Six steps not to miss when buying an investment property

You’ve read the books. You’ve gone to the seminars. You’ve talked to all your family and friends about it. You have your Realtor, lawyer, accountant, handyman, and property manager ready, and you’ve prepped them well.

Now you’re ready and raring to go – you’re going to buy your FIRST investment property. But before you pull the trigger, make sure you understand the following, and implement them in your project plan to ensure your purchase’s timely and successful completion.

1. Financing pre-approval. First things first: you can’t buy a property if the bank won’t lend you money. Without financing, there’s no point in making that first phone call or viewing that first property. You will waste your time, but more importantly, you will waste your team’s time. Since most of your team works on commission, hitting this roadblock three weeks into the property search will equate to their wasted time after they’ve invested all those hours with you. Guess what happens to your phone call the next time you try to reach out to them.

2. Inspection report review. If your property inspector is good, they will inspect every corner of your property. You are not buying a brand new property, so read every section of that report, itemize all of the defects that you are not prepared to pay for, and use it as a negotiation tool with the seller.

3. Additional financing documentation. After you have removed condition, your lender will require another set (third) of documentation from you in order to give their final approval of the deal. Don’t get angry with your mortgage broker; they’re just doing their jobs when they ask you for a third batch of financial records. Be prepared for it and dig up all the required documents ASAP.

4. Renovation plan/schedule. Since you’re not buying a new property, you’ll need to complete some form of renovations before your unit is rent-ready. Make sure that from the first day you start paying the mortgage, your renovation crew is ready to execute their plan so that you minimize your days without revenue.

5. Delivery of mortgage instructions. Once the conditions are waived and the final mortgage approval is obtained (from your documents in #3), your lawyer will await the final mortgage instructions from the lender. Make sure that you follow up with your lawyer and mortgage broker to confirm receipt of this document. Sometimes, the lenders are too busy and “forget” to deliver the documents to the lawyer until the last minute, which could jeopardize your closing date for the property.

6. Delivery of real estate instructions. Similar to #5, but this time follow-up with your lawyer and Realtor to confirm receipt of the documents on time.

Always treat any investment purchase as a full-scale project. This means having in place a project plan, timeline, team members, and identified risks and issues.

By understanding the details that have the potential to delay your deal, or worse, alienate you from your team, you can be better equipped to complete your project successfully.

Source: http://www.canadianrealestatemagazine.ca/expert-advice/six-steps-not-to-miss-when-buying-an-investment-property-188293.aspx

5 steps to avoid the tenant from hell

Investing in income properties can be an amazing way to generate monthly income and ultimately contribute to a retirement plan. Along the way, however, we all experience multiple challenges – poor tenants being one of them. Some tenants will be obvious bad choices, but others know how to hide their secrets well enough that they often seep through the cracks of selection. So how do we learn to identify these not-so-obvious tenants from hell?

1. Conduct a thorough credit check. Review any credit-related information carefully, not just their score. Look at what outstanding debts they have, whether they make payments on time, and try to determine if they will have any upcoming debts (such as buying a new car). Some questions you simply can’t ask, so you’ll have to use your best logic.

2. Ensure their employment is sufficient to cover rent and additional tenant costs. Their monthly income should more than cover rent and other obligations. Request an employment letter from each tenant that states their employment status (e.g. full-time, part-time, contract, start date, annual salary). Have the employment letter printed on company letterhead and signed by their direct manager. For self-employed individuals, you’ll want proof that that the company exists and see income generated over the last six to 12 months.

3. Conduct a tenant “interview”. This is a good opportunity to learn if you can trust the potential tenants. After all, it’s your home that you’re lending to someone, so trust is an important component. Try to get an idea of their lifestyle – do they enjoy hosting parties, do they present themselves well (indicator of cleanliness), are they handy and capable of general home maintenance, etc? Simply having a non-threatening conversation with the potential tenants can yield a ton of information about them.

4. Follow up on references. More often than not references are never called. If they’ve rented before, ask specifically for past landlord references. Be sure to call and ask all pertinent questions regarding payment frequency, cleanliness, any complaints, etc. If they’ve never rented before then you’ll have to get creative when probing their friends and family.

5. Be wary of certain rental markets. The numbers may support a particular market for investment, but the renter pool may contain an extraordinary amount of tenants from hell. Either be prepared to have potentially longer tenant searches or avoid these types of markets all together. Poor tenants will always equal headaches and the potential for lost cash flow.

Even if you follow all of the above, the odd bad tenant may still get the best of you. In these cases, be sure to have a firm grasp of tenancy legislation so you fully understand your rights as a landlord and their rights as a tenant.

Is it possible to buy a property after a bankruptcy?

