First Rental Property

Greetings Everyone,

Today I had to  write a biography for myself. I thought that this would be a hard task for me to complete, but I was surprised at how easy it was for me to write.

I have been invited to guest speak at a real estate investment conference on February 23rd 2010, put on by Leslie Quinsay and Rick McKinnon of W & B Academy.

As outlined on the Wealth and Business Academy website:

They are a training and educational company focused on providing their clients with the knowledge and tools they need to create lasting wealth. They provide workshops, seminars, expos, books, home study courses, and other educational products all aimed at promoting financial literacy and wealth creation.

Below I have included the biography that I have provided to the W & B Academy.

I chose to post this on my blog as well, so that you are able to gain a further insight into my background.

Further to this biography, I will also be releasing shortly my Life Story, which I will cover in a series of blog posts.

Here is the biography… And as always, you can enter your e-mail address on the left hand side or click on the orange RSS button at the top right hand corner in order to keep up to date with my blog.

Neil Uttamsingh’s Biography

Neil Uttamsingh grew up in Oakville, Ontario where he attended High School.  He was elected Student Council President two years running and was nominated by his peers as the 1999 graduating class Valedictorian.

Neil Uttamsingh was awarded the degree of Bachelor of Arts in 2003 from The University of Western Ontario where he majored in Psychology. He was voted Freshman of the year in 1999, and his fellow students elected him as the Resident’s Council President in 2000.

Neil spent 3 years working at one of Canada’s Big Five Banks, first as a Personal Banker, and then as The Regional Manager of Donations for the Greater Toronto Area (GTA).  As the Regional Manager of Donations, Neil oversaw the donations made by the charitable giving arm of the bank to various charities located in the GTA.

Neil later on went to become one of the youngest Real Estate agents hired by Re/Max Aboutowne in Oakville, Ontario.  There he specialized in residential re-sale.

Neil currently is employed by another one of Canada’s Big Five Banks, working as a Commercial Account Manager Deposits.  Neil is one of a few key relationship managers for the bank working in a city north of Toronto with the bank’s most profitable commercial clients. Neil manages a portfolio of approximately $70 million dollars.

Neil began his real estate investing career in 2005.  Since his first property purchase in 2005, Neil has raised over $100,000 in joint venture capital.

Not only a successful real estate investor, Neil also blogs extensively at, First Rental Property.com. (www.firstrentalproperty.com)

Neil saw the need for starting this blog, as various people who liked the idea of real estate investing were approaching him with many questions.  Neil noticed that these people were too afraid to invest themselves, and did not know where to begin.

As a result, Neil has geared his blog towards providing people with knowledge and confidence so that they can buy their first rental property.

Neil continues to actively invest in positive cash flow townhouses in Hamilton, Ontario, Canada with joint venture partners.

In my mind, it is very clear to me what people are afraid of when it comes to buying their first rental property.  For the purpose of this article, we are going to focus specifically on the ‘number two’ fear that people have.

…In case you are wondering, the picture of the guy with they eye patch is ‘Number Two’ from the Austin Powers movies!

You also might be wondering, why I am focusing on the ‘number two’ fear and not the ‘number one’ fear?

Further, you might also be thinking…’what the heck is the number one fear?’

Well, to answer those two questions, the reason why I am focusing on the ‘number two’ fear instead of the ‘number one fear’ is because I am going to write an article series on the ‘number one’ fear.

The article series will be similar in format to some of my other articles series, such as, How to buy your first rental property and The Evolution of a Real Estate Investor.

Now to the good stuff…

The ‘number two’ fear that potential real estate investors have when buying their first rental property is:

The fear of repairs and maintenance

• This fear is felt so strongly by some people that it scares them from taking any action.

• The fear that they have paralyzes them, and they never end up buying their first rental property.

• This fear is real, and I myself have experienced it before.

• However, as any experienced real estate investor will tell you, this fear becomes less of a fear as time goes on, and you gain more experience.

