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Investment-Real-Estate

Cardinal rules of real estate

1. Speculation is not investing

Speculation is more akin to gambling as you put all your eggs in one basket, home-value appreciation.

You have no contingency plan. Cash flow and mortgage pay down create ROI regardless of the market. Spec buying is putting a deposit down on a condo that’s two years away, hoping the unit is worth more and you can sell it before the building completes. 

Speculation is buying a property that doesn't cover itself with rent each month because you believe in the area and the potential for appreciation. I learned this lesson the hard way back in 2007; by the time my high-rise condominiums were built in 2010, they had dropped by more than my equity. 

I was “underwater” and forced to close anyway. This was a $150,000 tuition.

https://twitter.com/VanREflipflops

2. There are no good or bad markets — only good or bad tactics

For example, there are specific tactics that work in a slump, like trading up as the higher-priced homes get hit the hardest. Or negotiating creative terms like seller financing.

These same tactics won't work in a boom. Here you would use a buy-fix-sell strategy.

In a recovery period, the time between the end of slump and the next boom, this is the time to use a buy-and-hold tactic, and even more advanced strategies like rent to own, and agreements for sale. 

This is a great time to begin a real estate development project as well

The key is to know where you are in the cycle at all times. The good news is we always know where we are heading based on where we came from; it always goes Boom-Slump-Recovery. 

In this order, in a cyclical fashion. If you’ve been in a slump for a while, get ready, the recovery is on its way.

3. Your team matters

You need to build a dream team around you.  

This is one of the biggest reasons I chose to join Canada’s leading Real Estate Investment Network — R.E.I.N.  It’s in rooms like this you can rub shoulders with professionals that specialize in this kind of thing. Building out a dream team is one of the largest contributing factors in my success as an investor.

You want professionals that specialize in helping people achieve financial freedom through real estate investing. 

Find an investor-focused, real-estate agent, have them point you in the direction of a great mortgage broker, lawyer, and insurance agent. 

These three in conjunction with your ace property manager are the group of professionals that will leverage you to the highest of heights. 

Getting this right is the difference between buying a couple properties with varying success and building a well-run real estate empire that creates multi-generational wealth without consuming your precious time.

4. You get what you negotiate

Having a sharp agent who can negotiate a good deal for you is one thing, but a great negotiation starts with you.  You need to become a master at the art of negotiation. Check ego and emotion at the door and allow the process to unfold over time, never be in a rush. 

Also, remember that a real estate negotiation does not need to only be about price. Often terms are more important than dollars. Find out what is important to the other side and try to solve their problems while you create a wonderful deal for yourself. 

Dates, inclusions, improvements even financing options are all up for negotiation.

If you don't ask, you don't get.

5. Find your niche

Don't try to be in too many different arenas at once. Find a particular property type and become an expert at it.  Maybe it’s homes with a basement suite, maybe it's a condo that allows short-term rentals, perhaps it's small multi-family or light industrial. 

The key is to find a groove and master it. It’s very difficult to build a strong portfolio with a mixed bag of all of the above, but pick one and really master it; each deal is better than the next and you become the most confident investor possible.

6. You don't need to invest where you live 

Most people like the idea of being able to drive over to their investment and give it a kick or a feel. And as nice as that is, where you live is not necessarily the best option for you. 

Proximity to your home matters far less than positive cash-flow in a market with strong economic fundamentals for growth in both rents and market value. Furthermore, you might be at the tail end of the boom at home, but one province over is just coming out of a long slump. 

The opportunity for the next five years is far greater in the neighbouring province purely because of where they are in the cycle. A strong team of local professionals can be found to help you make a smart investment once you locate the area with the best opportunity

7. Graduate for economy of scale

Once you have mastered the single-family home game, and hit the limit of your ability to finance homes, which usually happens at five properties as banks typically place a limit on how many properties you can finance. 

Mortgages aside, the biggest reason to graduate to multi-family investing, which is more than five units on one title, is for economies of scale. 

You can get cheaper property management, a roof over an apartment building of eight units costs less than the four separate roofing jobs, same with one boiler system versus four individual furnaces. 

Having multiple units in one place just streamlines and simplifies your portfolio.

8. Bigger numbers don't equal bigger risk 

It’s counterintuitive, but a million-dollar four-plex is less risk than a $500,000 property, and a $5-million apartment building is even less risk than the four-plex and on it goes. As prices rise, risk is reduced. The big reason for this is diversified risk. 

The more units, the less risk of falling into a negative cash-flow for example three out of eight units could suddenly be vacant and you could still cover your mortgage. 