There are many reasons why people fail to pay their debts; sometimes it’s because of a serious illness, maybe the death of a loved one, a job loss or divorce. And yet, for others, it simply boils down to a complete lack of fiscal responsibility, as they amass more debt than their income can pay for.

Declaring bankruptcy feels like the end of the world to many people, and understandably so. The event comes with negative social stigmas, feelings of embarrassment and poor self-worth, and it seriously limits your financial opportunities for many years afterwards.

But all is not lost. If purchasing an investment property after bankruptcy is your goal, it’s certainly possible if you manage your financial affairs wisely.

Start by arranging a repayment plan (often called a consumer proposal) with your creditors. This will help to get you back on your feet by arranging a manageable schedule of repayments. If your debts are so large that repayment is not possible, then declaring bankruptcy may be your only option to forgive some or all of the debts you have incurred.

Declaring bankruptcy will, of course, have negatively impact your credit rating, because it remains on your credit file for three to five years. It will also be a permanent part of your life history because, when asked if you have ever been bankrupt, you will be legally obligated to answer “yes”. But when structured properly, bankruptcy gives you a second chance to rebuild your credit, and that means future potential to successfully apply for a new mortgage, by earning steady income and living within your means.

Applying repeatedly for new credit every few months – whether for credit cards, furniture store layaways, car loans or any other type of credit application – can actually count against you because each time a business accesses your credit file it lowers your overall credit score.

A more sensible plan in the years following bankruptcy is to pay all of your bills in full and on time while saving as much money as you can for your future investment – at least 20 per cent. These actions help to develop a positive credit score and the larger your down payment for a new property, the more favourably a financial institution will view your mortgage application.

Remember the fable about the tortoise and the hare? Rebuilding your financial reputation takes time and there is no quick fix. Be thankful for the second chance you have been given; learn from your past financial mistakes and use those lessons to rebuild your financial future.

source: http://www.canadianrealestatemagazine.ca/expert-advice/is-it-possible-to-buy-a-property-after-a-bankruptcy-187760.aspx

How to align investment strategy with mortgage financing

With the recent unexpected reduction in Bank of Canada’s overnight lending rates, we are getting tons of inquiries from investors regarding how the lenders’ rates are impacted and where the best rates for investment properties can be found.

While many lenders are starting to incorporate the Bank of Canada rate reduction into their offerings to consumers (which is great news), I would like to emphasize the importance of looking at rates as secondary to the approval compared to the primary reason why you should get your deal approved with a particular lender.

Let me demonstrate through the story of Megan, one of our successful investors, who was looking to refinance one of her properties to purchase another investment. A few years back, she went straight to her bank and locked into the lowest five-year fixed mortgage product available on the market. Unfortunately, blinded by the low rate, she did not pay much attention to the fine print that indicated the mortgage was completely closed for the full-term and that it could not be refinanced. Megan’s only options for equity was to find a lender that would approve her for a secured line of credit – in second position – or obtain private funding.

While mortgage rates are a very important variable in the financing formula, they should be secondary to obtaining the right mortgage product that aligns to your investment strategy. For example:

1. Rent-to-own

As a rent-to-own investor, you need to focus more on matching the mortgage term to the lease option term and/or going with a variable-rate option. This way, you avoid any hefty penalties that may arise at the time of sale to the tenant-buyer, perhaps from breaking a mortgage term before its maturity.
 

2. Renovate and flip

If you plan to renovate run-down properties and flip them over a short-time period for profit it is important to keep your options open to avoid any large mortgage penalties at the time of sale. Going with an open mortgage for this particular strategy works best.
 

3. Renovate and refinance

This strategy is similar to #2 but you would be looking to refinance the property – a few months after the renovations are complete – to re-invest again, while renting the current property. With this strategy, you need to focus on keeping your options opened in anticipation of a refinance (ie. going with an open-rate mortgage, variable rate or a line of credit, or going with a short-term fixed mortgage of one year or less).
 

4. Buy and hold

An ideal product for investors who purchase under this strategy is a re-advanceable mortgage product because this product allows the investor to tap into equity in a very efficient manner without having to go through the hassles of approvals and appraisals. As investors pay down the principal on the mortgage, they get access to any paid-down principal in the form of a secured line of credit.

Simply put, investors should follow these steps:

1. Determine your investment strategy.
2. Decide which product suits that strategy.
3. Work with the lenders where your deal will get approved (given your credit, finances and property characteristics) and where the desired product is offered.
4. Then, negotiate the best rate with that lender.
5. Remember to always “Begin with the End in Mind", as advised by Stephen Covey in The 7 Habits of Highly Effective People.

Source: http://www.canadianrealestatemagazine.ca/strategy/how-to-align-investment-strategy-with-mortgage-financing-187534.aspx