The fear tends to lessen as time goes on, if you are constantly building a network of people around you that are able to help you with your repairs and maintenance.

For the most part, most people fear the repairs and maintenance that a property may require because they are not ‘handy’ themselves and they do not know how to carry out things such as repairing an air conditioner unit, fixing a broken door, repairing an electrical outlet, etc.

The secret to helping you get past the ‘repairs and maintenance fear’ is knowing that YOU do not need to know how to fix the stuff yourself.

What you do need to know is who to call when repairs and maintenance are required on your property.   That is why, networking, and building a team of people who can help you in a time of need is crucially important.

Key people to have on this team ‘repairs and maintenance team’ would be people such as:

• painters
• handymen
• contractors
• electricians
• an HVAC specialist

The best way to build this ‘repairs and maintenance team’ is through obtaining referrals from friends or family.  For example, if you know someone who recently used a handyman, and they were happy with their services, note this down.  Take the initiative to reach out to this handyman and build some rapport with them.  Tell them who you are, and the typical things that you might be calling the handyman about in the future.

The next time you need the services of a handyman to take care of some work at your rental property, you will have someone that you will be able to call, who will be able to get the job done for you.

What are some of the other fears that you think hold people back from buying their first rental property?

Feel free to place your comments in the comments section below.

Step Seven is where the rubber hits the road.  A lot of people investing in real estate for the first time feel a lot of anxiety at this step.  If you begin to feel anxiety yourself, rest assured that this is normal.

In this step, you travel to and visit your short list of potential rental properties with your realtor and you put in an offer on a property!

The thought of putting in an offer on a property may make you feel like the picture of the monkey above!

Like I said, feeling anxiety is normal.  If you have followed Step One through Step Six thus far in this article series, you will be in a very strong position when you put in an offer on your first rental property.

After you have viewed the short list of potential rental properties with your realtor, it is up to you to pick one of these properties and put in an offer to purchase.

Since these potential rental properties are nearly identical (property type, geographical location, etc.), it is wise to base your final decision on which property to chose based on which property yields the highest monthly cash flow.

You will be able to know which property will yield the highest monthly cash flow by analyzing the property using the 10% Rule, referred to in step six.

The Holy Trinity of Writing Offers

I heard a saying not too long ago referring to ‘social media’. The saying was that,

‘The Holy Trinity of Social Media is Facebook, Twitter, and Linkedin’

I thought that this was a creative saying, and quite accurate as well.

With regards to offer writing there is also a ‘Holy Trinity’ of conditions that you must abide by.

Holy Trinity Rule #1

The Financing Condition

In your first offer to purchase that you submit, you will be entering in a financing condition into the agreement.

What is The Financing Condition?

• It is a condition built into the purchase and sale agreement that protects the interests of the buyer (you)

• It allows the buyer to arrange financing for the property. The condition is time sensitive, meaning that buyer has X amount of days in order to fulfill this requirement.

• If the buyer is not able to obtain the necessary financing for this property in the required time period, the condition is structured such that, it allows the buyer to walk away from the deal.

• This condition should be included in every single offer to purchase that you make.

Holy Trinity Rule #2

The Home Inspection Condition
As equally importnant as the financing condition is the Home Inspection condition.

• You should never skip getting a home inspection.

• I know some real estate investors who foolishy skipped this step, and it ended up costing them thousands of dollars in repairs.

• You always need to have a qualified home inspector inspect the house before you purchase it.

• Just like the financing condition, you have a set amount of time in order to carry out the inpection.  If for whatever reason, the inspection is not favourable to you, you can walk away from the deal.

• Instruct your realtor when he/she is writing up the offer to purchase to insert the home inspection condition into the offer.

Holy Trinity Rule #3

Lawyer’s Approval Condition
Before you agree to purchase a rental property, you will want your real estate lawyer to review the purchase and sale agreement.

Having your real estate lawyer review the purchase and sale agreement provides a check and balance in the process.

