First Rental Property

2008 – The Year of The Investment Group

At the very end of 2007, I finally realized that my true interest in real estate was with real estate investment and not real estate sales. It was at this point that I began to start reading a lot more about real estate investing. As I continued to real more about real estate investing I began to learn how little I knew about the topic. I also discovered that there were so many real estate investors out there in the real world. I committed to myself to seek out and learn from these people.

The more I read about real estate investing, the more I kept on coming across different real estate investment groups.

Joining a real estate investment group seemed like the next logical step for me, as I found that it was very difficult for me to come across and meet real estate investors any other way.

In April 2008 I joined my first real estate investment group. I was meeting as I had never before very impressed with the first meeting as I found myself in a room full of real estate investors…approximately 500 in total.

Heading into the meeting I was a bit sceptical as to how many true real estate investors would actually be in attendance. I also had my back up, as I thought that the real estate investors meeting would just be a high powered sales pitch in order to get you to join the group and pay membership fees.

Despite having a terrible memory, I can remember that first meeting like it was yesterday. I was sitting at a round table with 5 other people. We all took turns introducing ourselves. At this time, I had one investment property. I introduced myself and described my property. By reading my About Page, you know that my first rental property was a freehold townhouse in my hometown of Oakville, Ontario.

I was amazed when I found out that everyone else sitting at the table all owned at least one rental property.

There were 3 people that I remember from my table very clearly. They each had an interesting real estate investing history.

There was one guy who owned a six-plex in a suburb east of Toronto. The building was owned by his family. He managed the property, and collected the rent. His brother helped with the management as well, and mainly looked after the repair of the building. This particular gentleman found managing the property difficult at times, but he was committed to the investment, and understood that the benefits to real estate investing are realized over time.

There was another lady who had purchased a large home in downtown Toronto as a rental property. It was a very expensive purchase, and after hearing her tell her story, her analysis of the investment property did not make any sense to me. It seemed to me, by her explanation that she was not realizing a positive cash flow with the property. It was evident to me that she had purchased the property without doing much due diligence. It was definitely an emotional purchase.

There was another lady who owned a condo in a suburb west of Toronto and another multi-unit building southwest of Toronto.

This lady was very concerned as she was trying to sell her condo, as she was not realizing a positive monthly cash flow from this property. She was trying to be a little bit cheap as well, as she was not willing to hire the services of a real estate agent, and she was trying to sell the property herself.

About 2 years after this initial meeting, bring us to today. 2 of these 3 people are still members of the real estate investment group. I have not seen the guy with the six-plex in several months, which leads me to believe that he has left the group.

Joining a real estate investment group was definitely very instrumental for me. I joined the group at a time when I was ready to learn and embrace the teachings of other real estate investors.

The most important take away that I had from joining this real estate investment group can be explained in a few sentences.

I felt that if other people were investing in real estate and were successful doing it, there was no reason that I could not do the same!

Actually, I explained that in one sentence.  A run on sentence…

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

Business Life Story Part One
Business Life Story Part Two
Business Life Story Part Three
Business Life Story Part Four
Business Life Story Part Six

Greetings Everyone,

I hope that everyone is doing well today.

I have a very important tip that I would like to share with all of you.

Any experienced real estate investor will tell you that the true learning with respect to real estate investing only begins after you have purchased your first rental property.

The more properties that you acquire, the more ‘things’ you will have going on that you need to stay on top of.

Even if you only ever purchase one rental property, there are many ‘things’ that you need to deal with. An inability to deal with these ‘things’ can be detrimental. In the worst case scenario, not staying on top of these things can even result in you losing your rental property.

So what is this valuable tip that I am talking about?

It really is quite simple. In fact, it is so simple, you would think that it should be common sense. However, unfortunately it is not. I am going to tell you what the tip is and then I am going to give you examples as to why you need to take this advice. I will also give you some personal examples that I have with regards to practicing this tip.

