First Rental Property

Real Estate investors tend to be a very strong headed bunch of people that work hard and are goal oriented. Yet at the same time they have a very difficult time admitting when they have screwed up.

Whether an investor owns one property, three properties or three hundred properties there are some early warning signs for when a real estate investor’s business is sinking.

These early warning signs are:

1) A Lack of Enthusiasm

2) Decreased Cash Flow

A Lack of Enthusiasm

If you are around the real estate investing game long enough, you notice that some investors become ‘burnt out’ as time goes on.

Real Estate investors can get ‘burnt out’ at any stage of their real estate investing career.  I have personally met investors that have become completely burnt out after investing for 5 years and under.  I have also met real estate investors who have become ‘burnt out’ after over 20 years in the real estate investing business.

Once your enthusiasm begins to dwindle, you need to address this issue promptly, otherwise you are in for big trouble.

A lack of enthusiasm means that the landlord becomes less responsive to their real estate investment business.  This can prove to be a fatal error.  If you take a back seat approach to running your business, a lot of problems can arise.

Due to the fact that an investor takes a back seat and is now less responsive, this could mean that they:

• Become lazy when responding to repairs and maintenance issues. For example, their response time to a tenant request could have been 24 hours at the beginning of their investing career when they were full of energy.  They may have now become fed up with investing and as a result, are much slower to respond to tenant request.  Maybe now, instead of taking 24 hours to respond…it takes them a week or longer to respond.  Trouble really starts to arise when the landlord stops responding on first contact by the tenant.  This is a horrible move on the part of the investor when it comes to customer service.

• Not inspecting rental properties. This can cause even the smallest repair item to compound in magnitude over time.  For example, a small piece of rust in a bath tub might seem insignificant.  If not looked after, the rust will turn into a hole, and the resulting water damage that the house will incur will be significant.

• Failing to thoroughly screen tenants. Every real estate investor, who has been in the investing game long enough has more than likely rented to a tenant that they thought was great before they moved in, however, ended up as a nightmare tenant.  If your enthusiasm for our business declines, you will not exercise the same due diligence in screening tenants that you once did.  Maybe you have dropped the ball is this department, or maybe you have outsourced the tenant locating process to someone that doesn’t really care who rents your property.

• No longer rewarding tenants. —  At the beginning of their real estate investing career, an investor may have provided their tenants with gift baskets at Christmas and the periodic gift card to show their appreciation for being good tenants.  Now…well now, the landlord doesn’t give them anything. When the investor no longer has enthusiasm towards their business, they are not doing the little things like this, which make all the difference in the world, especially when it comes to retaining quality tenants.

Decreased Cash Flow

As a real estate investor, you are simply a ship out at sea.

One of your main objectives is to navigate your way through the water.  The water represents real estate investing and you are the ship.   One of the problems when you are out at sea is that the waters become very choppy.

Without question, choppy waters and storms arise, while you are out at sea.  These tough times are directly comparable to the tough times that you will experience as a real estate investor.  I relate the choppy water to all of the problems that you would encounter, such as non-paying tenants, dealing with dead-beat tenants, major repairs, and long unexpected vacancies.

One of the key factors that helps to keep your boat afloat during these tough and very scary times is your cash flow.  Without cash flow, your boat will sink.

You can think of your cash flow as your life boat.

…you can rely on your cash flow to keep you alive, during the tough times.

Plain and simple, cash flow keeps your real estate investment business alive.  As soon as you start to experience a decline in your over all cash flow levels, this matter needs to be closely monitored and dealt with promptly.  If you have no cash flow being generated from your real estate business, you will not be able to ‘weather’ the choppy waters or the storms that arise during your real estate investing journey.

Remember…

Cash flow keeps you afloat, during the good times and the bad.

Best Regards,

Neil Uttamsingh

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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

If you do not know much about real estate investing, you are not alone.

There are many people out there that have grown up and lived their lives, not being taught how to properly invest their money.

If you have somewhat of an interest in investing, one thing that you will commonly hear is that it is a good idea to ‘diversify your investments’.

What exactly does this mean?

Diversification is the act of spreading one’s investment over a number of investment vehicles. These vehicles differ with respect to their risk level, whereas some vehicles are very risky and others are much more conservative.

The objective of diversifying is to mitigate your risk. As such, if one of your investment under performs, you will have other investments that will be performing better. As a result, the overall performance of your investments will not be significantly impacted in a negative manner, if a portion of the investment under performs. There will be other investments that you own that will be performing better, that will be able to pick up the slack.