If your house or apartment suddenly becomes vacant, you are on the hook for the entire mortgage payment until a new tenant is placed.

9. Master joint ventures

At some point, every single investor reaches a ceiling as to what they can accomplish alone. Eventually everyone will run out of one of the three ingredients needed to grow their portfolio. 

The most common is capital for down payments; once you’ve deployed your chunk of liquid capital, it takes a long time to build up another down payment. Other times, the issue isn't capital, but rather access to financing. 

Every single investor eventually hits their limit for how many mortgages they can convince the bank to give them. 

And then there’s time and expertise, the third but equally important ingredient. Eventually, your time and expertise can only be stretched so thin.

When you hit this point, it’s time to master the art of joint venturing. For every person out there flush with cash but without extra time or expertise to spare, there is a person with the capacity and expertise to execute who has run out of capital. 

This is a match made in heaven and, with the right documentation and expectations, can be a mutually beneficial partnership that serves all parties for years and allows investors to reach new heights in their career.

10. Cash is king, but cash-flow queen

Yes, cash is king, but what really holds the power to your success and designing the lifestyle of your dreams is creating cash flow. 

For example, you could have a half million dollars and buy a nice condo in a high rise for a million with your cash, rent it for $3,000/month and you and find yourself in a negative cash flow situation monthly. That same 500k invested into a $2 million multi-family will bring in close to $15,000 in revenue per month; that's five times more revenue and positive cash flow each month that can pay for your lifestyle.  

11. Force appreciation

One of the best aspects of real estate as an investment class is the opportunity to influence the value of the asset by improving it. Take advantage of low hanging fruit renovations like floor and paint to instantly force up value. Put your sweat equity into landscaping and cosmetic projects. 

Some properties let you unlock value by developing them further, adding a suite or rezoning to another use. There are many ways you can influence the value of your real estate. 

Even if you are currently stuck in terms of finances, you can give your portfolio, and thus your net worth, a boost, simply by being strategic

12. Hold for wealth

Saving the best for last. Good money can be made buying, fixing and selling property. Many people do this as their full-time job. 

The challenge here is that this will forever be their full-time job because they rely on these profits to live. Real estate is great for creating a profit but the real magic is what happens when you own it over time. 

Multi-generational wealth is created by holding hard assets like real estate over decades. 

Consider that a $2.5 million portfolio of real estate today that you've invested under $500,000 of your own capital in, using 80/20 leverage, will, in 30 years, be a fully paid for portfolio worth around $10 million (real estate doubles every 15 years historically) and generating over $500,000 in rental profits every single year.





A retirement rescue plan

Frustrated Canadian Baby Boomers are now finding themselves staring straight down the barrel of retirement. 

Financial planners have told them they’ll need to bank at least $2 million to enjoy their golden years in comfort.  Based on the returns offered by products in the financial services industry today, that assessment is unfortunately quite accurate.  

Accepting this new paradigm can be downright discouraging for the majority of Boomers who have their net worth tied up in low-yield savings accounts and expensive primary residences. On the bright side, there’s an alternative route to financial independence.  

After years of steady growth in our major urban centres, there’s never been a more sensible time to downsize your primary residence, shrink your footprint, and experience the freedom of exiting the rat race in style.

This article outlines a strategy you can employ to earn a passive lifelong income while watching your net worth continue to grow past your retirement years.

WORRY NOT

Concerned about getting off that straight and narrow path with only a fraction of what you’ve been told you’ll need to retire? 

Hesitant about the legacy you’re hoping to leave your kids and grandkids? 

Assuming 15-25 years of runway and very conservative growth expectations, I can say with confidence that $500K investment will be more than sufficient to make an “elegant exit” into retirement, and you’ll watch it grow into a sum of money large enough to provide multi-generational wealth for your loved ones.

SO WHERE DO WE START?

I’ve had the pleasure of consulting with a number of Boomers who have used their nest eggs to make strategic real estate investments and generate passive investment returns. 

I’m going to share a real world example of how I’ve been able to help individuals and couples design investment strategies that take less than six months to a year to execute – with no financial expertise or MBA required on their part.

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CASE STUDY: TOM

This case study is a real-life story about a frustrated and highly risk-averse investor, who for the sake of privacy I will refer to as Tom. Following the conventional “wisdom,” he had whittled down most of his mortgage and was only a few years away from retiring and owning his home.

His risk aversion allowed him to build up a $500,000 nest egg, half in Registered Retirement Funds (RRSP) and the other half in low risk equities, government bonds, and GICs. 