Not all real estate transactions are the same, and not all of them are straight forward, that is why you always want your lawyer to review the deal before you agree to it.  Good real estate lawyers have years of experience working on real estate transactions.  They have worked on many straight forward transactions, and they have seen their fair share of deals end up going sideways and upsidedown…

If there is something unusual in the deal, the real estate lawyer will be the first to notice it, and can advise you accordingly so that you are able to mitigate your risk.

Once you have put in your offer, and all three of the Holy Trinity Conditions have been satisfied…

Guess what?!

You have just purchased your first rental property!

Take some time to click your heels and celebrate!

So now, all of the hard work is done, right?!

Not really.

The easy part is over.  Now the hard work begins…

Stay tuned for Step Eight of How to buy your first rental property…

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Related Articles:

Step One – How to buy your first rental property

Step Two – How to buy your first rental property

Step Three – How to buy your first rental property

Step Four – How to buy your first rental property

Step Five – How to buy your first rental property

Step Six – How to buy your first rental property

In this article, I will explain to you how you can pick the best rental property to purchase.

We have covered a lot of ground thus far in this article series.

In Step One we discussed the importance of determining WHY you are buying a rental property.

In Step Two we talked about financing the property.

In Step Three we changed gears a bit as we talked about how to pick a location that you will invest in.

Step Four examined how you should examine the economic influences of the area you chose to invest in.

As well, our most recently discussed step, Step Five outlined the importance of picking your property type.

In this article we are going to examine how you filter your potential rental properties.

Filtering potential rental properties

Believe it or not, this step is quite easy. At this stage, you will have picked the location that you are investing in, as well you will be focusing on a particular property type.

At this point you should have established a relationship with a local realtor who is knowledgeable about the local market, and who specializes in buying and selling rental properties.

If you have not formed a relationship with this type of realtor yet, this should be your number one priority before you do anything else. You can refer to Step Three in order to see what types of questions you should ask the realtor. These questions should be asked, so that you can determine the realtor’s level of knowledge and comfort in dealing with real estate investors and with rental properties.

There are other methods that you can use to find potential rental properties, however we are not going to get into these methods at this stage.  At this point, my goal is to make this an easy to follow process for you.  Working with a knowledgeable and quality realtor who specializes in rental properties, will help you tremendously, and make this process easy for you.

The 10% Rule

When your realtor is bringing to you properties of interest that match your property type, you must use the 10% rule when examining the property.

What is the 10% Rule?

• The 10% Rule is an incredibly important step that you cannot skip.

• It is a formula that you have to use in order to filter properties.

• If the property passes the 10% rule test, you put this property on your list of ‘properties of interest’.

• If the property fails the 10% rule test, then you want nothing to do with the property. Move onto the next property, and start to analyze that one.

• You must perform the 10% rule test on every single rental property that you review.

The 10% Rule Formula

• You get from your realtor the monthly current rents of the rental property

• You multiply this value by 12

• You take this new value and divide it by the total purchase price of the rental property

• When you calculate this, if you get a number of 10% or greater, you should put this property on your short list.

• If you get a number below 10%, please forget about this property and move on.

The 10% Rule in Action

Here is a practical example of the 10% rule in action.

• I recently purchased a rental property in Hamilton, Ontario, Canada. The rental property was a 3 bedroom townhouse.

• The current rents on the property are $1250/month.

• If I take the value of $1250 and multiply by 12 (months of the year), I get a value of:

$1250 * 12 = $15,000

• I purchased the rental property for $150,000.

• Therefore, I now divide $15,000 by $150,000…

$15,000 / $150,000 = 10%

As you can see, with this example, I obtained a value of 10% after completing the 10% rule. This is a good thing, and these are the types of properties that you want to research further.

Had the rents on this property been only $950/month.

The 10% Rule Test would have looked like this…

$950 * 12 = $11,400

$11,400 / $150,000 = 7.6%

If this was the case, and I obtained a value of 7.6%, I would not have been interested in this property, and I would have moved on to analyze the next property.

At this stage, do not fret too much about understanding the intricacies of the 10% Rule formula.  Just remember that if a property passes the 10% Rule test, it is a good property that you need to further research.

