First Rental Property

In Part One and Part Two of The Evolution of the Real Estate Investor we looked at the first four stages that a real estate investor goes through as they ‘evolve’ as investors.

Stage One through Stage Four are generally forward moving stages, in which the real estate investor continues to progress, and moves closer to the their eventual goal of purchasing a rental property.

Before we move onto Stage Five, there is still a little bit more to cover on Stage Four, so that is where we will begin:

Stage Four – Continued

You begin to research real estate

It is noteworthy to mention that financial analysis also occurs during this stage. The level of financial analysis between real estate investors will vary quite substantially here, based on the fact that the investor in not sophisticated with real estate investment at this point. The financial analysis consists of crunching number, in order to determine how the real estate investor will end up purchasing their rental property. If the real estate investor has knowledge as to what amount of down payment is required, they will start to figure out from what sources they will draw these funds from. The sources that they consider, could be personal savings, a line of credit, borrowed funds from a family or friend, or perhaps the funds would be coming from a joint venture partner.

In this stage, the real estate investor will also calculate what numeric value their down payment will be. For example, if they are looking at purchasing a rental property for $100,000, their required down payment may be 20% of the value of the home. If this is the case, the real estate investor will know that they will have to come up with $20,000 as their down payment. The figure $20,000 is obtained by multiplying $100,000 by 20%.

In this stage the real estate investor begins to form relationships with either mortgage brokers or their local banks. This is being done because, the investor knows that they will have to call upon these individuals in order to get financing set up for their rental property in the not too distant future.

Stage Five

Fear Strikes

Fear is ugly. I hate fear because fear kills dreams.

Fear is a thorn in the side of a real estate investor. In this stage all of the confidence and forward momentum that the real estate investor built up during the first four stages is eliminated.

This is a point where the real estate investor begins to doubt their plans. They begin to doubt that real estate is a wise investment to make. Fear causes the real estate investor to see all of the negative sides of real estate investment. It now becomes very difficult for the investor to see any of the benefits that they were once very excited about. It is at this stage where a lot of the negative feedback from people significantly affects the investor. For example, the investor may have some friends that think that investing in real estate is a bad idea. They may think that it is a bad idea because their uncles’, neighbour’s, sister’s, friend, once invested in real estate and had a bad experience. This negativity affects the morale of the real estate investor. They quickly find themselves in a downward spiral, with depleted confidence, and uncontrollable fear.

Stage Six

Digging Deep

In my opinion, this is the most mysterious stage. This is the stage where the real estate investor is able to overcome all the negativity produced by Fear. They are fully able to overcome their fear and move onto the next stage.

However, let’s make one thing clear. There are many individuals who are never able to defeat their fears in stage five. As a result, their fear continues to consume them and they never end up investing in real estate. All successful real estate investors were able at some point overcome their fears by digging deep.

You might be asking, what does digging deep mean? Below is an explanation as to what I believe it means.

A real estate investor goes from being paralyzed by fear and inaction to overcoming their fears and regaining their confidence. I have observed that three are a number of different variables that can contribute to the regained confidence on the part of the real estate investor.

One of the ways in which a real estate investor is able to set aside these fears and move forward towards their goals is by:

1) Staying positive

A positive outlook kills fear. It takes a concerted effort to remain positive. However, those that are positive, and make a strong effort to remain positive are always able to overcome their fears and move forward.

Another way that a real estate investor is able to overcome their fears is by:

2) Surrounding themselves with like minded people

Like-minded people provide encouragement to one another, they also all push one another toward achieving their goals.

A third way in which real estate investors over come their fears is by:

3) Having a supportive family

This does not apply in all cases. However, I have seen very successful family partnerships of real estate investors. Also, in some cases, because family values are the same among family members, it is easy to collectively move forward in investing in real estate as a family. Throughout the journey, these family members can lean on one another for support during the tough times, or in order to stay motivated. All of my personal success is a direct result of my supportive family.

A fourth way in which real estate investors over come their fear is by:

4) Having the X-Factor

There are some cases where real estate investors are easily able to overcome their fears. In addition, there are other cases, where fear never enters the mind of the investor. I call this the x-factor, some people have it, and most people don’t. The x-factor really means that a real estate investor is indifferent to fear. Fear does not affect them. Or at least, they do not let fear affect them in the same way as it might affect other people.

In summary, it is in this stage where the real estate investor is able to dig deep and overcome all of their fears.

Stage Seven

You Buy Real Estate

All your efforts pay off in this stage as you purchase your first rental property. A real estate investor experiences a big adrenaline rush in this stage. Also, there is a great sense of accomplishment felt during this stage. Often times, months, or even years of research and anticipation have led up to this stage and this purchase. Although a fantastic accomplishment that should not be overlooked, this however is only the beginning of a real estate investor’s life. This stage often feels like the end of the journey. However, as all veterans’ real estate investors will tell you, this is only the beginning!

The journey continues.

Real Estate Investors are continually gaining more experience in the world of real estate investment. That is of course if they are the type of real estate investor who chooses to take continuous action.