His portfolio was returning a modest 4%, or $20,000 per year. On top of his expected annual $10,500 Canada Pension Plan, Tom was now facing the impending reality of living on a fixed income of $30,500 per year... for the next 20-40 years.

By most people's standards, he made it - with a net worth of $1.2 million (Includes 700k equity in primary residence), Tom had secured a safe future for himself and his family.

The only thing keeping him and his wife up at night was the fact that they busted their humps to get to this point in life, but still wanted to live comfortably, spoil their grandkids, and be free to check off their bucket list items. 

They knew Tom’s fixed income wouldn’t be adequate and wondered what else they could do through Tom’s final working years to improve the outcome of their golden years.

After reading a few of my articles, Tom came into my office and asked if I had any bright ideas to help him on his quest. He confided that he’d always been afraid of buying rental properties due to the risks. 

He’d heard horror stories of tenants stealing, doing the midnight dash, or just leaving places in terrible shape. Since Tom still worked full-time, he didn't have the time to run ads, screen tenants, handle maintenance, or chase down rent payments.  

What he did like about his portfolio was that it offered a completely passive, hands-off income. We spent the next hour going over his personal finances, and I outlined an investment vehicle that provides handsome returns while eliminating the major risks associated with owning investment properties. 

Tom asked me to sketch up a plan for he and his wife over the next few days, and I welcomed the challenge.

STEP 1

I shared an opportunity in a limited partnership called Cash Offer LP that can offer five times higher returns than his current low-risk portfolio. 

he fund’s strategy is simple: accredited investors like Tom pool their capital to make cash offers on homes at a discount of at least 10% from market value. 

Next, the partnership makes low hanging cosmetic improvements to increase property values, and then markets them as rent-to-own opportunities for the thousands of homebuyers that cannot qualify for a mortgage in today’s tight lending environment. 

Next, the home is refinanced at 75% loan to value, and those funds are reinvested into additional properties that also become R2O Properties, managed by a team of seasoned real estate professionals who are mutually invested in Cash Offer LP.

This combined strategy of buying at a discount with cash, making high return renovations, and then selling at a premium using a rent to own strategy generates outstanding profits.

Since the partnership has its own lending arrangement in place, this means Tom can access 4-1 leverage and the higher real estate returns without taking on any debt or providing a personal guarantee. 

What he appreciated most is having his investment capital diversified over dozens of homes that produce a completely hands-off income. With his 250k investment in Cash Offer LP, Tom can comfortably expect to double his investment funds over the next 3-5 years. 

STEP 2

To make this next move, let’s turn our attention to another source of capital – his primary residence, valued at $800,000. The funds in home equity are essentially frozen, and it’s time to put them to work. 

Tom conservatively has $300,000 in home equity, which he can access on a line of credit for less than $10,000 in interest per year.

The plan for this chunk of equity is to purchase a multi-family investment property like an eight-plex. I found a suitable property listed at $1.2 million. which means he would need $300,000 for a 25% down payment. After management costs, interest, and expenses, renting out the eight-plex would produce a $30,000 cash flow every year.

STEP 3

The last puzzle piece in Tom's journey from barely-registering returns into the land of double digits is putting his RRSP on steroids.  

I illustrated how Tom could invest his $250k in RRSP funds into a new, self-directed account to essentially become his own bank with the freedom to lend money to the real estate market privately for an expected
8-12% percent annual return. With his new plan, he can bank an additional $20,000 per year on his $250k in registered funds. 

Now, let's see what Tom’s financial picture looks like three years down the road when he decides to ditch work and focus his attention on that golden bucket list. After three years, his Cash Offer investment now sits at $500k and he’s banking a combined 16% return per year in capital gains and rental income.

Cash Offer LP investment - 16% ROI                           $80,000         
8-Plex bought with $300k home equity - 10% ROI      $30,000
RRSP's in a well-managed REIT - 8% ROI                   $20,000
Canada Pension Plan max amount:                             $10,500

Tom's Annual Pre-tax Earnings:                                 $140,500 per year

Not only is this more money than Tom has ever made, the best part is that he won't be doing the heavy lifting and won’t have to trade in his time. Each hard-earned dollar in home equity and RRSPs has been given the healthy quota of returning an average 12.5% per annum, and on top of that, his apartment building is appreciating in value. 

To replicate a $140k annual return with his old portfolio bringing in 3.5%, Tom would need close to $4 million.

Helping Tom to see his nest egg’s potential was the best part of this entire process.

