To add insult to injury, my partner and I had purchased two units in waterscapes for a combined value of a million and a half dollars. We lost every single cent we had invested in that deal, a lesson that both cost, and taught, me as well as any Ivy League education could.
The lesson: Don’t be a speculator!
From that day forward I have purchased nothing but positive cash-flow investments.
Every crash brings opportunity. Prices in Arizona had been sliced in half, and this time I linked up with a guy I knew from a boxing club who also had a little bit of cash. Between his mother, myself, and my girl friend - now wife - we put together a little fund, and began buying up distressed condos in Scottsdale. Six years later, it has turned out to be one of the best investments of my career. It was made possible only through collaboration.
I have continued to buy property every year. Sometimes I’m in a position to do it on my own, and I do, but sometimes I’m maxed out at that moment. I don’t let that stop me, there’s always a way to create something great.
What I’m about to share with you is the formula for creating equitable and profitable joint venture partnerships.
First: The Quadrant
This chart shows a quick way to figure out who is doing what, and who is entitled to what in a partnership. In each corner of the quadrant, you will see the appropriate share hold for each component. Many successful joint ventures involve an expert deal finder who will take on all but the initial capital contribution. This allows the investor a hands-free investment that requires none of his own time or personal borrowing power.
There are no shortages of people out there who will warn that family and business don’t mix, or that the easiest way to ruin a friendship is to jump into business together. As someone who has made almost every mistake in the book and come out the other side a little smarter each time, I can tell you with confidence that the times when things go wrong will only stem from expectations not properly set.
Most partnerships out there are done based on a handshake and a pile of assumptions. This is doing everyone involved a huge disservice. For starters, when things aren’t laid out clearly in writing, you are putting your relationship in serious jeopardy. All of this can be avoided with a simple memorandum of understanding that will later be the basis of a partnership agreement drafted by your lawyer.
Who will do what? For how long? How does one of us get out of this partnership if need be? These are the kinds of things often overlooked by overly eager ‘honeymoon phase’ partners. Don’t fall into this trap!
Second: The Partnership Agreement
Your next step is to draft a partnership agreement. I’ve got a great pft that I obtained through my affiliation with REIN. It has a phenomenal checklist to ensure that you get all the expectations and ‘What Ifs’ sorted out prior to committing to a property. Armed with this checklist you are ready to strike up a partnership that could be just the synergistic force that makes both of you very very rich.
Lastly, I’ll say this, the one thing I know for sure: There is zero chance that a 19 year old kid with $8,500 bucks burning a hole in his pocket and no credit goes on to become a multi millionaire by age 30 without utilizing the awesome power of teamwork. I would hedge a guess that the vast majority of self made people did so through a series of win/win partnerships along the way. I encourage you to go out there and do likewise, but learn from my mistakes.
Here is what a typical 50/50 joint venture looks like when one party has the cash and the other has the time and the expertise.
Seven reasons investors are drooling over Kelowna in 2016
We’re back, baby!
These are exciting times for Kelowna homeowners and investors. We are going to explore why sales for Kelowna investment real estate have shot up 30%, and why there has never been a better time to invest.
It wasn’t long ago that we were the talk of the proverbial real estate town, but after slipping into a six year slump following the global financial crisis, all the money seemed to flow into Alberta, Vancouver and Arizona. With the Canadian dollar on par with the US, we couldn’t compete with deals south of the border no matter how nice our view of Okanagan Lake.
Like a once immortal high school quarterback, we faded into obscurity.
Well it's our time once again. With much of Canada battening down the hatches since oil went below 40 bucks and new government leaders emerged, this four-season playground has been setting records.
We have our own unique micro climate here in Kelowna, and I'm not talking about the stellar weather. I'm talking economics. It’s easy to get caught up in what's happening in Alberta, and to make the assumption that Kelowna will be suffering along with them. Maybe that's because half the cars on the road in Kelowna have red license plates.