Part One of The Evolution of a Real Estate Investor discussed the first 2 stages that a real estate investor experiences.

The first stage that occurs results in the real estate investor feeling that real estate does not exist. In this stage, the investor is definitely not an investor at all at this point. They have no interest in real estate and see no benefit in investing in a rental property.

As the investor moves into the second stage, this is where they find that something happens with real estate. In this stage, something significant happens in the real estate investor’s life with respect to real estate. As a result, they take notice of this occurrence.

We will now take a look at the third and fourth stages in the evolution of a real estate investor.

The Third Stage

You become interested in real estate

It is noteworthy to mention that there is a big difference between the second stage and the third stage. In the second stage – something happens with real estate, an investor’s interest in real estate has not yet developed. It is only in the third stage where a true interest in real estate begins to form. This stage is one of the most exciting stages. It is an exiting stage because the individual begins to see real estate in an entirely different light. What was once uninteresting houses or buildings, now becomes assets that cash flow. Once the individual’s interest develops, they will no longer view real estate the same as they did in the past. In this stage, you as the individual become very excited about the specific aspects of real estate that interests you. In my particular case, I became very interested and fascinated by all of the new development that was occurring in my town. I developed an extreme interest in the construction of new homes and subdivisions which I am still very interested in even today. As this interest develops, you may spend more time speaking to friends, family, or acquaintances about their experiences with real estate. At this point, you will really talk to anyone about real estate that is willing to have a conversation with you. You may be out in a public place such as a restaurant, and if someone 15 tables down from yours, sitting in the corner of the restaurant is having a conversation about real estate, you hone into this conversation, and can hear every word of it. This happens to me all the time when I am out and about. If people are having a conversation about real estate, I often, always listen very carefully.

The Fourth Stage

You begin to research real estate

Once again, there is a big difference if you compare this fourth stage to the previous third stage. In the third stage, your excitement level is high, and you are so thrilled about real estate that you just can’t contain your emotions. This is where stage three ends.

Stage Four is where you take things to the next level, and begin to make some serious progress towards your eventual purchase of a rental property. This is the stage where all of your research begins. This is a significant stage, because to this point, the real estate investor has never done this type of analysis before. Remember, the real estate investor has previously been at a point where they had felt that real estate did not exist. They were indifferent to real estate as an investment. Then they got to a stage where something happened with real estate that resulted in them becoming very excited and interested in it.

The research stage can vary dramatically for different real estate investors. It tends to vary due to the different and often limited resources that the real estate investor might have at their disposal at this stage of their evolutionary process.

In my case, my research was very basic, now that I take a look back upon it. For about a year, I spent time visiting the new development sites in my town. I would go into the sales offices at times, pick up floor plans for the homes as well as the price lists. I think I probably visited every new homes development in my town over the course of a year. There were a lot at that time. If I were guess, there were probably about 10 of these sales offices. I am sure that I visited some 2 or 3 times.

I would spend a lot of time also driving around in the new development sites and look at the new homes that had been constructed.

Some might consider these actions to be a waste of time. I would not disagree with those people. Waste of time, or not, the actions that I took were essential. They were essential because it allowed me to become more comfortable, it allowed me to learn more about new homes, and it gave me the confidence to move forward and take action when the time was right.

The journey that a real estate investor goes through as they evolve is filled with both excitement and disappointment. Through the experience that you gain, you become a different person. I believe that your perspective changes on the topics of money, business, and risk, to name just a few. My perspective on life has definitely changed when I look back upon my experience as a real estate investor.

The question can be asked: What is the biggest change that takes place with an individual? It is tough to say, as I believe this change differs with each and every individual. I have seen people change for the better and for the worse as they have ‘evolved’. I have seen some people’s egos inflate, and at the same time I have witnessed people become more humble and grounded as they continued to obtain more experience as a real estate investor.

In this article I am going to outline some of the significant stages that I believe a real estate investor goes through. I have gone thorough all of these stages myself.

The First Stage

Real Estate Does Not Exist

I believe that all real estate investors start off at this point. No matter what an individual’s life experiences are, there is a point in time in a real estate investor’s life in which they are not interested in real estate and frankly; they do not know that real estate exists. When I say that, ‘they do not know what real estate exists’, I mean that they are oblivious to it. Of course they know that houses, apartment buildings, and shopping malls are physical structures, however, they are indifferent to these structures, and they do not see these structures as assets, nor is there any appeal whatsoever.

If a person grows up in a family of real estate investors, then obviously they are exposed to real estate investment at an early age. Often people who grow up in a real estate investment family become investors themselves. However, when they are young, there is a time in which they do not know what real estate is.

The minority of the population are real estate investors. As such, most people grow up not knowing anything about real estate, or the benefits of owning real estate investments. These people grow up and are socialized in a certain way. Perhaps they are conditioned to believe that going to college or university is the appropriate and responsible thing to do. As a result, they grow up, go to school, graduate from college or university, and end up getting a job in their field of interest. There is absolutely nothing wrong with this, as this is the normal course of life for a lot of people.