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Greetings Everyone.

We are now on step five of ‘How to buy your first rental property’.  In this article series, we have examined:

Step One:  Determining WHY you are buying a rental property

Step Two: How to figure out your financing for this property

Step Three:  How to pick the location that you will buy in.

Step Four:  The ecomomic influences of your location

In step five, we examine the importance of picking your property type.

What does ‘property type mean’?

The phrase ‘property type’ refers to the ‘type’ of rental property that you will be buying.  Examples of property types can be:

• detached homes
• semi detached homes
• townhouses
• condominiums, and
• multi-family buildings (such as duplexes, triplexes, etc.)

It is important to know what your property type is before you begin looking at potential rental properties to purchase.  This is important for a number of reasons.

Reason Number One

Defining your property type provides you with direction.  Knowing what type of property you are going to buy will make your search more efficient.  It will save you time with your search. If you don’t know what property type you are buying, you will be bouncing all over the place with no focus. One day you might view a potential rental property that is a townhouse, the other day you might view a potential rental property that is a multi-unit building.

Reason Number Two

Since a townhouse and a multi-unit building are different property types, you might possibly have different tenant profiles as well with these property types.  This is an important factor to consider, as it is always wise to know your tenant profile.  It is good to know your tenant profile because it is good to know what you are getting into.  For instance, if your tenant profile consists of people that are ‘rough around the edges’ that don’t pay rent on time, this is crucial to know.  You don’t want to have a rude awakening the first time you have a bounced rent cheque.  This is a risk that you can mitigate by knowing your tenant profile.

Reason Number Three

Also your required down payment for these 2 property types might be very different. Your bank or lender might have different criteria in terms of downp ayment for the purchase of a townhouse versus the purchase of a multi-unit building.  Since the two properties will probably vary dramatically in purchase price, there is no question that a different amount of funds would be required as a down payment.

For example, if you are purchasing a $150,000 townhouse and you are putting 20% down as a down payment, you will need $30,000.

Versus, if you are looking to purchase a $1,500,000 multi unit building with a 20% down payment.  In this case you will need $300,000!

As you can see, there is obviously a big difference between a $30,000 down payment and a $300,000 down payment!

A question for you!

If you are investing in real estate already, what is your favourite property type? Why?

If you are an aspiring real estate investor, what property type do you want to invest in?  Why?

Feel free to place your comments in the comments section.

Step Four – How to buy your first rental property
Step Six – How to buy your first rental property

Ladies and Gentlemen, what a great blog post I have for you to read.  It is not one of my own, rather, it is a post that I read from a fellow real estate blogger.

The blog post appeared on Josh Dorkin’s premier real estate social network, Biggerpockets.com

The author of this article was Shae Bynes of Good Faith Investing.

The article that I am talking about is called, Your Significant Other Hates Real Estate Investing – Now What?

In my books, here are the reasons that made this article so good.

1) It was a list article

A list article is an easy article to read. List articles often have a lot of bold headlines or

• bullet points

Bold headlines and bullet point when incorporated into an article, make the article easy to read, as your eyes tend to focus on the bold headlines
and

• bullet points

As a result, when someone is reading a list article, they are able to easily absorb the information in the article, because it is easy to follow.

2)  It discussed a common problem

Successful real estate blog posts often discuss a problem that people face.  These types of blog posts tend to be very popular as the problem that is discussed is experienced by many people.

3) It provided a solution

Real estate blog posts that discuss a problem are good. However, if there is also a solution provided to the problem, the post is even better. Shae’s article did in fact provide some solutions to the problem that she was discussing.

4) It promoted discussion

Good blog posts because they are well written, result in people leaving comments in the comments section. A blogger knows when they have written a particularly good blog post when there are multiple comments left by their readers.  Shae’s article had a lot of comments from the readers, meaning that her blog post definitely struck a cord with many of the regular readers.