The principle of diversification should always be used with real estate investment.

There are many hardcore real estate investors that only subscribe to one way of investing in real estate.

For instance some real estate investors live and die by the buy and hold strategy.

This strategy is where a real estate investor purchases a rental property, rents the property out to a tenant, holds it for a period of time, and then sells it for a profit.

Another common real estate investing strategy is Rent To Own. This is a strategy where a real estate investor acquires a home, and rents it out to tenant/buyers. The tenant/buyers rent the property from the investor with the option to purchase the property at a later, predetermined date, for a predetermined price.

The above 2 strategies are the ones I feel most comfortable speaking on, as I know about these strategies. There are many other strategies that are used by real estate investors. Investors also flip houses, rehab ugly looking houses, and wholesale houses as well.

I can confidently say that in Canada, wholesaling and rehabs are not as commonly done, as they are in the United States.

In Canada, the most popular real estate investment strategy that is used by individual investors is the buy and hold strategy.

Why Real Estate Diversification is important to you

Real Estate Diversification is important to you because through diversifying your real estate assets, you are able to learn which investment strategies you like the best, and which ones you least like.

If one investment strategy does not work for you, you will have other investment strategies to fall back on.

For example, flipping is an investment strategy that does not work well in all real estate markets. Sometimes investors participate in flips and end up breaking even on their funds invested, or even worse, they end up losing money. If at the same time this same investor held buy and hold properties in their portfolio, if they are strong cash flow properties, then these properties will continue to perform well, even though the flip just flopped!

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I first became interested in real estate investment around the year 2003, just after I graduated from The University of Western Ontario.

Before, I begin my story, I would like to thank Stephani Davis for giving me the idea to write this article. Stephani wrote a similar article on the premier real estate social networking site, BiggerPockets.com. I really encourage you to read her article as well.

I made a lot of mistakes when I purchased my first rental property. However, looking back upon my experience I have learned from these mistakes. So much so, that I feel that I will never make these same mistakes again.

Mistake #1

I did not know why I was buying the rental property

When I purchased my first rental property in May of 2005, I did not know why I was purchasing it. I did not know if I was going to live in the property as my principal residence, or if I was going to rent it out. Not being clear on this caused mistake Number #2 to occur.

Mistake #2

I wasn’t sure if the property was going to cash flow

Because I did not have a focus, I had no idea if the property was going to cash flow if I decided to rent it out. I was just so excited at the fact that I was buying a property, that I did not even do my due diligence. At the end of the day, I figured that if it did not cash flow, the worst case scenario would be that I would live in the property for a set period of time and then sell it and buy another property. In my mind, I had things ‘planned’ out. However, as time passed and as I gained more experience and knowledge, I realized that it was not a very good plan.

Mistake #3

I was speculating, not investing

I purchased the property with the hope that the property would go up in value. It was my plan that the property would go up in value, and that I would be able to sell it shortly thereafter in order to make a profit. There is no guarantee that a property will go up in value.

Mistake #4

I took the wrong amortization period

When I purchased this property, I took an amortization period of 25 years. I should have taken an amortization period of 35 years, which was the highest amortization period available in Canada at that time. If I took a 35 year amortization period, this would have resulted in my mortgage payments being much less.

Mistake #5

I got my mortgage through a bank, instead of a mortgage broker

Knowing what I know now, if I could go back in time, I would have got my first mortgage on my rental property through a mortgage broker as opposed to a bank.

The reason for this is because…

…I could have obtained a lower interest rate on my mortgage. Since mortgage brokers deal with many different lenders, they have a variety of interest rates and mortgage terms to chose from. By getting a mortgage from a bank, I was forced to taking the interest rate and the terms of the mortgage from that particular bank.

Despite making these 5 huge blunders, my first rental property has turned out to be the strongest performing property in my portfolio of rental properties.

In 2008, I had a bank appraisal completed, and the value of the rental property came in at $315,000. Bank appraisals are extremely conservative. As such bank appraisals come in well under the market value of what a property would sell for on the market.

As an example, in 2009, there were some comparable homes sold for between $330,000 to $350,000.

I always like to be conservative with my estimates, so even if we assume that the value of the property today is $315,000 as per the bank appraisal, that means that the property has appreciated approximately $65,000 in less than 5 years. If we take a look at what the market value of the property would be as opposed to the appraised value, then the appreciation level would be much higher.

