don't look at major cities. These markets are watched intensely by many in the industry who buy using different parameters and who are okay with a smaller ROI. Personally, I look at regional centers -- the smaller cities that form the hub for many outlying communities.
The following are important factors in determining if an area is a regional centre:
1. It is highly accessible. Access is key, and that usually comes along with a regional centre, but I look for good highways and airport access. How easy is it to get in and out of the community? This is important.
2. Investment from the private sector. If newer big box retailers are entering a community, the odds are that they have access to much better research on the community than I do. They want to be in a community that is growing and vibrant, and this is the same type of community I prefer to invest in.
3. Re-development of public infrastructure. I look for upgrades occurring in public buildings and other public assets in the community itself. If school districts are growing, hospitals are expanding and recreation centres are being constructed, the federal, provincial and municipal governments are probably investing money into the area.
4. The purchase price works. It might be obvious, but the purchase price always has to work. I make sure that the purchase price of properties in the community is going to give me my required ROI based on normalized market finance terms and conditions. We can all negotiate low interest, short-term, vendor-take-back financing, but when you’ve overpaid and it comes time to refinance, be prepared to open your wallet. Fantastic short-term financing is a bonus, not a plan.
5. Strong employment. I am in real estate for the long-term so I prefer middle class, working communities over boom-and-bust areas or tourist towns. I search the city’s economic page on their website and read local papers for news of new industries coming to town, transportation hubs, medical centres or other places where people are employed in large numbers.
6. Stable increase in population. If you are looking at investing in a community and the population is declining, you really have to determine what your exit strategies will be. Who is actually going to buy your property if the population is going down? Population growth is usually linked closely to new industry employment.
7. Talk with property managers in the area. When I go into a community I always interview local property managers. You need a great property manager on the ground to solve issues as they arise, quickly and efficiently, especially if you don’t live in that community yourself. You need a property manager who is willing to give you all the information you feel you need to be comfortable managing from afar.
During the interview ask for a list of the properties currently under their management and do a drive by. Find out what they feel about the local rental market and what they charge for rent. Inquire about what type of vacancies they have with their current projects and just get to know them in general.
8. Is the area large enough to create inventory? As a real estate investor, the areas I look at need to be large enough that I can buy enough inventory to justify the management and travel expenses created by it.
Are there enough properties that are going to become available over the next few years that will allow me to have more than one property in the community? If you only have one property in a community, the percentage of revenue allocated to managing it is significantly increased.
9. Expanding a remote market. When looking to expand outside of a market that is already a plane ride away from where I live, I try to stay within a one-hour drive from my hub city. This allows for ease and efficiency of business travel.
For instance, when I selected my target city in Ontario I tried to keep all properties within an hour’s drive in any direction. I then copied this model in Nova Scotia, British Columbia and parts of the US. I fly in, rent a car, drive to inspect my properties, meet with the necessary people, then return to the airport and fly on to my next hub community.
10. Speak with an advisor. There is always the chance that a community you are considering is experiencing the downward part of a cycle. If this is the case, and it’s a good vibrant community that has come out of similar cycles in the past and you believe it will in the future, there is a potential opportunity there as well. Speak with a trusted advisor and seek sage counsel before investing in a situation like this.
Source: http://www.canadianrealestatemagazine.ca/strategy/10-tips-to-find-the-best-locations-for-real-estate-investment-186483.aspx
Tuesday, December 23, 2014
Wednesday, December 17, 2014
Can tenants break their lease too easily?
Most landlords get their tenants to sign a minimum one-year lease. This is usually done to give them some peace of mind, knowing their rental properties will be occupied for at least 12 months. What most landlords don’t realize, however, is that one-year lease agreements don’t hold much weight. In Ontario, tenants can break their leases with relative ease.
Though a lease agreement is considered to be a binding contract and a tenant is obliged to stay for the term agreed to, there is very little landlords can do to stop tenants from walking out on them. Landlords are baffled by this because at face value it seems as if the law is on the landlord’s side. Technically speaking, breaking one's lease is not something a tenant can arbitrarily do.
There are only three circumstances in which breaking one's lease is condoned by the Ontario Landlord and Tenant Board:
For example, if a landlord refuses a tenant’s request to break her lease that same tenant could request an assignment. By assigning a lease, a tenant is finding a new tenant to take over their tenancy.
Most landlords are oblivious to the severe consequence of ignoring or denying a tenant’s request for assignment. If a tenant does not hear back from a tenant within seven days of requesting an assignment, that same tenant can file to terminate their lease on the eighth day or thirty days from making such a request.