To keep up to date with my blog, you can enter your e-mail address on the left hand side of the blog. Or, you can click the orange RSS button on the top right hand corner of the blog.

In this article we continue to examine the fourth step you MUST take in order to buy your first rental property.

You can review the first half of Part Four here.

After we ask the Property Specific Questions outlined in the first half of Step Four, we now have to examine the economic influences of the location that you have chosen to invest.

Area’s Economic Influences

There are 13 questions that you have to ask yourself about the Economic Fundamentals of your chosen area. The answers to these questions will be ‘yes’ or ‘no’. When answering these questions, pay close attention to how often the answer is ‘yes’. The more ‘yes’ answers you get, the better.

1) Is there an overall increase in demand in the area?

Do people want to move into this area, or are people moving our of this area? A simple question, that you must ask yourself.

2) Are there currently sales over list price in the area?

If there are sales over list price in the area, this is a very good sign that people want to actually live in this area. Not only that, it demonstrates that there is a demand for housing, and people with good incomes are moving into the area, because they are able to afford prices that are over list price.

3) Is there a noted increase in labour and materials cost in the area?

If there is an increase in labour and material cost in the area, this will have a direct impact on the prices of new homes. If the prices of new homes are rising in value, more often than not, the existing housing stock will be influenced upwards as well.

4) Is there a lot of speculative investment in the area?

Speculators often invest in areas where they feel that there is a future. They will never invest their money in a City or Town that is not performing well economically. Speculators try to make their money on huge upswing in markets. As a result, when there is a lot of speculative investment in an area, you know that there is a strong belief that there is going to be an upswing in the market in the not too distant future.

5) Is it an area in transition?

Is the area going from bad to good? In areas of transition, you often see significant increases in housing prices. What was once a decrepit neighbourhood riddled with prostitution and crime, on occasion can become a trendy, up and coming neighourhood full of higher income earners.

6) Is there a major transportation improvement occurring nearby?

Transportation improvements have a significant impact on real estate values. Whenever you have a new highway/freeway built, a new train station, or other form of transportation built, real estate values surrounding the transportation improvement increase. This is because the demand increases for housing in these areas. People want to live close by to major transportation channels. Living close by to transportation channels makes life easier for people, as they can use  these transportation channels to commute to and from work.

7) Is it an area that is going to benefit from the ripple effect?

Throw a stone into a pond and watch the ripples form around where the stone splashed.
If where the stone splashed represents where the transportation improvement occurred, the highest increases in real estate values will occur there.

As the ripples go out in the water, we can see the impact it has as the water is displaced. The ripple effect with real estate occurs in the same way. Housing values increase in a positive manner in surrounding areas, outside of the centre of the transportation improvement. These surrounding areas feel the ‘ripple’.

8 ) Is the property’s area in Real Estate Spring or Summer?

The Four Seasons of Real Estate are:

The Autumn – a time to harvest profits
Winter – a time to plan, study, and research
Spring – a time to buy
Summer – a time to manage.

9) Has the political leadership created a growth atmosphere?

The political leadership can really make or break a City or Town. If the leadership is forward thinking, they will do everything in their power in order to promote growth, and make the area attractive for investment.

10) Is the area’s average income increasing faster than the provincial average? (Canada)

If this is the case, this is a very good thing. This means that people with above average incomes are moving into this area. People with above average incomes are able to afford things, such as houses.

11) Is it an area that is attractive to baby boomers?

Baby Boomers have money to spend. If money is being spent in a local economy. The economy will continue to perform consistently, all things being equal.

12) Is the area growing faster than the provincial average? (Canada)

Again, this is a good thing because it shows that people want to live here. If the area was decreasing in population year over year, this would be a sign that people do not want to live there.

13) Are interest rates at historical lows and/or moving downwards?

Low interest rates can often times promote confidence with consumers. Low interest rates are also helpful for real estate investors looking to purchase more rental properties. With low rates, cash flow on rental properties has potential to be more robust, versus when interest rates are at a higher level.

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Article Reference: Don R. Campbell‘s Property Goldmine Score Card.