Alternatively, perhaps an individual is taught from a young age that going to school and then studying a trade is the right way to go. So they do exactly that. A very good living can be made by working in the trades, so there is nothing wrong at all with this course of action either.

Real Estate Investors can have any educational background at all. In fact, real estate investors can have absolutely no academic educational background and still be very successful as an investor. There is however a common characteristic that I have noticed with these stage one investors. This common characteristic is motivation. These people who are in the first stage want to achieve more in life than what they are currently achieving. They have motivation, and they want to move forward in life.

The Second Stage

Something happens with real estate

As a real estate investor evolves, in the second stage, something happens with real estate. There can be a variety of occurrences that happen to the investor here. I will share with you what happened with real estate in my life.

I was in stage one probably for the first 23 years of my life. During these years, I did not know that real estate existed. I did not even consider the benefits of owning real estate as an investment. I went to school, did very well through high school, and off to University I went. I graduated from University with a Psychology degree started working for one of Canada’s largest banks. It wasn’t until something happened with real estate that got my attention. Here is what happened:

About 7 years ago a long time family friend that lived close by to us put a down payment on a townhouse located in our town. They had plans of downsizing by selling their much larger house. The townhouse that they bought was brand new and it was yet to be constructed. Over the next year, as the townhouse was being constructed, they continued to live in their existing house. This all was happening as the real estate market was booming. As a result, the value of the townhouse that they had put a down payment on was continuing to climb month after month. The townhouse was located in a new area of town, where there were a lot of young families moving and a lot of new homes being constructed. After the year was up, they sold their existing larger home, and moved into the townhouse. They spent 2 years in the townhouse and then sold it and moved to St. Lucia where they bought another house.

Sitting on the sidelines, I watched this all happen before me, and I saw that they made $120,000 in 3 years. They bought the townhouse initially for $200,000 and ended up selling it for $320,000 after 3 years. Not taking into account any realtor, legal, or admin fees, their gross profit was $120,000 in 3 years. Not bad at all! Like I said, I sat on the sidelines and watched this happen. Clearly, something interesting was happening, and I was taking note of it.

The Evolution of a Real Estate Investor – Part Two
The Evolution of a Real Estate Investor – Part Three

Personalized hand written notes are an effective sales tool that are utilized by business owners in order to create rapport with their customers.

Businesses that have a good understand of effective relationship management techniques will effectively use these notes in order to win over their customers.

Have you ever bought something or received service from a business, and then subsequently received a personalized thank you card in the mail? Was the card hand written? I am willing to bet that it was. If this card was handwritten, it was not by accident. The business owner does this intentionally in order to foster a stronger relationship with you. Their intention is that you become a satisfied customer, willing to refer other people to their business, or that you become a loyal customer, that will come back and buy their product or service.

Here is an example of this relationship management technique in effect. I once took my car in to my car dealership in order to get some scheduled maintenance. There was nothing special about my scheduled appointment in terms of customer service. The dealership completed the required maintenance, I paid, and then I left. About a week after my maintenance appointment, I received a letter in the mail from the Service Manager thanking me for my business. I thought that this was a noteworthy gesture, and I made a mental note of it. When it was time for my next maintenance appointment, I ended up taking my car back to the dealership for the required maintenance. I could have taken my car to another service dealership that was a bit cheaper, however, I decided that I would take my car back to my original dealership.

Perhaps their personalized hand written note worked, and resulted me in becoming a loyal, repeat customer. I don’t think there is a measurable way of knowing what effect that hand written note had on me or any other of their customers for that matter. For whatever it’s worth, I am still taking my car to that dealership for maintenance, despite it being a little bit more expensive than other service locations.

Hand written notes are used all of the time in the world of real estate investment. They are used for many of the same reasons noted above. As such, I would like to share with you how writing hand written notes as a real estate investor, can positively impact your real estate investing career. For the purpose of this article, we will focus on the benefit of using hand written, personalized cover letters.

There are select, experienced real estate investors who always use personalized, hand written cover letters whenever they are submitting an offer to purchase a rental property.

If you are looking to purchase your first rental property, I strongly recommend that you adopt this strategy. Here are some reasons why you should use this strategy:

1) Very few people use this strategy

When I say, ‘very few people’. I should actual being saying, ‘hardly anyone’. Because hardly anyone uses this strategy when putting in an offer on a rental property, you will, and your offer will stand out from all of the other offers, if there are any. This is a good thing because with increased attention on your offer, chances are that the seller of the property will want to at the very least enter into some sort of negotiation with you.

2) You are adding a personal touch

A personal touch also helps you to stand out from the crowd. In your personalized cover letter that you send to the seller, include things such as who you are and give a little background and some of your experience. If you like the house that you are putting an offer on, comment on some of the features of the house that you like, and why you like them. If you compliment the seller in the personalized cover letter, this can go a long way. People generally like to be complimented, and as such most people who are complimented will take a liking to you, and your offer, despite the fact that they may have never met you before.

3) It opens up a communication channel

In your personalized cover letter to the seller, you can also add any questions that you may have for the seller. For instance, you can ask the seller if they know of any defects in the property. Although, this is a simple question to ask, it can have a very powerful effect. If there are any problems with the house, at this point, because the seller has been asked directly by you, they may be willing to disclose this information.

