Friday, November 21st2.8°C
24157
22727
AJ Hazzi

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.”



Read more Investment Real Estate articles

23495



About the Author

AJ is the owner of Kelowna’s downtown boutique firm, Vantage West Realty. The firm prides itself in breaking the mold when it comes to how they practice real estate. Taking a consultants approach rather than the tired, old-fashioned sales approach of selling kitchens and baths, they pride themselves in having a level of expertise not found in a class room.

Having been a student of real estate through 2 market cycles, AJ has come to realize the absence of truly qualified professionals specializing in investment real estate. This has become AJ’s role within the firm and the community, to consult clients on Foreclosure sales, Flipping, Positive cash-flow, the benefits of lease option and other creative avenues that most agents completely ignore.

AJ is a firm believer that the current market is rich with opportunity and that there is a real need for a consultant who “speaks the language" of the investor large and small, and understands their wants and needs. For example, many realtors would squirm from having to make low-ball offers, worried about insulting sellers and tarnishing their own reputation. AJ consults his clients to make the offer that makes sense to them based on their goals; if it’s a flip then the mathematics on the firm’s handy “profitable project work sheet” sets the max dollar. The same for cash-flow, if a client has a rate of return in mind, then that dictates the price!

With a well-deserved reputation as a real estate renegade, Hazzi is definitely an out of the box thinker; a proactive agent willing to get creative and produce a solution during challenging transactions. He is very excited about the market we will see in the next 10 years and feels that it will lend itself very well to his unconventional style.

AJ is an agent who practices what he preaches. He has built his own real estate portfolio up to include development property, resort property, rentals, fix and flips and cash flow properties. Arming his clients with the knowledge and confidence to invest has enabled many of them to build impressive net worth and passive income. His goal is to impart on people especially of the the X and Y generation, that depending on RRSP’s and Government Pension Plans to look after us down the road is risky business. Most people don't realize that as little as 1 or 2 properties added to your real estate portfolio now can provide a safe, cushy retirement in the future and the sky really is the limit.

AJ's past clients and business relationships are his largest asset. His business has been grown almost exclusively by referral. To hear what AJ Hazzi's clients have to say about his service view the testimonials.

For more details or to reach AJ Hazzi, please visit www.vantagewestrealty.com
Contact: [email protected]
cell: 250.864.6433







The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet presents its columns "as is" and does not warrant the contents.


Previous Stories


24156
RSS this page.
(Click for RSS instructions.)
22962