How to buy your first rental property – Step Three
How to buy your first rental property – Step Four (Part I)
Step Five – How to buy your first rental property

So far in this article series, we have discussed the first three steps that you must take in order to buy your first rental property.

In Step One, we discussed the importance of determining WHY you are buying your first rental property.

In Step Two, we described on how to finance the rental property.

In Step Three, we talked about methods that you can use in order to determine what location you will invest in.

In step number four, we examine the economic influences of the location that you have chosen to invest in.

This is a crucial step because if the economic fundamentals are not strong in your chosen area, you have picked the wrong area.  If you have picked the wrong area you need to go back to the drawing board, and pick a different area.

Step four is essentially a check and balance in place in order to make sure that you are on the right track, and that you have chosen a location to invest in that has has a future.

I have derived the majority of the information for step four from Don R. Campbell’s Property Goldmine Scorecard.  Don R. Campbell is the President of the Real Estate Investment Network, REIN.  I have used the information contained in the Property Goldmine Scorecard in order to assist me in purchasing rental properties.

Many other successful real estate investors and REIN members have also used the Property Goldmine Scorecard to varying degrees, in order to help them with the purchase of rental properties. REIN members that have a very good working knowledge of the Property Goldmine Scorecard are members such as Wade Graham of Higher Ground Real Estate Investment Inc., and one of the guys I know behind the scenes at The Rentables.com

With step four, we begin our examination of the location that you have chosen by asking property specific questions.

Property Specific Questions

1) Can you change the use of the property?

This is an important question to ask.  If you can change the use of the property, you can potentially increase the income you are generating from the property.  For instance, if you are dealing with a single family home, are you able to easily convert it into a legal duplex?  If that is the case, you may be able to dramatically increase the income potential from this property.

2) Can you buy it substantially below retail market value?

Many real estate investors live by the rule that you can only make money when you buy a property.  They put emphasis on always buying below market value.  Whenever you can buy below market value, definitely do so.  However, buying below market value is not the only way you can make money investing in real estate.

3)  Can you substantially increase current rents?

You would be surprised how many landlords have rental properties, and on their properties they are charging the wrong rental amount. Many landlords are too lazy to increase their rents with their tenants on a yearly basis. As such, a landlord could own a rental property for many years, and never once increase the rents on the property. If this landlord ends up selling their property, and you buy it with the existing tenant still occupying the property, the rent that the tenant is paying will be well below what the market rent should be.  If this is the case, you now have the opportunity to increase the rents substantially.

4) Can you do small renovations to substantially increase the value?

It is amazing how little effort is required in order to dramatically increase the value of a property. To increase the value, you have to focus on all of the right things. Some cost effective things that you can do to increase the value of a rental property would be:

• Freshly paint the property
• Replace worn carpets with a neutral tone carpet or with laminate flooring
• Re-finish old looking kitchen cabinets
• replace outdated appliances with new, slick looking appliances

In the next article of this series, we are going to conclude Step Four.

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Step Four Continued – How to buy your first rental property

The third step that you must take in order to buy your first rental property is to determine the location in which you are going to buy the rental property.

In part one of this series, we talked about determining WHY you are buying your first rental property.

After you have established why you are buying the rental property, you then have to determine how you are going to finance your rental property.  This is the second step you must take.

Determining your location

This is the stage in which you will begin researching potential areas to invest. The first step that you should take in order to find potential investment areas is to start networking.

1) Contact your local Realtors Office

One place you can start your research is by contacting your local Realtors office. The purpose of this activity will be to speak with a Realtor in this office who specializes in buying and selling investment properties. When you find a Realtor in this office who specializes in investment properties, you can ask them the following questions:

• Where are these potential rental properties located? (You want to know if these properties are close by to where you live or further away from where you live.)
• What is the price range of these rental properties? (From Step Two of this article series, you will already know what the maximum amount is of a mortgage that you can afford.)
• You will want to also ask this realtor to give you a description of the tenant profile that lives in these properties.  You want to know at the very beginning what type of tenants you would be potentially dealing with.  You will want to know things such as, are they high income or low income earners?  Are they long term tenants or are they transient?