If tenants know their landlords are going to refuse an assignment, they could strategically file a request for one so that the refusal given would substantiate their right to leave. In cases where the landlord agrees to an assignment, a tenant who signs a qw-month lease is not really bound to that lease, so long as he is willing to find a new tenant for the landlord.
According to the Residential Tenancies Act, landlords are supposed to do everything in their power to mitigate their losses when a tenant breaks his lease. But finding another tenant is no small task. It takes countless hours to advertise a rental property, screen prospective tenants and show it to interested parties.
Though a landlord could pursue an unlawful tenant for damages through small claims court, many landlords choose not to. They prefer to avoid the hassle of going to court and focus instead on finding a better tenant.
Perhaps that is a smarter move. After all, the best way to insure against being a victim of another tenant who breaks their lease is to source out a better one. Good tenants who sign a one-year lease are bound to honour it.
Though a lease agreement is considered to be a binding contract and a tenant is obliged to stay for the term agreed to, there is very little landlords can do to stop tenants from walking out on them. Landlords are baffled by this because at face value it seems as if the law is on the landlord’s side. Technically speaking, breaking one's lease is not something a tenant can arbitrarily do.
There are only three circumstances in which breaking one's lease is condoned by the Ontario Landlord and Tenant Board:
- The Board issues an order ending the tenancy agreement early because the landlord has not met their obligations under the Act,
- The landlord allows the tenant to assign the rental unit to someone else.
- The landlord agrees.
For example, if a landlord refuses a tenant’s request to break her lease that same tenant could request an assignment. By assigning a lease, a tenant is finding a new tenant to take over their tenancy.
Most landlords are oblivious to the severe consequence of ignoring or denying a tenant’s request for assignment. If a tenant does not hear back from a tenant within seven days of requesting an assignment, that same tenant can file to terminate their lease on the eighth day or thirty days from making such a request.
If tenants know their landlords are going to refuse an assignment, they could strategically file a request for one so that the refusal given would substantiate their right to leave. In cases where the landlord agrees to an assignment, a tenant who signs a qw-month lease is not really bound to that lease, so long as he is willing to find a new tenant for the landlord.
According to the Residential Tenancies Act, landlords are supposed to do everything in their power to mitigate their losses when a tenant breaks his lease. But finding another tenant is no small task. It takes countless hours to advertise a rental property, screen prospective tenants and show it to interested parties.
Though a landlord could pursue an unlawful tenant for damages through small claims court, many landlords choose not to. They prefer to avoid the hassle of going to court and focus instead on finding a better tenant.
Perhaps that is a smarter move. After all, the best way to insure against being a victim of another tenant who breaks their lease is to source out a better one. Good tenants who sign a one-year lease are bound to honour it.
Monday, December 15, 2014
Top tips for evaluating local real estate markets
One of the core tasks for both new and experienced investors is to determine the geographic location(s) they want to invest in.
There’s a host of elements that may make one particular location more suitable than another, but here’s four attributes every investor should consider:
1. What is the economic state of the city? Is the local market growing, stabilizing or declining? As we saw in 2008, no city is immune to a potential downturn. However, some cities may be able to withstand more financial pressure than others. Understanding what economic factors are propping up a particular market is a valuable source of information to help predict future trends.
2. Evaluate the ratio between owned versus rented property. A market that is, or will be, saturated with rental properties will likely experience a fall in rental rates. The more options tenants have to choose from, the less they will be willing to pay. Simply put, the law of supply and demand is always applicable. However, this is not to say an investor should choose a market with very low rental rates because this may signify a relative lack of potential tenants. Finding balance is important.
3. Does the local market contain the type of tenant you want to attract? In most large cities, there will be a mixture of tenant types and housing (i.e. students, families, luxury property, vacation rentals, etc.). Obviously, knowing what type of tenant you want will also help you choose the type of property.
4. It’s all about money! At the end of the day, we’re in this business to increase equity and create cash flow so we achieve our own personal goals. There’s not enough space here to discuss this critical element, but luckily there’s an abundance of information out there on evaluating individual markets and property from a financial perspective. Read as much as you can and surround yourself with trusted advisors. If you don’t know what ROI, NOI and cap rate mean, you’re not ready – yet.