I ended up renting this property out shortly after I took possession of it. For the first 3 years or so, it was a negative cash flow property. In 2008, I re-negotiated the terms of the mortgage. As such, the monthly cash flow on the rental property increased dramatically. This small change enabled me to move forward and purchase additional rental properties. I was able to do this thanks to the great advice of an outstanding mortgage broker, and friend, Kevin Boughen. Kevin specializes in investor mortgages, and works with real estate investors all across Canada.

Here is a short video, and quick tour of my first rental property taken in December 2009.

[youtube]http://www.youtube.com/watch?v=__fESpm7HAw[/youtube]

Do you ever wonder how people end up making so much money through investing in real estate?

I used to.

At the beginning, I thought that the only way to make a profit in real estate was to buy a house, keep it for a really long time and then sell it for a higher price than what it was paid for.

There are many people who use this strategy and this strategy alone, but not Canada’s Most Versatile Investor, Mark Loeffler.

Mark is one of the leading authorities in Canada in the Rent To Own System of real estate investing. He was featured in the Canadian Real Estate Magazine not to long ago. It was this Magazine that dubbed him The Versatile Investor. This name has stuck since.

Mark and I met about a year and a half ago through the Real Estate Investment Network, also more commonly referred to as REIN.

REIN is a network of Canadian real estate investors investing in Canadian Real Estate. REIN has been said to be one of the best real estate investment networks in North America by real estate gurus such as Ron LeGrand.

Mark and I recently sat down for an interview. This article will be the first of many articles focused on successful real estate investors. Specifically I asked Mark questions about his first rental property purchase, and how his real estate investing career has evolved since then.

Here is my recent interview with the man himself, The Versatile Investor, Mr. Mark Loeffler:

Neil: “Mark, where did you buy your first rental property and what type of property was it?”

Mark: “My first rental property was a duplex. It was located in Newmarket, Ontario.”

Neil: “What year did you purchase it, how much for, and what do you think it is worth now?”

Mark: “I bought the duplex in 2003 for $205,000. Comparable properties are selling for nothing less than $270,000 now.” (Interview took place on January 5th 2010)

Neil: “What was your reason for buying your first rental property?”

Mark: “I bought the property for cash flow“.

Neil: “At the time of your purchase, did you know of anyone else investing in real estate?”

Mark: “No”

Neil: “Did you purchase this house yourself, or did you have any partners that you
purchased it with?”

Mark: “I purchased this house by myself.”

Neil: “What was your biggest fear about buying your first rental property?”

Mark: “I was afraid that I would not be able to find any tenants.”

Neil: “How did you come up with your down payment?”

Mark: “I used my savings. I put $5,000 down as my down payment.”

Neil: “How did you get your first mortgage?”

Mark: “I got my first mortgage through the Royal Bank of Canada (RBC)”

Neil: “Who managed the property for you?”

Mark: “I managed the property by myself.”

Neil: “What is the current state of the property?”

Mark: “I still own the property, and it is rented. A couple of years after I purchased the property, I brought in a partner who joint ventured on the property. As a result, I was able to take out some equity.”

Neil: “What did you do with this equity?”

Mark: “I reinvested the money into real estate. I did a couple of flips in Toronto. The money that I made from the flips eventually went into Rent to Own real estate investments.”

Neil: “Where are your Rent to Own homes located?”

Mark: “Across Canada. In Ontario and Alberta.”

Neil: “Why did you decided to invest with the Rent to Own strategy?”

Mark: “I decided to invest using the Rent to Own strategy because of the increased cash flow. There was also less maintenance with Rent to Own. Also, flipping was getting too tight.
Also, it was around this time that the Government changed their policy regarding the 100% financing rule when purchasing a home. This created an opportunity for me, this allowed me to change strategies and invest using RTO. Also, I found it tough to find good property management for small units. You don’t make your money managing, you make your money buying.”

Neil: “What current projects are you currently working on that you want to let people know
about?”

Mark: “I have a new book out called, Investing in Rent To Own Property: A Complete Guide to Canadian Real Estate Investing. I also have a Rent To Own Course called Rent To Own Made Easy. You can take the course from home and it has a 60 day e-mail mentoring component. The course takes you from A to Z and it shows you how I run my
business and how I find tenants. We take a tenant first strategy. We find people that
can’t qualify for a mortgage and we help them purchase a house. We do between
3 to 5 of these types of deals a week.”