2) Ask your mortgage broker where he/she is investing

From Step Two of this article series, you will recall that the mortgage broker that you are using should have experience in doing mortgages for rental properties, and should as well be a real estate investor.

As a result, you can gain a lot of insight from your mortgage broker as to potential areas that you can invest in.  When I first started actively investing in real estate, I did a lot of independent research myself.  It wasn’t until I spoke to my mortgage broker in detail about where he was investing that I ended up deciding that I was going to invest in the same area.  I owe a big thank you to my mortgage broker, Kevin Boughen, for helping me determine the area that I ended up investing in.

If your mortgage broker is investing in a location that you do not necessarily want to invest in, there are many other ways in which your mortgage broker can still help you.  Since your mortgage broker will be dealing with many other real estate investors, he/she will be able to share with you stories as to where these other people are buying rental properties.

Taking it even one step further, if your mortgage broker’s other clients are agreeable, you could even contact them yourself, and ask them questions about what location they are investing in, and you can also ask them about some of the challenges and opportunities they have found in their particular location.

3) Join a quality real estate investment network

For the Canadian readers, the best real estate network that you can join, hands down is The Real Estate Investment Network, REIN. This organization is by far the best Canadian Real Estate Network, and arguably the best Real Estate Network in North America. When you are trying to determine that location that you are going to buy your first rental property, you can ask many of the action takers in this group as to where they are investing. Really helpful members of this group that would be happy to help you with any questions would be people like Chris Davies, Danielle Millar, Mark Loeffler, and Carla Johnson.

For the American readers, one of the best online real estate networks that you can join is Josh Dorkin’s Biggerpockets.com. This is a premier real estate social network. There are a multitude of very knowledgeable real estate investors associated with this network. Experts in their own different fields are John Fedro and Steph Davis. John and Steph again are two action takers that would be more than happy to help, if you have any questions.  By associating yourself with a network such as Biggerpockets.com, you will be able to speak with many real estate investors who will help you in determining what location you should be investing in.

In speaking with a specialized Realtor, speaking with your mortgage broker, and by networking with a quality real estate investment network, you should be able to creates a short list of places to invest in, or you should be able to narrow your list down to one particular City or Town in which you want to focus your effort on.

If after going through this exercise you find yourself in a position where you have a long list of potential places to invest in, it is in your best interest to pick one of those locations and stick to it.

Focus is very important.  Thus your ability here to focus on one area and one area alone is the key to getting started.

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Step One – How to buy your first rental property
Step Two – How to buy your first rental property
Step Four – How to buy your first rental property

In this article, I am going to discuss the second step that you must take in order so that you can buy your first rental property.

In the first article of this series I discussed the first step that you need to take in order to buy your first rental property.  As a recap, this first step is determining WHY you are buying.  Once you have firmly established in your mind why you are buying, you are ready to move onto the next step.

Step Two – Figure out how you are going to finance the property

Often times people put the cart before the horse. They think that they can start to look at potential rental properties, and once they have found one that is suitable, they want to buy it. They then try to obtain financing for the property, and often times become disappointed because they are not able to afford it.

People make this same mistake when they are in search of their own principal residence. They go out and find a house that they adore, and then they try to get financing for it. This is not the right process to take.

Before you even start to research any potential rental properties you need to consult with a representative in your bank or with a mortgage broker.

If bad credit is preventing you from buying a property, you need to consider The H.O.P.E. Program.  They have helped more than 12,000 people get homes who NEVER thought they could, assisting even those with POOR credit get qualified.  This is one of the best Rent To Own Programs out there as it gives access to thousands of property listings for Rent To Own homes.  CLICK HERE to enrol in The H.O.P.E. Program or to have your credit repaired.

