First Rental Property

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.

[youtube]http://www.youtube.com/watch?v=FxPeRXc4T5A[/youtube]

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!

[youtube]http://www.youtube.com/watch?v=eOZRRui8NHk&feature=related[/youtube]

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.

Almost every real estate market has certain areas that are referred to as transitional areas.

A transitional area can also be referred to as an area of gentrification or an area of revitalization. It is in these areas that the real estate market is experiencing changes. The changes that are being experienced are changes for the better.

Transitional areas often times start off as a depressed area. When I say depressed, I mean that it is an area where properties are not maintained well by the owners, people generally don’t want to move in to that particular area, often there is visible crime, and there isn’t a general sense of pride of ownership demonstrated by the homeowners.

Transitional areas can be certain streets in a city or town, certain subdivisions or even entire neighbourhoods.

An area becomes a transitional area when it starts to experience a change for the better. With this change, there are a number of things that start to happen to the area.

You begin to see people with above average incomes move into this area. These people will purchase a home, spend some money to fix up the home, and they will begin to demonstrate pride of ownership towards their home. This pride of ownership is demonstrated by the care and attention they have put forth in order to make the exterior of their home look nice. During holiday seasons such as Halloween and Christmas, these owners will jb hublot king power around 15mm men 701 nx 0170 rx deployment around 18cm spend time, effort, and money dressing the exterior of their home up with decorations. In the spring and summer, these same owners will tend to their gardens, hang potted plants, and make sure that their yards are generally tidy and attractive looking.

When an area is in transition, there are a few signs that you can look for. First, you will start to see an assortment of well looked after houses, in which these new owners are moving. At the same time, just next door, you may see a run down house, where little care and attention has been put towards the home. For every 2 run down houses you see, you should be able to see one well maintained, attractive looking house. These numbers I give are just an approximation. As long as you are seeing an assortment of nice looking houses, mixed in with run down houses, this is a sign that you are in a transitional area.

Another indicator of a transitional area can be found by observing the type of cars that you see in the neighbourhood. In transitional areas that are experiencing revitalization, you will start to notice higher end cars, such as BMWs, Mercedes, and Audi. You start to notice these cars because people with higher than average incomes are moving into these areas, and generally speaking higher income earners might own higher end cars.

In these transitional areas, you often may notice construction taking place. An indicator of construction would be found when you see dump trucks, construction workers, and any sort of construction equipment. Construction will be taking place in these areas, as sometimes new houses or condo buildings are being built in the area. In addition, you will notice construction taking place on some of the run down houses. This would be a situation where someone has moved in from outside of the area, has an above average income, and is spending the time and money to make their house look nice.

You also might see notices for re-development from the town or city placed on certain properties, or you might see a number of properties fenced off and a re-development sign placed on the fence. When you see this, this simply means that a real estate developer has purchased this particular fenced off section, and the use of that land is going to change. More often than not in a case like this, new homes or condo buildings are being built on this land.

Whenever I am driving through an area that I believe to be a transitional area, there is always one indicator that I look for. If I notice a number of custom built homes, I know that I am in a transitional area. These homes would look very grand, large, and attractive and often out of place, when you compare them to the rest of the homes on the street. When you see several of these homes scattered throughout he streets or neighbourhood, you know that the area is in transition.

A transitional are that I purchased a property in was the Juction Area of Toronto Canada. Below is a map of the Junction.

This was an area that was riddled with crime, drugs, and prostitution. There are still parts of the area that quite rough. However, over the past several years, this area has experienced a lot of change. Many young families and higher income earners are moving into this area. People now want to live here. The pride of ownership is evident, and the sense of community here is strengthening with each passing day. Many new businesses and restaurants have moved into this area, and are continuing to move in each day. I had watched this area experience change over the past few years. As I keep myself educated with respect to the real estate markets, I knew this was an area where there would be tremendous long term potential. I read about the City of Toronto injecting money into this area in order to better it, and I read real estate reports that said that this area of Toronto would outpace other areas of Toronto in terms of property appreciation over the next few years. Finally, I had actually read an article in the New York Times that highlighted the Junction and the revitalization that is was undergoing.