I have been using personalized, hand written cover letters for 5 years, whenever I have purchased a rental property. Every cover letter that I have used has resulted in opening up a communication channel with the seller. With these channels I was able to obtain information from the seller that probably would not have been disclosed to me otherwise.

I have been practicing selective ignorance for probably about a month now (consciously). I can honestly say that I have noticed quite a dramatic change in my output. I have become more focused on tasks that I have to complete, and I do not become distracted as easily by other things that are going on.

I read about selective ignorance in Timothy Ferriss’ book, The 4 Hour Work Week. Selective ignorance is not a new concept by any means. However, when I read about it in his book, it opened my eyes as to how many successful people I knew were practicing selective ignorance and I was not aware at all that they were doing this.

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Some of these people subconsciously practice this selective ignorance, whereas others intentionally know that they are choosing to be selectively ignorant.

Selective ignorance to me means, having a set of outcomes that you want to achieve. When you are being given information that does not help you achieve these set outcomes, you ignore the information. Further, you only pay attention to the critical information that will help you to achieve your desired outcomes.

For example, I am finding that I am watching much less TV now. I have come to realize that watching TV is a distraction to me, and it takes me away from more productive tasks that I could be doing. As I write this blog post, I can think of at least 3 movies that I would like to watch on DVD. They are in no particular order, Slumdog Millionaire, Stark Trek (2009), and Die Hard. I could easily get up from my computer, and go watch one of these movies. I know that this would not be the right decision, as this would take me away from completing my desired outcome. My desired outcome here is to write a valuable blog post. Anything, or any information that takes me away from doing this right now, is a distraction to me, and I will chose not to pay any attention to this distraction. My focus is on completing this blog post.

Further, I have my cell phone sitting next to my computer right now. If my phone rings or if it notifies me that I have a text message, I will ignore answering it, or reading the text message until after I have completed this blog post. The reason for this is because, answering my phone, or looking at my text message, will result in me being distracted from completing my most important task. My most important task at this point is to successfully complete a valuable blog post.

I have also begun to practice selective ignorance by not reading any newspapers or listening to any news talk radio stations. This may seems a little bit strange, however, the truth is that my focus and productivity is increasing. I am only reading materials that directly contribute to the attainment of some of my goals. For instance, all that I am reading now are books related to real estate and personal development. Because I am contributing content to my blog on a daily basis, it makes that most sense for me to continually read materials related to real estate. I am now only focusing on things that will help me achieve my desired goals.

The reason that I have stopped listening to talk radio stations is that, I have no use for the negative news stories that the media reports on. I find this information repetitive and very unproductive for me. It is a waste of my time to listen to it, so I have stopped listening to these types of radio stations all together.

You can practice selective ignorance as well. By doing this, you will be effected in a positive manner.

Here is how practicing selective ignorance can help you:

If you are looking to purchase your first rental property, practicing selective ignorance will be very important for you. You are going to have to ignore, and block out those people who are negative and who will try to discourage you from investing in real estate. We have come to know these people as the ‘unqualified’ people. They will try to give you their opinion as to why investing in real estate may be a bad idea. In order for you to succeed, and to move forward in life, you have to ignore these people. Here is a step-by-step process, as to how to ignore these people. If someone gives you advice on real estate investing, good or bad, first ask yourself, is this person ‘qualified’. In order to determine if they are qualified, ask them if they own any rental properties themselves. If they tell you that they do not own any rental properties, completely ignore everything that they tell you. If it so happens that they do own at least one rental property, take note of what information or advice they are giving you.

If you have chosen a particular geographical area that you want to invest in, you might have to practice selective ignorance here as well. When I first chose one of my cities that I was going to invest in, I knew that I was going to have to block out all of the information that was soon going to be coming to me from other people. Friends and peers who were invested in other towns and cities were contributing this unwanted information. They were telling me why their particular town or city was the best place to invest in, and they were listing all of the reasons why. Again, I had to block out all of this information because, at this point, it was not going to do me any good. I had made up my mind with regards to what city I was going to invest in, and I had come to this decision based upon all of my research and due diligence. I knew that it was a great city to invest in, and I knew that I had to stick to my decision and not change my mind. I knew that if I did end up changing my mind, I would be in a worse position. As such, I chose to practice selective ignorance, I blocked out what everyone else was telling me, and I worked with the assumption that the city I had chosen was the best one. You have to do the same thing here. Once you have completed all of your due diligence on a city or a town, and you know that you are going to be investing there, due to the strong economic fundamentals of the area, you have to stop listening to what everyone else is telling you about other investment towns and cities. If you kept on listening to people and their other suggestions with respect to where to invest, you may never make up your mind.

The biggest obstacle that I have seen hold so many people back from achieving what they want in life is Fear.

Fear has been hindering people’s desires for countless years. The nasty role it plays in destroying people’s dreams has been written about in countless books.

One of the most popular of these books is Think and Grow Rich by Napoleon Hill.