People are surprised to learn that Alberta only represents 13% of our total sales, and despite the loss of thousands of jobs in Alberta last year, that number held true to within a couple percent. Is it possible that fewer Albertans will stake their claim in Kelowna in 2016?
Perhaps, but with the opportunity in resource work in northern BC, as well as our bustling construction industry and a couple hundred baby boomer Albertans reaching retirement age every single day, the smart money says no. Regardless, Alberta is not the driving force of the Okanagan market.
Let's look at the economic fundamentals that are underpinning this strong economy, and understand the indicators that tell us what we need to know to reliably predict the direction of real estate for the foreseeable future.
One ~Job growth
BC is experiencing solid growth in current economic conditions. Kelowna, in particular, was just rated the number two hottest job market in Canada. We have an emerging technology sector, a thriving tourism industry, and endless work for skilled labourers, due, in large part, to a construction industry on fire. Experience shows that people will go where the jobs are. After years of losing our workers to the Alberta job market, we are now seeing the pendulum swing the other way.
Two ~ Population growth
Over the past 12 months, we have seen an influx from across Canada, and other parts of the world. Students are piling in, as UBCO continues its expansion. Young families are migrating to Kelowna for the lifestyle and the opportunities. Retirees continue to flock here because of our world class amenities, good hospital, and agreeable weather. Kelowna is very much a destination town that is garnering attention on a world stage.
Three ~ Increased rental demand
Demand is up, as people move to the city and rent for a period before putting down roots and buying a property. Ask any local property manager, they will tell you that they have their pick of quality applicants. There is a frenzy for new rental listings. There has never been a better time to be a landlord in Kelowna.
Four ~ Increased rental prices
Of course, near zero vacancy rates lead to sky rocketing rents. In the past year, we have seen average rents increase by 20% or more. For example: What was once $1500 is now $1800. This has turned average performing properties into home runs.
Five ~ Increased property demand
Combine upward trending rents with cheap mortgage rates to create the perfect storm. We have just finished our strongest year for demand, with record setting months in 2015. Sales were up 13% year over year. This has been the trend since the slump ended and the recovery began in 2013. As a result, the number of properties being purchased for investment has risen dramatically. We saw an increase of over 30% in the number of properties purchased for investment last year.
Six ~ Decrease in supply
Our inventory levels have plummeted to the levels of our peak boom period in 2007, putting us in a seller's market since the spring of last year.
Seven ~ Increase in prices
Always the result of low inventory and high demand, we are seeing prices rise in a steady, sustainable way. Values in 2015 were up roughly 8% year over year, and our average home here in Kelowna is again poised to meet, or exceed, that level of growth in 2016.
Now, as savvy investors, we know better than to buy for appreciation, even though it's hard not to think about the huge, levered return we get when prices trend upward. However, by definition, that is mere speculation. As real investors, cash flow is king, and this is actually why Kelowna deserves your attention.
An average five bedroom house for $420,000 with a suite in the basement will bring in as much as $2,800 per month (that's $1,650 up and $1,150 down). On the cash flow alone, you are seeing a 12% return. Factor in the mortgage pay-down and completely ignore appreciation: You see returns of 20% on your Investment.
Seven big reasons why you should strongly consider adding some prime Kelowna real estate to your portfolio this year, before prices and interest rates inevitably rise.
For a list of the top 10 cash flow properties, email me and I will send them right over.
More Investment Real Estate articles
- 8 things you need to know Nov 24
- 15 years - in the clear! Oct 26
- Right strategy for this market Aug 11
- Where are all the deals? Jun 23
- Like an RESP... only better Apr 30
- Retirement rescue 911 Feb 18
- Apartment buildings: absolute gold mine Nov 10
- Become a millionaire in 7 years...this time Aug 15
- Cash flow or flipper? Jul 15
- The power of 10 May 20
- 5 Deadly mistakes house flippers make Mar 21
- 2013 review: What worked...what didn't Feb 2