Almost every real estate market has these transitional areas. If you know what signs to look for, you should have no trouble in identifying these areas.

Most real estate investors I know are liars.

The number one thing that real estate investors lie about is their reserve fund for their rental properties.

Here is a really funny clip from the movie, Liar Liar.

[youtube]http://www.youtube.com/watch?v=wBeiKpAGXzc[/youtube]

A reserve fund is money that is allocated for each property that an investor might own. A reserve fund is often kept in a bank account that has been set up for that particular rental property. These funds are very important as they come into play whenever there may be a vacancy with the property or if there are any repairs or maintenance that are required. These funds are very important, because in the event of a vacancy, as a real estate investor, you will be drawing upon these funds in order to pay your operating expenses on your property, such as your mortgage, property taxes, insurance, and any other fees that may apply to your rental property.

As a general rule of thumb, it is always a smart idea to have some money put away in this reserve fund, so in the event of a vacancy, you are in a strong position to make payments, and you do not have to look around for other sources of funds so that you can make these payments.

Opinions differ as to how much money should be set aside in the reserve fund. Some investors that I know say that they keep 2 months of expenses in their reserve fund. I have heard others say that they keep 3 months of expenses. Another investor said that he keeps 6 months. The highest that I have ever heard is that one investor said that he keeps $10,000 in the bank for each rental property that he owns. In my opinion, that is a little crazy.

I have noticed that investors lie about the amounts in their reserve fund in order to impress potential joint venture partners. This dishonesty is wrong and I do not support it. However, when I take a step back and examine why these investors are lying to their potential joint venture partners, I understand the psychology behind it.

The number one thing that I have noticed that novice investors are concerned about with regards to purchasing rental properties is the inherent worry that the property will go vacant. Generally speaking, people with no experience as a real estate investor worry to no end at the prospect of a rental property going vacant. They feel that once the property goes vacant, they will not have the money to pay the mortgage on their rental property, they will end up going bankrupt, lose their rental property to the bank, and then their life will be over.

Experienced real estate investors know that vacant properties are a part of the real estate investment game. The goal and objective of real estate investors should be to minimize the vacancy period as much as possible, through a pro-active approach. Pro-activity can take on many forms. It often involves advertising for an upcoming vacancy through multiple online channels, through print media, and often times through a property management company.

However, let’s come full circle and take a look at why some real estate investors continue to lie about the amount of money they have in their reserve fund. If they are working with a joint venture partner that is new to real estate investing, as stated above, one of the fears that the potential joint venture partner may have is the fear of a potential vacancy. If the real estate investor is able to address the joint venture partners concern about vacancies, he or she may lie to them and give them an over inflated number as to how much money they keep in their reserve funds for their existing properties. By giving the potential joint venture partner a false, inflated number, the real estate investor is hoping that they will come off as being more competent to the potential joint venture partner. As such, they are hoping that the joint venture partner will agree to invest their funds with them.

Again, I think that if a real estate investor lies to a joint venture partner about this, it is wrong. A real estate investor must be transparent and honest with their joint venture partners. It is this transparency and honesty that builds trust. Trust has to be earned.

As I have embarked upon my real estate investing career, I have dealt with vacancies on a number of properties. I have often had to inject my personal funds into the reserve fund account so that I could continue to make payments on my rental property. For example, I recently had a vacancy on a 3 bedroom 2 bathroom townhouse. The vacancy lasted 3 months, however, I only had one month of expenses available in my reserve fund. As such, I had to draw upon my personal funds in order to make the payments for the other 2 months that the townhouse was vacant.