After 20 years of investment compounding — as our once 55-year-old investor approaches 75 years young and looks towards succession planning — he will have a debt-free portfolio worth approximately $4,000,000 generating a passive retirement income of $500,000 per year. 

How’s that for a legacy? He left my office filled with hope and excited for the future.

If you’d like to know more about syndicated real estate investments like Cash Offer LP and other ways to earn double digit returns in the real estate market, email [email protected] or give us a call at 250-717-3133.

For a detailed analysis of this plan, reach out to us at 250-717-3133 or [email protected]



Open house the right way

Open houses are vital for both buyers and sellers, but are seen as awkward or uncomfortable.

Open houses are often what lead to on the spot sales, bidding wars, and can open your eyes to what you're really looking for in a home.

We’re here to make it less awkward. With the help of Andrew Dorn from realtor.com, who went to seven open houses in one weekend, we rounded up the dos and don’ts of both hosting and attending open houses.

Open houses are a huge part of both the buying and selling process. You might be hesitant to host or attend one because they can be painfully awkward.

Walking around your potential new home with a real estate agent following you from room to room isn't the most comfortable experience, especially if there are parts of the home you don't like or the home is in not-so-great condition. 

As a buyer, this is your time to finally see what that home you bookmarked online looks like in person. 

As a seller, this is your moment to make your home look special and showcase what you have loved most about your home over the years.

When done right, open houses can lead to on the spot sales, bidding wars, and can open your eyes to what you're really looking for in a home.

Buyer Tips

If you are a potential buyer going to open houses in hopes of finding your next home, you'll need to be prepared for a few red flags to look out for. You should also go into the open house with a few pointers and questions to ask.

If the home you're going to is one you have been looking at online, then you probably already know a little bit about the property. Even if you've lived in or around the same town the home is in, there are still a few questions you should have prepared to get a true sense of the house and the area.

Get The Positives and Negatives

Ask the real estate agent what the positives and negatives are about the home that you should know.

If they are honest (which they should be!), knowing potential problems about the home or neighbourhood are better to know upfront than later down the line.

Learn More About The Neighbourhood

Ask them what they think of the area - is it up and coming, more of a younger or older community, what service prices or HOA fees are there? This real estate agent is the local expert of the area. Let them share their expertise with you.

Ask questions about the history of the neighbourhood, what it's like now, and what the next five years will look like. 

Ask About Other Properties

Finally, you should always ask the real estate agent if they know of any similar properties in the area that you might be interested in. If this isn’t the one for you, but you’re looking for a home with the same amount of bedrooms, the agent should be able to help you out.

Seller Tips

Whether you're selling your home on your own and hosting an open house, or working with a real estate agent to host one for you, there are a few tips that can make or break how your home looks in the eyes of potential buyers.

Clean Up! 

As Andrew approached one of the seven homes, right above the front door was a little perch where birds could sit. It's a great thought, but when he looked down there was bird poop all over the concrete that enters into the door. 

“It makes me sick," he said."I actually had to kind of take a hop step and jump over it so I wouldn't get the bird stuff on the bottom of my shoes.”

This is the buyer's first impression of your home. If potential buyers get a bad taste in their mouth from the front porch, then the expectations are set before they even walk through the door.

Remove Any Signs of Pets

Almost everyone loves pets, but that doesn’t mean that everyone likes to see where they live — and go to the bathroom. As Andrew walked into a bathroom in one of the homes, he saw what he thought was a trash can which actually was a kitty litter box. After an even closer look, he noticed a mark left by the kitty. 

In the kitchen, there was a beautiful vase of flowers on the counter. It was a great and simple touch to add to the open house; however, next to the vase was a small Tupperware container with what seemed to be little brown round things, which again belonged to a cat. It was cat food. 

“If you look at it, I promise you, I think some people would pick it up and say I wonder if this is chocolate.”

Stage Your Home!

Buyers expect tip-top shape and for your home to be show-ready. Out of the seven open houses that Andrew attended, only one or two of them seemed to be actually ready for potential buyers to look at.

Stage the home accordingly to make it look livable. If it’s a home for a family, stage it to look like a family would live there, but also make sure it's neat and clean.

Open houses can be awkward, so if you'd rather avoid the awkwardness all together, we can schedule a private showing of your dream home.

Let's Talk



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Selling your home sucks

What I learned selling my own house, and why we revamped our client experience

Is there anything more agonizing than selling your own home?

A home is a sanctuary, the place we rest our heads every day and the foundation for so many memories.

Giving up a house can feel like giving away a piece of your heart.

