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2013 review: What worked...what didn't

The last twelve months brought a wonderful mix of opportunity for those that knew where to look. To the average person on the sidelines who only considers pricing as the indicator of what the market is doing, real estate in Kelowna would've seemed under-whelming to say the least. Prices weren't the big headline; however behind the scenes the right combination of positive economic factors came together to produce some little pockets in the market that yielded amazing returns in the otherwise flat market. So no, the prices haven't started climbing dramatically just yet, however informed real estate investors look for positive cash flow, or potential sweat equity to determine the viability of a potential investment. Following the fundamentals of smart investing, they continue to see their net worth and cash flow grow year after year regardless of average house values. So let's take a look at the Top 3 profitable investment property types and also the 3 big misses of the last 12 months.

 

Hits

1.  Buying Cash-flow: Return on equity of 20% or better was very attainable for investors that focused on the specific property types that produce a rent multiplier of 10 or better. (Example: a house that rents for 2000/mo. x 12 is 24000. Using a multiplier of 10 would mean 240,000 max purchase price). Side by side duplexes, half duplex with suites, and even single family homes in strategic neighbourhoods fit this model to a "T".

Here are some great examples of properties picked up by our investors last year:

6 bedroom home near KLO Campus

Student rental:
6 students @ $550/mo.
$3300 x 12mo = $39,600yr
10 x multiplier = $396,000
Investor paid $375,000

POSITIVE CASH 1500/Mo

8 Bed Side-by-Side Duplex w/In-law suites

4 suites rented after renovation

4 suites @ $1100/mo.

$4400/mo. x 12mo = $52,800yr
10x multiplier = $528,000
Investor Paid $422,000 + 75,000 (Reno)
Total of $498,000

POSITIVE CASH $2200/MO

2.  Fail Safe Flipping: For the few that had the gumption to attempt a flip in what was still considered a buyer's market, profits of 30% and more were achieved. By following a simple reverse model template that predetermined; future price, Reno costs, carry costs and a host of typically overlooked soft costs, profits were crystallized at the outset by allowing a formula to guide them before making an educated offer.

The below property was purchased through the courts for $245,000 and was rehabbed for approx. $40,000 and sold 6 months later for $334,000. A net profit of $30k with approx. $90k invested is well above the 30% ROI. This was a great example of what’s possible in today’s market.

3.  Investing with Rent to own exit strategy “Empowered Renters”. For many, this is a brand new concept. We were able to produce amazing win-win scenarios for home buyers on the verge of being able to get a home, and investors looking to make a return while empowering others to achieve their dream of home ownership.

Below is an example of a fantastic deal that was put together in 2013.

Tenant-Buyer under contract to purchase house by 2016 for $736,000 pays $3600/mo.

Put up $120,000 deposit

Investor purchased Home for $665,000
Mortgage payment of $2200/mo.
Put up balance of 20%Down payment (13,000+taxes)

 

Misses

1. Speculation buying of condo - There weren't many new condo developments coming to market in 2013. Luckily the ones that did come to market concentrated on filling their properties with people who intended to live there. Gone are the days when a person could tie up a condo with a modest deposit and then wait for a sellout, list for more, and sell for a profit before taking possession. This is a fast track to the poor house and is in no way investing in real estate. This is speculation in its purest sense and is a fantastic way to blow savings and end up in court with a developer.

2. Resort property buying - Unfortunately, there wasn't any money to be made purchasing recreational properties this year. Big White to Osoyoos there was nothing in the market stats that showed these kinds of properties should be purchased for anything other than your own enjoyment and lifestyle. My philosophy has always been to rent these kinds of places. Investment capital is better placed into positive cash flow properties that will pay for your weekends at Big White or Osoyoos Lake and then some.

3. Speculation building - Although home starts were up marginally, we have not yet returned to a time when anyone with a builders license and access to credit could run out, buy a lot, construct something ordinary and presto they sell it and make big bucks. Building on spec is risky business and for the time being should be left to experienced builders with a proven formula that works in all markets.

 

Where we go from here in 2014

With sales volume forecast to rise again and with inventory on a steady downward trend, it’s not long before prices begin to creep upward. With that said, it is important to remember that market appreciation is really only the gravy in a Real Estate investment. The bread and butter will always be cash flow and sweat equity. The above strategies will still work wonderfully in 2014, but will become increasingly harder to find. This is where an investment focused agent will be your ace in the hole.

To quote the legendary Don Campbell; 2014 will also be filled with opportunity, confusion, excitement, protests, politics, procrastination, predictions, and pontificators… everything we witnessed in 2013 only elevated. Our job as strategic investors is simple: to hack our way through the reeds that obscure our view, to filter the noise that covers the true market signals and to stay focused on achieving our goal of financial independence through real estate.

“It’s been proven time and time again that real estate is the best way to increase your wealth.”



More Investment Real Estate articles

About the Author

AJ is the owner of Kelowna’s downtown boutique firm, Vantage West Realty. The firm takes pride in breaking the mould when it comes to how they practice real estate. With a well-deserved reputation as a real estate renegade, Hazzi has been shaking up the Kelowna real estate scene since 2002.

Having been a student of real estate through two market cycles, AJ has come to see an absence of truly qualified professionals specializing in investment real estate. This has become AJ’s role within the firm and the community: To educate clients on how to achieve financial freedom through real estate.

Arming his clients with knowledge on where to find positive cash-flow, how to renovate for profit, and other creative avenues that most agents completely ignore, Hazzi has carved out his niche as a real estate investment advisor (REIA), and loves nothing more than educating people on the right strategy to capitalize on both boom and bust years.  AJ is a firm believer that the Kelowna market is rich with opportunity, if one knows where to look.

If you are in search of an advisor who practices what they preach, consider that AJ has built his own real estate portfolio up to include multi and single family cash-flow rental properties, development property, resort property, fix and flips, and commercial properties. By sharing the lessons learned from his own experiences, his clients get the knowledge and confidence to invest without having to make the expensive mistakes he and many new investors have made along the way.

His goal is to impart on people, especially of the X and Y generation, that depending on RRSPs and Government Pension Plans to look after us down the road is risky business. Most people don't realize that as little as one or two properties added to your real estate portfolio now, can secure a comfortable, even lavish, retirement.

Bringing a consultant's approach rather than the tired, old-fashioned sales approach, AJ and his partners offer a world class service from finding, pre analyzing, and negotiating your next acquisition, to property management, all tailored to today’s busy investor.

To hear what AJ Hazzi's clients have to say about his service view the testimonials.

Contact Information

For more details or to reach AJ Hazzi, please visit www.vantagewestrealty.com

Email [email protected] Cell 250.864.6433



The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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