It has been my observation that an individual can defeat fear. It takes concentrated effort, and a high degree of awareness, however, it can be done.

Often times, fear holds people back from investing in real estate. I see people who are interested in investing in property, clearly understand the benefits of such an action, however, they get consumed with fear and they end up never taking any action.

This is important to note, as fear at some point will rear it’s ugly head and try to destroy your plans, no matter what they may be.

For those of you that are looking to purchase your first rental property, I have some advice as to how you can overcome the fear that you may be experiencing.

1) Identify what specifically you are afraid of

By doing this, it helps us to further understand how we can overcome our fear. You can identify your fear by simply sitting down and writing out a list of all of the things that you are not afraid of with respect to buying a rental property, and you can also write down all of the things that you are afraid of. Take a piece of paper and draw a vertical line down the middle of the page. On the left side list all of the things that you are not afraid of, and on the right side, list all of the things that you are afraid of. This essentially will be your pros and cons list of investing in real estate. Once you have identified your fears, you can take action to start overcoming them. Fear is often overcome by taking baby steps.

2) Take baby steps to overcome your fear

For example, your biggest fear about purchasing your first rental property may be that you are afraid that you will not be able to find tenants for your property, and that your property will sit vacant. Since you fear that your property will be vacant, you are afraid that you will have to pay the mortgage out of your own personal funds on this rental property, and the thought of this scares you.

This is a legitimate fear that a lot of new investors have. Here is how you combat this fear. You have to take small baby steps in order to overcome this. First, reach out and start making contact with other people that own rental properties. Ask them how they have found their tenants in the past. Ask them what challenges and problems they may have experienced in finding these tenants. Pick up tips and advice from these people as to what has worked for them in the past, and also what has not worked for them very well. Ask them what they did when their rental property was vacant, and the steps that they took in order to find another tenant.

Start to network and establish contact with Property Managers in your investment area. Ask these property managers the process that they take when they are trying to find tenants for a rental property. Also, when the tenants decide that they are going to move out of a rental property, also ask them what proactive steps they take in order to ensure that the rental property is rented out again quickly, and so that it is not vacant for a long period of time.

3) Stay in motion

It is one thing to take baby steps. However, it is equally important to make sure that you keep on ‘stepping’. By this, I mean, make sure that you are continually taking action to defeat your fear. Fear has a tendency of creeping up on us when we least expect it. Even if we have already taken some steps to help subdue our fears, if we stop taking these steps, such as the ‘baby steps’ talked about in the previous point, the fear can come back and fully consume us. I compare this to walking up a downwards moving escalator. Have you ever seen someone trying to walk or run up a downwards-moving escalator? I have seen this sometime in malls, and airports. In this example, the downwards-moving escalator represents our fear. We as individuals have to do our best to run up the escalator, and not stop running. When we reach the top of the escalator, we have defeated our fears. If we stop moving, and stand still, the escalator will take us all the way to the bottom. If we stop moving, we are letting our fears get the better of us. As such, our fear will consume us at this point. The long story short is that we have to always stay in motion. Never stop running up the fear escalator!

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3) Keep positive

While you are trying to combat your fear, only associate yourself with people that are encouraging you. Eliminate those people from your life that bring negativity. You do not need to be surrounded by people that will make you doubt yourself. Surround yourself with people that are going to support you, encourage you, and help you defeat your fear.

4) Repeat

Once you have overcome your fear, you have to take note of all the things that you did to achieve this. This is a noteworthy accomplishment so do not discount your achievement here. This however is not the end of your journey; rather it is only just the beginning. Fear never fully goes away, and it always seems to creep back into people’s lives. So if you know what you have done in the past to overcome certain fears, take note of that. Once the fear sneaks back into your life, repeat the steps that you initially took in order to overcome this fear again.

More often than not, when the calendar year is coming to a close, we think ahead to the next year, and all of the goals that we want to achieve during the following year.

Why not take some time between Christmas and New Years day to establish some goals to achieve before the end of the current year?

This essentially will give you 7 days, December 25th through December 31st, in order to set some goals and take action on achieving these goals.

If you are looking to purchase your first rental property, there are a few key goals that you can establish and achieve before years end. Here they are:

1) Determine what area you are going to invest in

If you have already started your research as to what geographical areas you want to invest in, now is the time to make up your mind. Pick an area that has strong economic fundamentals and stick to that area. Don’t flip flop with your decision. When I was first determining what geographical area I was going to invest in, I did a lot of flip-flopping myself. I had about 3 different cities that I was looking at where I wanted to buy a rental property. One day, I finally made up my mind, and stuck to my decision. This is important to do. Make up your mind and stick to that area if it a strong city or town with solid economic fundamentals.

2) Determine where you are going to obtain your financing

For the financing on your rental property, you are either going to get your mortgage from a bank or through a mortgage broker. If you are opting to go through a bank, pick the particular bank that you are going to deal with, identify what branch or location you will visit. Furthermore, if you can establish who at your branch location will be taking your mortgage application, even better. Once all of this is determined, you have a definite plan of attack and you know what your next steps are.
If you are using a mortgage broker for your financing, finally pick which mortgage broker you are going to use, if you have not done so already. If you do not know a mortgage broker, talk to a friend or family member that may know one. Here, I highly recommend that you use a mortgage broker who is knowledgeable in working with real estate investors. Not all mortgage brokers are created equally, as some are much more knowledgeable than others.