Through my 20 years as a homeowner and realtor, I’ve only moved twice. In both cases, I held on to the former home as an income property. This was the first time I actually had to say goodbye to a house.

What I discovered was enlightening, to say the least.

Right off the bat, I made an all-too-common rookie mistake: I placed sentimental value on the house and overvalued it by at least 5%.  You would think I’d know better after nearly two decades helping people buy and sell homes, but I’m only human after all.

Second, people no-showed on me out of the blue. I got to experience that infuriating moment when you realize that you or your partner cleaned up the house, raced home to be on schedule, only to be left waiting with not so much as a phone call. 

Then, there were the super short-notice showings. Race home, get kicked out of your home for a few hours, have people look at it for a full five minutes, only to inform you that their own house isn’t listed yet and they’re not totally decided between a house, a condo, or a life somewhere out in the country.

Once we did have some meaningful showings, most of the feedback we got was completely obvious and unproductive. Oh, your client needed a flat back yard?

Were the 15 pictures showing a hillside property not enough to help you disqualify the house and save all of us from completely upending our schedules?

Seemingly benign things like the distant hum of road noise came up as objections. We were baffled. We hadn’t considered road noise at all when we bought the house - or while we lived in it - but it turned into a deal breaker.

Even worse, people will come to your open house and tell you they “absolutely love it!” when the truth is they’re just being polite and don’t want to say no to your face.

Meanwhile, you’ll get the false impression that an offer is on the way, but they never call back (kind of like dating). 

Then, you’ll meet strangers who spend more time looking at your stuff and analyzing your personal life than they do looking at the actual home.

Over time, my wife and I began to wonder if we’d ever sell the house. We started taking it personally when people weren’t interested in the home that we loved so dearly.

Eventually, we just got frustrated and started to look for something to blame. But when you’re your own selling agent, there’s nowhere else to point the finger.

After about 30 showings, we started getting really tired. We were just two people with no kids, full-time jobs, and the luxury of not having to move in a single day.

I can’t fathom how families with kids in tow are able to pull off the miracle of delivering flawless home showings for months on end.

We finally did get a great offer on the home, only to have it fall apart over some very minor items during the home inspection.

The emotional roller coaster was real. Thinking that you’ve sold your home, only to realize you’re back at square one is a real punch in the gut. 

As a selling agent, it’s part of the daily grind: one out of five deals falls apart. When it happens, it doesn't shock us or stop us from getting the best deal.  As a seller, that’s a different story.

Eventually, we found a great buyer for the home and firmed up the sale. Time to celebrate? Perhaps briefly, but then reality sinks in. There’s some serious work to do after closing the deal.

Next, you’ll physically pack up all of your belongings. You’ll ask yourself questions like:

Where did all of this stuff come from?  Will I ever wear this Halloween costume again? Whose idea was it to buy an elliptical machine? 

Then you’ll put faith in a moving company to handle your worldly possessions with care – and hopefully not break anything.

Finally, the time comes to leave the old nest behind and start a new chapter. Now you can relax, pour yourself a generous glass of wine, and imagine life in your new surroundings.

Was it worth it in the end?  You bet.

Would I like to do it again? Not for another 20 years, thank you very much.

Going through the trials and tribulations of selling my house gave me a new empathy for my clients that I couldn’t fully appreciate before.

I have been party to thousands of home transactions in my career, and like a doctor who becomes desensitized to the trauma of the emergency room, I had become desensitized to the trauma of having to sell your own home.

Right after moving, I went back to the drawing board to design a client experience that alleviates the worst pain points in managing a real estate sale.

We implemented comprehensive home selling checklists that ensure no detail gets overlooked from start to finish. We created the Moving Concierge role in our support team to organize boxes, movers, cleaners, and to handle details like change of address.

Then, we developed a new client feedback system that gets more valuable information from our showing agents so that we could provide useful, actionable intelligence.  

We created a Market Plan Review — Every three weeks, we sit face to face with our clients and review the marketing and promotion strategy.

Next, we review the feedback and consider potential improvements we can make to the property to appeal to buyers, and lastly we review the price of the sales that have taken place as well as the new homes that have hit the market since we listed to ensure our price is still competitive.  

This market plan review is precisely the communication point that has been missing in our industry. 

I am extremely grateful for having gone through the emotional toil of selling our family home. It was a not-so-subtle reminder of how stressful moving and selling can be.

I know that it’s made me a better agent, and my agency benefits equally.

But if there’s anything we can take home from this rant, it’s that moving really does suck.



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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