If you chose to deal with your local bank, the person that you deal with at your bank branch should be the individual who is responsible for doing mortgages. Although your bank branch can get the job done, I am a fan of dealing with mortgage brokers. I like dealing with mortgage brokers because, if you select a good mortgage broker, their level of knowledge will be quite high. As such, they should be able to answer all of your questions.

I also highly recommend that you deal with a mortgage broker who has experience in providing mortgages for real estate investors. In addition, I also highly recommend that the mortgage broker that you are dealing with is a real estate investor, and owns at least one rental property. Not all mortgage brokers are created equally, and as a result, their level of knowledge with providing mortgages on rental properties can vary dramatically.

One of the best mortgage brokers in the business, providing mortgages on rental properties is Kevin Boughen. Kevin is my personal mortgage broker. If you have any questions regarding financing your rental property, or are in need of a mortgage for your rental property, contact Kevin at kboughen@dominionlending.ca

Determining your down payment

This is one of the important points that you will be discussing with your mortgage broker. Clearly, every person’s situation is different. People will have differing amounts of money that they can put down, as well, people will be earning different amounts of income. These variable come into play when your mortgage broker is determining your financing.

A general rule of thumb, that you should confirm with your mortgage broker is that you should be putting as a down payment 20% of the purchase price of the property.

In Canada, putting down 20% of the purchase price of the property, in most cases allows you to avoid paying the Canada and Mortgage Housing Corporation, CMHC premium.

Also, if you have plans on purchasing more than one rental property, putting down 20% of the purchase price of the property is a good strategic move. This move will be to your advantage when down the road you are trying to obtain financing for future properties.

Determining whether you should get a fixed rate or variable rate for your mortgage

There is no right or wrong answer here. This answer depends upon your risk tolerance and what you feel more comfortable with.

In simple terms, with a fixed rate mortgage, the interest rate on the mortgage that you are paying is fixed for a set period of time. As a result, the interest rate on the mortgage does not increase or decrease throughout the duration of the term. An average term that people will have for their mortgage is 5 years. It is important to note that the term is very different from the amortization.

With a variable rate mortgage, the interest rate on the mortgage can rise or fall throughout the duration of the mortgage term. These fluctuations can be unsettling for novice real estate investors. The fluctuations sometimes cause anxiety on the part of the investor, because they do not know what their exact payments are going to be on the mortgage. For example, with a variable rate mortgage, as the interest rate increases so too will the payment on the mortgage amount. This rise in price is often inconsequential if you have done your due diligence and have mitigated any potential risk to you with regards to the increase in price that you will be paying.

Get your pre-approval from your mortgage broker

There are a number of different terms that are used for the pre-approval.  Another interchangeable term is the ‘pre-qualification’.

At the end of the day, whether you call it a pre-approval or pre-qualification, it all means the same thing.

What it means is that you have the go ahead from your mortgage broker to go out and start to look at potential rental properties.

As this point your mortgage broker would have examined many things.  They would have looked at how much of a down payment you are putting down, how much income you earn, what your existing debt is, as well they would have reviewed your previous credit history.  These are all variables that effect the financing of your future rental property.

Once all of these items have been reviewed by your mortgage broker, they will give you a price range in which you should begin looking in.  In most cases, they will give you the potential mortgage amount that you should not exceed.

For example, your mortgage broker may tell you:

“Neil, you can afford a mortgage up to $200,000 on your next rental property”

If this is the case, I know that once I begin my search for a rental property, I cannot purchase a rental property over the $200,000 mark, as I would not be able to afford it.

In summary, once your mortgage broker gives you a pre approval, this is essentially a ‘green light’ for you to go out and begin researching potential rental properties.

Happy Investing!

Neil

PS: The H.O.P.E. Program has helped more than 12,000 people get homes who never thought they would be able to, assisting even those with POOR credit get approved.  This is one of the premier Rent To Own programs as it gives access to thousands of property listings for Rent To Own Homes.  CLICK HERE to enrol in The H.O.P.E. Program or to have your credit repaired.

Related Articles:

Step One – How to buy your first rental property
Step Three – How to buy your first rental property