3) Determine where your down payment is going to come from

Know for certain where your down payment is coming from for your rental property purchase. If your down payment is coming from a Line of Credit, great. If you are speaking to potential joint venture partners over the holiday season, and you know that they are going to be the money partner who are going to provide the funds, excellent. If you are using your own personal savings, good for you. The point here is to have this planed and mapped out. You have to be crystal clear as to where the funds for your down payment are coming from. When you are crystal clear, you have a clear action plan and can move forward to achieving your goal.

4) Determine how you are going to find a rental property

If you do not have an existing relationship with a Realtor, now is the time to forge one. Since many people and Realtors are off on vacation between Christmas and New Years, perhaps you won’t be able to get in touch with some Realtors. This is okay, as you just need to have a clear sense of which Realtor you are going to work with to find a rental property. If need be, contact them when they are back from vacation. However, also note that a lot of realtors do not take vacation during the final week of the year. Now could be a very good time to contact them. If you do not know any realtors who are experienced in working with investors, you can ask family or friends if they know any that they would recommend. If this doesn’t work, I recommend the following strategy. You can call the Broker of Record or the Broker Owner of a real estate company, and have them refer you a realtor who has experience working with real estate investors. To get in touch with these Brokers, you simply just need to call into the real estate company that you are dealing with, and ask to speak to the these specific Brokers. This is a good strategy that I have used before. The Broker Owner or the Broker of Record should have a vested interest in referring you the appropriate Realtor. This is because if the Realtor that is referred to you eventually succeeds in finding you a rental property that you purchase, the real estate company, namely the Broker Owner and Broker of Record win as well.

5) Establish a time frame for your purchase

This last point is an important one. Establish when you are going to purchase the rental property. Be as specific as you can. The more specific you are, the more likely you are to follow through with this goal. For instance, you can tell yourself that you will be putting in an offer on the rental property on January 15th of the following year. This goal setting of determining an actual purchase date is a very powerful practice. Using this method can actually force you into taking action.

I live in Toronto, Ontario, Canada.

Christmas time in Toronto is one of the most exciting times of the year. It is a really exciting time because; people are generally so happy and thoughtful.

People that live in Toronto; have come to live here from all over the world. People here have different cultural and religious beliefs as well as differing values. Despite this Christmas time seems to be an occasion where people put aside their differences, and act harmoniously towards one another.

The tradition of Christmas would not be complete without a wish list to Santa. So here it is. The top 5 things we should ask Santa for.

1) Health

Your family and friends are the most important people in your life. We all should wish for good Health for our loved ones, because without good health, other goals become hard to achieve. Ask for good health from Santa for your family and friends.

2) Happiness

I find negative people hilarious. Seriously. I cannot stand negative people. I think this is because I am such a positive person (thanks to the teachings of my family). Being a negative person will suck the energy right out of you. Negativity does no good for you. This mindset keeps you always thinking that the glass is half empty. Negative people tend to hang out with one another. If you are negative, and you know this, make the change and become a positive person. This is easy to do. You simply just have to start hanging out with positive people. The positive nature of these people will rub off on you, and in no time you too will become a positive person. Positive people are generally happy people. Whether you are a negative person or a positive person, put on your wish list for Santa continued ‘happiness’. As a happy person, you will always look on the bright side of things. Your world will completely change, and you will see the goodness everywhere.

3) World Peace

For many of you reading this, I don’t need to tell you how much conflict exists. In our world we have ongoing wars, with so many casualties occurring on a daily basis. In the end, what are we gaining from this unrest? I look forward to the day where there is peace on earth. Who knows when this day will come? However, each and every one of us can start small and do our own part. Promote peace and harmony. Avoid confrontations and conflict. If we all do our small part, that is all it takes. Santa, please give us world peace.

4) No more Poverty

This wish goes hand in hand with the wish for World Peace. When will the day come when we live in a world where there is no more poverty? Again, I believe there is a simple solution to this. The solution can be found in examining the 80/20 principle. The followers of the 80/20 principle believe that 80% of the world’s money and wealth exists with only 20% of the world’s population. If this is the case, then we need to ensure that there is an equal distribution of money and wealth throughout the world. We cannot have such large imbalances. Those with more wealth can make a difference to those less fortunate by donating money to a worthwhile charity. Ideally, these charities should be focused on helping the world’s poor and less fortunate. Santa, please eradicate all poverty in the world.

5) A robust real estate portfolio

This list would not be complete, without this final wish. Pay close attention to where this wish ranks on the list. I put this wish at the bottom of the list for a reason, because it is the least important wish. In life we have to have perspective. Material things, such as rental properties are not important if we look at the big picture. The things that are very much important are our family and friends and their health. Our individual happiness, and the happiness of others around us is important. A peaceful world, void of all conflict, fighting and killing is important. Finally, a world with no pain, suffering and poverty is important. Having all of these things would make the world a great place.