So there you have it, a one on one interview with The Versatile Investor, Mark Loeffler. Mark and I have chatted about doing subsequent interviews for my blog, and he is agreeable. So stay tuned for some more great content from Mark Loeffler, The Versatile Investor. In fact, we may even get him on as a guest blogger!

Hola,

Me Llamo Neil y me gusta real estate. Vivo en Toronto, Ontario, Canada.

Okay…

That is about all the Spanish I can remember from my high school Spanish teacher! (Sorry Miss D)

Unless you have a good working knowledge of the Spanish language, most of you probably read the heading of my article as well as the opening line, and had no idea what it meant.

In English it reads:

Hi,

My name is Neil and I like real estate. I live in Toronto, Ontario, Canada.

Now that I have got your attention, here is the point wholesale lemon tart e liquid flavour concentrate diy vape juice 0mg of this article:

People new to real estate investing often cannot understand the language that experienced real estate investors speak.

There are a lot of terms, and some acronyms that are very confusing to new investors. Sometimes when I am speaking to someone interested in real estate investing, I forget sometimes that they do not know all of the terms that I know, and what happens is that I will use a word or a term that will completely confuse them. This is when they will stare at me with a blank look on their face.

So let’s cut to the chase. I have put together a little glossary of some key terms that I feel that all beginning real estate investors should take the time and learn. Here they are.

Hasta Luego! (See you Later!)

LTV or Loan To Value – When someone says this phrase, they are referring to the ratio of the loan in comparison to the value of a property. For example, if I say, “My rental property has a LTV of 80%” This means that the loan (more specifically the mortgage) is 80% of the value of the home. In this case, if my rental property was valued at $100,000, since my loan (or mortgage) is 80% of the value that means that my mortgage amount is $80,000.

First Mortgage – People generally understand what a mortgage is, however, when you throw the word ‘first’ in front of the word mortgage, this can cause some confusion. Simply put, the first mortgage is usually the largest mortgage (in terms of dollar value) that is placed on a property. A large institution, such as a bank or credit union, often issues the first mortgage. The mortgage is in first position, which means that upon the sale of the rental property, this mortgage has to be paid back FIRST before any other debts are repaid.

Second Mortgage – If you understood the concept of the first mortgage, then you should understand the second mortgage as well. The second mortgage is usually smaller in dollar value than the first mortgage. A private finance company, or a private individual can offer the second mortgage usually. The interest rate of the second mortgage tends to be higher than the interest rate of the first mortgage. This is because vaporesso osmall replacement pod cartridges the lender that offers the second mortgage is taking on more risk that the lender that is offering the first mortgage. There is more risk to the lender because upon the sale of the rental property, the second mortgage lender is in second position. This means that they get paid back after the first mortgage has been paid back. They are lower on the food chain, compared to the first mortgage lender.

Lender – This phrase can refer to any institution or individual who lends funds in the form of a mortgage or loan. Examples of lenders can be major banks, credit unions, private lending companies, or private individuals.

Mortgage Broker – I have noticed that people do not understand the difference between the services offered by a mortgage broker, and the services offered by say, a major bank. A mortgage broker represents their customer (you or I), and deals with many different lenders. When they are working to obtain a mortgage for your rental property, your mortgage broker will speak with many different lenders in order to find the mortgage with the right terms and conditions for you. A mortgage broker has a network of lenders that they deal with.

Amortization or Amortized – This phrase refers to the life of a mortgage. In Canada, it is very common for mortgages to be amortized over 25 years. This means that if you consistently make your payments over the next 25 years, once 25 years is up, you will have paid off the entire balance of your mortgage. Real Estate investors often amortize the life of their mortgages over 25 years in order to maximize their monthly cash flow. Currently, mortgages can be amortized in Canada up to 35 years.

Market Rent – This phrase refers to the estimated rent that a rental property should be able to get. For instance, let’s say that you are looking to rent out a 3 bedroom 2 bathroom townhouse in your hometown. Over the past 6 months, there have been 10 townhouses similar to yours that have rented out between $1250/month and $1350/month. Therefore, the market rent for your townhouse would be between $1250/month to $1350/month. This is because it is the estimated amount that you think your rental property will end up renting for.