Some real estate investors might say that this makes me a bad investor, as I do not keep a ‘sufficient’ amount of funds in my reserve fund. Am I am bad investor? I don’t think so. If there is one thing that is for certain, I am honest.

Moving forward, I have learned from my experiences that I am always going to make sure that I keep 3 months of expenses in my reserve fund account. That way, when my next vacancy comes, I will not have to move money from my personal accounts in order to cover the vacancy.

When you enter into the world of real estate investing, you must constantly be focused on bettering yourself. The advantages of bettering yourself are numerous. One of these benefits is increased knowledge. You should always have a focus on increasing your knowledge, no matter what your focus is in life. Increased knowledge will definitely lead you to becoming a better real estate investor.

One of the best ways that I have seen as to how a real estate investor can better himself or herself is through what is called a Mastermind group. The idea of the Mastermind group has been around for many years. One of the best, if not the very best definition of a Mastermind group is contained in the book, Think and Grow Rich by Napoleon Hill. If you have not read this book, I highly recommend that you read this book. The principals talked about in this book, if practiced as to how they were intended will literally help you to grow rich. Most if not all of the modern day books written on wealth and how to acquire wealth echo the principals outlined in Think and Grow Rich. Once you read Napoleon Hill’s book, you will be able to notice all of the modern day references to the book Think and Grow Rich. There are numerous references and they show up everywhere in modern day literature!

The first step to becoming a better real estate investor is to establish this Mastermind group. When putting together this group, you do not want the group to be too big or too small. A size of about 6 people is the amount that I would recommend. You want all of these people to be real estate investors. If you do not have any rental properties as of yet, you will want people with experience who have purchased at least one property. This is crucially important. It is important because these people have experience. You will want to be able to ask advice from these other people. For instance, if you are looking to buy your first rental property and cannot decide on a particular geographical area, you can ask your fellow Mastermind members for their opinion. When these people are asked for their advice, they often times will have no problem sharing with you the pros and/or cons of the geographical area that they are invested. In fact, for the most part, people with experience with real estate investing generally have no problem with sharing their experiences or information with you. On the flip side, if your Mastermind group is full of people who do not have any experience in investing, this can be very problematic. It is problematic, as all of the advice that you would receive from these people will be based on theory and observation alone, not on practical experience. Theory and observation means nothing. Practical experience means everything!

One of the best places that you can find people to be on your Mastermind group is from local real estate investment clubs. This is a great place to find your group members as often times like minded people as well as action takers are associated with these groups. I caution you here however. Your Mastermind group will fail terribly if you simply just select people to become members who have no real estate investing experience. This needs to be a powerful group that you assemble. Each member has to have his or her own individual strengths. Each member must be able to bring value to the group. It is the value that each person brings that will make this group effective.

You also have to determine what your individual value is that you bring to the group. Do some introspection and figure out the things that you are naturally good at. Once you have identified these natural abilities, you will be able to confidently share these strengths with your fellow Mastermind members, as perhaps there is a member in your group that is not as strong in one particular area, that you are strong in. By sharing your knowledge with this individual, you are able to help them to grow and improve. As an example, I have been a member of a number of Mastermind groups. Some have been great, while others, not so much. The current Mastermind group that I am a member of is excellent. It is excellent because we are all action takers, and very motivated individuals. We each have our own individual strengths. One of the strengths that I bring to the group is my familiarity, comfort level, and experience with blogging. This is a topic that some of the Mastermind members do not have a lot of experience with. As such, I share with them my knowledge, in order to help them learn. Conversely, I learn a lot myself from one of the Mastermind Members who has a lot of experiencing doing Joint Venture Partnerships. He has a lot of experience and is very comfortable with this investment strategy. As such, he is able to field any questions that I throw at him. It is through my association with him, that I am better able to improve my knowledge on Joint Venture Partnerships.