This is noteworthy as many people tend to chase material things, with no real sense of why they are doing it. Materialism becomes to them the most important thing in life. This tends to be a cultural phenomenon as material things are perceived to be more important in certain countries. Over the years, I have noticed that many people living in North America are very fixated on materials objects. I have seen this to the point where in some communities in certain cities, neighbours living on the same street are competing with one another, as to who has the nicest house, and the nicest cars parked in their driveway. On the flip side, in many other countries, materials things are not important, and people have no desire to acquire too many material objects.

Having said all of this, it is still good to have goals. Especially when it comes to investment real estate. Investment real estate, namely rental properties, can generate cash flow and wealth for an investor. A very noble thing to do would be to donate some of that cash flow and wealth generated by your rental property to those that are less fortunate. I know of senior real estate investors who have donated in the hundreds of thousands of dollars to charities that help out less fortunate people. This is very impressive human behaviour, and behaviour that we should all adopt.

In the meantime, ask Santa for the tools and knowledge necessary so that you can buy investment real estate, so that eventually one day, you can give back and donate some of this wealth to the less fortunate, if you don’t do this already.

[youtube]http://www.youtube.com/watch?v=ian6NyXpszw&feature=related[/youtube]

If you are a novice investor, one of the questions that probably is going through your mind is:

“If I buy a rental property, how do I know that I am buying it in a good location?”

If this question is going through your head, this is a good thing.

With investment real estate, there are many great areas to buy a rental property and then there are also very bad areas that you could buy a rental property.

The key thing to know is how to identify which are the good areas, and which are the bad areas.

By spending a little extra time and doing your homework, you can ensure that you are buying a piece of investment real estate in a solid area.

There are many factors to consider when buying. I have highlighted some significant factors that you must take into consideration before you purchase your first rental property.

For starters, you must ask yourself if there are any transportation improvements that are occurring in the city or town that you are looking to invest in. Transportation improvements can consist of things such as a new train station, a new subway station, new highways, or new airports. The construction of new transportation channels in a region is always a positive sign that the local economy will do well in the long run. When the local economy does well, so too will the short to long term appreciation rates of real estate.

If you are noticing transportation improvement in a region, this is a good sign. Begin to study the region further.

Another sign that you potentially are buying a rental property in a good area, is if the area is experiencing population growth. Not only should the area be experiencing population growth, rather the population growth of this area should be outpacing other adjacent areas. If this is the case, we know that there is a demand here. People want to be moving into this area. It is a desirable place to live. People will not want to move into an area that is undesirable. As such, there must be something special about this area. Continue to research it as a potential area to buy a rental property.

A third factor that you should consider when selecting your geographical area is the average income of the people living there. Most importantly, you need to know if the average income of the population is increasing. It is important that you know this information, as people with increasing incomes will generally have more disposable income. Not only will they have disposable income, in addition, homeownership for them potentially is easier due to their above average earning power. It is important to note that not all of these above average income earners will be homeowners. Many of them may very well be renters. As such, if you own a rental property in an area, where people are making above average income, you will be able to market your rental property to an audience of tenants who you know can afford living in your rental property.

Another important factor to examine when you are looking to buy a rental property in a particular area, is to observe and determine if the property is located in a transitional area. Transitional areas are often areas that are a bit rough around the edges, however, they are also areas that are experiencing significant long term change. It is through this change that long term real estate values can be affected positively, and in an upward trend. Not all transitional areas are created equal however. Some transitional areas many be at the very beginning stages of the change, whereas other transitional areas might be much further along the way with respect to all of the changes occurring. As long as you have identified a solid transitional area, with potential upside, this area could serve well as an area to purchase your first rental property.

Another factor, that is very important, that a lot of novice real estate investors forget to consider, is the political leadership of the given area. Whenever you are looking to purchase an investment property in a particular town or city, you must always ask yourself, ‘How is the political leadership in this community?’

This is a tremendously important factor to consider, as strong, forward thinking political leadership can help to increase the value of real estate prices in the long run. A city or town that is very innovative, entrepreneurial, and flexible will attract good things to that particular area. Big companies want to open offices in areas where there is good political leadership. Businesses want to operate in these areas, where they know that business, opportunity, and an entrepreneurial mindset is being rewarded.
Big companies do not want to open up offices in places that are experiencing slow growth, or negative growth. These companies do not want to operate or be associated with policy makers that are not going to work along side with them.
Strong and supportive political leadership in a region has a great effect. These are the areas that you want to be investing in.

If you are considering buying a rental property, and you know the area, but are unsure about the political leadership, call the town or city council and ask to talk to the mayor. Forward thinking, innovative mayors will want to speak with potential investors. They want to talk to you because they want you to invest in their city or town. They want their local economy to do well, and it will do well, if real estate investors like you, inject money into their local economy by buying rental properties.