Actual Rent – This phrase refers to the actual rent that you collect on your rental property. If you are looking to rent out a rental property and the market rents for your property are between $1250/month and $1350/month, and you end up renting your property for $1200/month, this means that $1200/month is your actual rent.

Cash Flow – This phrase has many definitions, however, in the context of real estate investment, someone might say, “My rental property cash flows.” What they mean by this is that their total expenses on their rental property are lower than their total revenue on the property. This means that they have a surplus of funds available. Real estate investors often refer to the cash flow on their rental properties on a monthly basis. For instance, if real estate investor says, “My first rental property has a cash flow of $500 a month”, this would mean that after subtracting the total monthly expenses on the rental property from the total monthly rent on the property, there would be a surplus of $500/month.

The beginning of the calendar year is always a time of reflection for a lot of people. It is a time where, people set goals that they would like to achieve in the coming year. These goals may be goals that someone wants to achieve in a number of areas of their life. Goals can apply to such areas as relationships, health, finances, or your career.

As a real estate investor, you should also have very specific goals that you want to achieve in the upcoming year. Goal setting is very important because it gives you something to aim for.

Many experienced real estate investors often have multiple goals with regards to their real estate investing career. In addition, goal setting is especially important for people who are looking to buy their first rental property.

If you are new to the real estate investing game, and you have not purchased your first rental property yet. Here are some action steps that you need to take:

1. Write your business plan

This is the most important thing that you need to do. A business plan is essential to a real estate investor. I suggest that you start simple, and write out specifically what you are trying to accomplish with real estate investment.

2. Write your mission statement

Just like how major companies have mission statements, write out your own personal mission statement. This action will help clarify to you why exactly you are getting involved with real estate investment. Once you complete this task, you may be surprised as to what your inner motivations are.

3. How many properties do you plan on purchasing

It is imperative that you write down how many rental properties you are planning on purchasing. This is important to ‘commit to paper’ as this simple act will cause you to stay focused and committed to achieving what you have set out in writing.

It is important to note that the timeline in business plans can vary in length. For instance, a business plans can be written taking into account the next 5 years, or it can be written taking into account the next 10 years. To new real estate investors just starting out, I recommend that you begin by writing your business plan over 1 year at least. What this means is that you are writing down all of your goals with regards to real estate investing over the next 1 calendar year.

4. Where are you going to get your financing from?

As part of the business plan, it is important that you document where exactly you are going to get the financing to purchase the properties that you have committed to purchasing. This is important, because by planning exactly where you are going to acquire the financing, allows you to have a game plan moving forward. To take a simple example, let’s assume that you have decided that over the next one year you are going to buy one rental property. At this point in time, you do not know where you are going to obtain the money to purchase said rental property. As such, in your business plan, you need to write down specifically where you are going to obtain the money. As a result, you would have to write down that you are planning on purchasing one rental property over the next year, and that you would be partnering with a joint venture partner who would provide the funds required to purchase the rental property

As another example, let’s assume that you have a goal of purchasing 2 rental properties over the next calendar year. You know that you have enough personal savings to purchase one rental property, however, for the second property, you are not sure where you are going to get the financing. In this scenario, you would write down in your business plan the follow:

“I will purchase one rental property this year, and will utilize my own personal funds in order to make the down payment. I have X amount of funds saved, and all of these funds will be used towards the down payment.”

Further, you may also write down in your business plan the following:

“I will purchase a second rental property this year, by partnering with a joint venture partner. The joint venture partner will provide the funds required for the down payment, and I will do all of the work required in purchasing the property, negotiating the sale price, overseeing any repairs and maintenance, finding tenants, maintaining the ongoing relationship with the tenants, and I will also oversee the eventual sale of the property at the end of the holding term. The joint venture partner and I will split the cash flow on the property 50/50 and I will distribute the returns to my joint venture partner on our agreed upon intervals. Upon the eventual sale of the property, the joint venture partner will receive all of her initial funds and then the profits will be distributed 50/50 to the joint venture partner, and myself.

The more detail that you have in your business plan the better. A business plan is like having a road map. You begin at point A, and you need to plan your route so that you can eventually get to point B. Point A is a position where you don’t own any rental properties and point B is a position in which you finally own a rental property or properties.

The journey continues.

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

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

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

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

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

The Third Stage

You become interested in real estate

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

The Fourth Stage

You begin to research real estate

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

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

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

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

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

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

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]

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.