Source: http://www.canadianrealestatemagazine.ca/strategy/top-tips-for-evaluating-local-real-estate-markets-186096.aspx
There’s a host of elements that may make one particular location more suitable than another, but here’s four attributes every investor should consider:
1. What is the economic state of the city? Is the local market growing, stabilizing or declining? As we saw in 2008, no city is immune to a potential downturn. However, some cities may be able to withstand more financial pressure than others. Understanding what economic factors are propping up a particular market is a valuable source of information to help predict future trends.
2. Evaluate the ratio between owned versus rented property. A market that is, or will be, saturated with rental properties will likely experience a fall in rental rates. The more options tenants have to choose from, the less they will be willing to pay. Simply put, the law of supply and demand is always applicable. However, this is not to say an investor should choose a market with very low rental rates because this may signify a relative lack of potential tenants. Finding balance is important.
3. Does the local market contain the type of tenant you want to attract? In most large cities, there will be a mixture of tenant types and housing (i.e. students, families, luxury property, vacation rentals, etc.). Obviously, knowing what type of tenant you want will also help you choose the type of property.
4. It’s all about money! At the end of the day, we’re in this business to increase equity and create cash flow so we achieve our own personal goals. There’s not enough space here to discuss this critical element, but luckily there’s an abundance of information out there on evaluating individual markets and property from a financial perspective. Read as much as you can and surround yourself with trusted advisors. If you don’t know what ROI, NOI and cap rate mean, you’re not ready – yet.
Source: http://www.canadianrealestatemagazine.ca/strategy/top-tips-for-evaluating-local-real-estate-markets-186096.aspx
Wednesday, December 10, 2014
How to break free of ‘Analysis Paralysis’ in property selection
We all wish we could see into the future to determine whether the purchase of a certain property is going to work out or not. It’s a challenge to know whether or not you should take the plunge and buy that property you’ve been debating over.
I know because I've been there! Experience counts and, after you’ve gained the experience and knowledge of what to do, it gets much easier.
But there five simple rules to follow when selecting a property:
1. The first rule I follow in any property selection is: It’s strictly business. Never, under any circumstances, let the romance of being a landlord or house flipper cloud your judgment. A good deal is based purely on the numbers – and they don’t lie. But how do you know if it’s a good deal or if it’s a property that will work?
2. Find out all you can about the area, the house, the local rental rates, approximate carrying costs, legal fees, closing costs, taxes, utilities, etc.
3. Once you’ve learned all you can about your target area, learn how to run the numbers to analyze the property. Do this quickly and, once you have, be confident in your knowledge and pull the trigger. If it’s a worthy property, you are not the only one who is analyzing it.
4. Have a home inspection completed by a reputable home inspector. Ensure you address any defects and add any additional expenses that may be required to your cost analysis. This way, you will limit any unexpected expenses.
5. I find it works very well to make up spreadsheets or checklists and follow them to a ‘T’. This way, nothing is forgotten. Practice this on some sample properties to gain experience. After a while, you will get to know the numbers without even plugging them into your spreadsheet.
You can only analyze a property so much. Be confident and put your new knowledge to use.
Source: http://www.canadianrealestatemagazine.ca/strategy/how-to-break-free-of-analysis-paralysis-in-property-selection-186175.aspx
I know because I've been there! Experience counts and, after you’ve gained the experience and knowledge of what to do, it gets much easier.
But there five simple rules to follow when selecting a property:
1. The first rule I follow in any property selection is: It’s strictly business. Never, under any circumstances, let the romance of being a landlord or house flipper cloud your judgment. A good deal is based purely on the numbers – and they don’t lie. But how do you know if it’s a good deal or if it’s a property that will work?
2. Find out all you can about the area, the house, the local rental rates, approximate carrying costs, legal fees, closing costs, taxes, utilities, etc.
3. Once you’ve learned all you can about your target area, learn how to run the numbers to analyze the property. Do this quickly and, once you have, be confident in your knowledge and pull the trigger. If it’s a worthy property, you are not the only one who is analyzing it.
4. Have a home inspection completed by a reputable home inspector. Ensure you address any defects and add any additional expenses that may be required to your cost analysis. This way, you will limit any unexpected expenses.
5. I find it works very well to make up spreadsheets or checklists and follow them to a ‘T’. This way, nothing is forgotten. Practice this on some sample properties to gain experience. After a while, you will get to know the numbers without even plugging them into your spreadsheet.
You can only analyze a property so much. Be confident and put your new knowledge to use.
Source: http://www.canadianrealestatemagazine.ca/strategy/how-to-break-free-of-analysis-paralysis-in-property-selection-186175.aspx
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