If the mayor of the city or town is too busy to talk to each potential real estate investor, someone in the mayor’s office will probably put you in touch with the Economic Development Office. This is the office in the city or town, that knows everything, or should know everything about the local economy, the current policies, and the future plans of the region. If you speak to energetic staff at this office that are really passionate about their region, this is a good sign. Note this region down as a good place to potentially invest.

Ideally, you want to see present all of the factors listed above in a particular region before you buy a rental property. There are many areas that have these characteristics, as such are great places to invest. On the flip side, there are many areas that do not have any of these characteristics at all and are consequently terrible places to invest.

No matter what area you chose to buy your first rental property, make sure you do your homework, and exercise the necessary due diligence.

One of the greatest benefits of a low interest rate environment is that the cost of borrowing money is cheaper compared to a high interest rate environment. A low interest rate environment can be an encouraging time for real estate investors. It is often during these times when first time real estate investors take the plunge and purchase their first rental property.

People feel more confident to get into the real estate investing game because payments generally can be lower in a lower interest rate environment. If an individual has a variable rate on a mortgage, this rate is linked to the Central Bank’s prime lending rate. As such, when the prime lending rate is low, or is decreasing, so too is the rate on the variable rate mortgage.

Despite the great benefits, low interest rate environments can also be very dangerous to novice investors. Since people feel confident to buy rental properties in low interest rate environments, they sometimes forget to take into consideration a number of important variables.

For instance, when interest rates start to rise, the investor has to make sure that they are able to financially survive the rise in rates, thus continuing to meet their payment obligations.

There are a number of ways that a real estate investor can exercise due diligence in order to avoid disaster in a rising interest rate environment. Here are some of the ways:

1) Buy for Strong Cash Flow

Whenever a real estate investor purchases an investment property, they must make sure that they have a positive cash flow being generated from the property each month. Therefore, as interest rates rise, and if the investor is in a variable rate mortgage, they should be able to withstand the increased cost of their mortgage payments. In short, the investor should still be generating monthly cash flow from the property, even after interest rates go up. If the investor finds himself or herself in a position in which they are not generating monthly cash flow after interest rates go up, then they are not in a good position. This concept of testing the future cash flow of a rental property, once interest rates rise is referred to as…

2) Stress Testing Your Portfolio

Stress Testing your portfolio is the act of calculating current payments on your rental property today, and determining today’s cash flow. In addition to determining today’s cash flow, the investor would also calculate the cash flow on their property, by using inflated numbers for their interest rate. The inflated numbers used, should represent the figure in which the real estate investor believes interest rates will rise to. By doing this exercise, the investor will be able to easily determine how much they are cash flowing their rental property today, and how much they would be cash flowing the property in an increased interest rate environment. Other than buying for cash flow, this is one of the most important activities a real estate investor can take when running their numbers in order to determine if the rental property is a good buy.

Here is an example of how to stress test your portfolio. Let’s say for instance that you are planning on buying a rental property valued at $100,000. The mortgage that you will have on this property is $75,000. The interest rate for this mortgage is 5%, you are going to make monthly payments of $436.21, and the mortgage is amortized over 25 years. The property taxes on this property equal $100/month and the property insurance is $25/month. The monthly rent that you collect is $1,000/month. If we add up all of our monthly operating expenses for the property ($436.21 + $100 + $25) this equals a total monthly operating expense of $561.21. Therefore, if we take our monthly rent of $1,000 and subtract our monthly operating expenses of $561.21, we get a figure of…$438.79 monthly positive cash flow. This is a good thing, as we are in a strong positive cash flow position.

If we believe through credible sources that interest rates are scheduled to go up over the next few years by 3%, we need to run new numbers. We need to now calculate what our monthly operating expenses would be on the property if the interest rate rose to 8% (5% + 3%). Therefore, the value of our property is still $100,000. The mortgage amount is still $75,000. The interest rate is now 8%, which means that our monthly mortgage payment on the property is $572.42. Our revised figure now for our total monthly operating expenses is ($572.42 + $100 + $25) which equals…$697.42. Therefore if we now take our monthly rental amount of $1,000 and subtract $697.42, this gives us a new figure of… $302.58. Therefore, we now know that if interest rates rise from 5% to 8%, we will still be cash flowing this property monthly. Therefore, we know that this is a good purchase, and if interest rates do in fact rise, we will not find ourselves in a compromising financial position.

3) Have a realistic idea of the future trends of interest rates

Most people live in a state of paranoia. They buy into all the negativity that the media feeds them. One day they might hear on the news that interest rates are anticipated to be on the rise. With this news they become scared of the potential financial consequences that may result. Further, they become so scared, that they take no action and end up doing nothing at all. This happens all the time, and I often witness this on a daily basis. The good news is that there is a solution to this. The solution is to only listen to credible sources. Don’t just listen to the news and advice from uneducated people or questionable sources. As a result, in this particular case, the best people that would have a pulse on the future trends of interest rates would be Economists, top Mortgage Brokers, and Central Banks. These are credible sources. Pay close attention to what these individuals and institutions are saying. Compare and contrast the information from these sources. If you do this, you will be much more educated than the average person regarding the future trends of interest rates.