You will also become a better real estate investor if you meet with your Mastermind group on a regular basis. Frequency of meetings is very important. This is important because effective Mastermind groups serve as an excellent way to keep people accountable towards their own goals. If you can meet with your Mastermind group once per month, this is a good thing. The frequency of monthly meetings allows you to go out in the real world and implement some of your goals and action items that were established by yourself or your fellow Mastermind members.

If you are not able to find people from local real estate investment groups in your town or city, another option is to check out online forums. There are lots of online real estate forums where people talk about real estate and real estate investing. If you search carefully, you will come across certain forums of people that are taking action, and that actually are real estate investors. By choosing this method, you could be able to form your Mastermind group virtually. The geographical locations where people live would not matter here, as you can connect via the Internet. Again, here you have to be careful, as you only want to associate yourself with action takers and real estate investors. Again, this is an important point because these are going to be the people that you learn from. You are not going to learn from someone with less experience than you in real estate investing. It simply just doesn’t work that way.

When you are looking to buy your first rental property, the first step you must take is to find a mortgage broker that you will be able to work with. When it comes to financing your rental property, financing can be obtained either through a mortgage broker or a bank.
I am a fan of doing your financing through a mortgage broker, as good mortgage brokers have an ability to put often times complicated deals together. Sometimes dealing with banks can be restrictive, as they do not have the same flexibility in finding solutions as a mortgage broker might have.

However, not all mortgage brokers are created equal. There are some very good ones, and there are some very bad ones. I have outlined 4 useful tips for you for when you are in the process of selecting your mortgage broker. Here they are:

1) Your mortgage broker should be a real estate investor

You want to be working with someone who is experienced in the field that you yourself are trying to get into. If your mortgage broker is a real estate investor, then he or she has experience in purchasing rental properties, and they have inevitably at some point purchased their first rental property. Since they are investors themselves, they would be able to offer you advice along the way. Make sure that your mortgage broker is a real estate investor. Experience counts!

2) Your mortgage broker must know your five-year investment plan

At the very least, your mortgage broker should know what your investment plans are over the next 5 years. This is very important because you are looking to build a long-term relationship with this individual. They (your mortgage broker) is going to be a very integral part of your real estate investment team. By knowing your five-year plan, they are able to advise you accordingly every step of the way. For instance, if your plan is to only buy one investment property over the next five years, they need to know this. This is because, the terms of the mortgage, would differ if you had plans of purchasing more than one rental property over the next few years. With mortgage financing for rental properties, good mortgage brokers are looking at how you can obtain financing for not just your first rental property, but also your second, third, or maybe even your 20th rental property, if that so happens to be your goal. Your mortgage broker must know your five year investment plan, as such they can set you up with the appropriate financing on your first rental property.

3) Your mortgage broker must keep up to date with what is happening in the mortgage industry

The mortgage financing world is ever changing. Interest rates often times change, and so too do the offerings from Banks and Lending Companies with respect to mortgages. Since there are so many changes, this creates opportunity for an individual looking to purchase their first property. When a good offer comes along from a Bank (such as a nice low interest rate), your mortgage broker should be up to speed of the changes as soon as they happen. That way, they can make you aware right away of all of the competitive offerings in the marketplace.

4) Your mortgage broker must have experience providing financing for other real estate investors

Often times, the more real estate investors that your mortgage broker works with the better for you. This is good for you, because your mortgage broker will have lots of practice in putting together deals for real estate investors. They will be proficient at this task, and will be able to deal with any roadblocks that are thrown in front of them. For instance, the reputation of your mortgage broker goes a long way when they are speaking to and negotiating with the mortgage underwriters at the banks or Lending companies. The mortgage underwriters are essentially the people who would review the particulars of your mortgage application. If the underwriter had any questions or concerns, they would converse directly with the mortgage broker to get the answers. If your mortgage broker has a solid history of putting together good deals, having a good relationship with the underwriters and the banks and Lending companies, then you are in good hands. The reputation of your mortgage broker is significant. They must have a track record of working with and putting together mortgages for other real estate investors.