The tip is…

“As a real estate investor, you have to be organized. “

This sounds like ridiculous advice, does it not?  On the contrary, it is very important advice, and here’s why…

A lack of organization will defeat real estate investors, EVERY TIME!

A lack of organization can often be the begining of the end for a real estate investor.  When you have no organizational skills, little problems very quickly become bigger problems.  If these big problems are not dealt with properly, the impact to you as the real estate investor can be severe.

Example

With my most recent rental property purchase, I obtained a rental policy through my insurance company.  This rental policy covers me in the event that anything terrible happened to the house. (house fire, natural disaster, etc.)

I gave my insurance company the necessary details for the property that they had requested.  Since this was the 3rd rental property that I had insured through this company, I thought that everything was ‘smooth sailing’ after I had submitted my information to them.

I thought wrong, as I got a call from the insurance company saying that I had not submitted the necessary details.

I knew that I had submitted the details that they had requested.  So instead of getting mad at them, I simply decided to reproduce the documents that they were requesting.

Fortunately, I was able to do this with ease, as I had kept very good records.

In this example, even though the insurance company was the one that made the error, at the end of the day, if I was late in producing these documents a second time to them, or if I decided not to produce the documents again to them, I would be in big trouble.

I did not want to run the risk of my insurance company being discontent and challenging my insurance coverage. So, I jumped into action and produced the documents that they needed.

My organization skills helped me to deal with this problem quickly.

As a real estate investor, it is so important to be orgnized.  I have learned the importance of being organized, the longer I have been investing.

My advice to new investors is to get organized from the very beginning.  Keep good records, and know where to find things when you need to.  This will save you a lot of frustration down the road.

If you are just starting out as a real estate investor, I encourage you to sign up for the Rev N You with Real Estate newsletter. Julie and Dave do a very good job explaining the fundamentals of investing to new investors.  Check them out!

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

Happy investing everyone!

Greetings Everyone,

Last week I had the opportunity to speak at a real estate seminar held by W & B Academy.

I was asked to speak about my experiences as a professional real estate investor.  This was a significant milestone in my real estate investing career, because by presenting at this event, I can now officially add the title of ‘real estate speaker’ to my list of credentials.

If you plan on taking real estate investment seriously, you must do things that will help to increase your credibility.  You want to be able to stand out from the crowd of other real estate investors, and demonstrate that you are a motivated go getter.  Once you have some specific knowledge on real estate investment, and you feel confident on the topic, I suggest you do the following:

1) Write an article on the topic of real estate for your local newspaper

You don’t have to be published in a newspaper.  It could also be a magazine, or perhaps a newsletter that you write for.  Just make sure that you write something, and that you get it published somewhere.  This article that you write will bring you credibility down the road.  Just wait and see…  🙂

For example, I have been featured and quoted in the Canadian Real Estate Magazine October 2009 issue and the March 2010 issue.

2)  Get a speaking opportunity or run a workshop for beginners

Getting a speaking gig on the topic of real estate investing is a great thing to add to your resume.  It brings great credibility, and you can leverage this experience in order to obtain additional speaking opportunities.

Another idea that you can do is to run a workshop for friends who are looking at getting involved with real estate investment.  This platform will benefit both yourself, and those that are in attendance.  You will benefit as you will gain some experience in speaking on the topic of real estate investment.  Your audience will benefit from the knowledge that you provide them with.

Here is a video clip of my presentation this past week for W & B Academy.  A lot of the content for my presentation came from my previous article series, How to buy your first rental property.

I am going to be making an effort to add more regular video content to my blog, just like Steph Davis.

Check out the video, and let me know what you think of it.  You can place your comments below.

[youtube]http://www.youtube.com/watch?v=Lrxe-cR-LoI[/youtube]

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

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

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

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

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

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

Now to the good stuff…

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

The fear of repairs and maintenance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Holy Trinity of Writing Offers

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

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

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

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

Holy Trinity Rule #1

The Financing Condition

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

What is The Financing Condition?

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

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

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

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

Holy Trinity Rule #2

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

• You should never skip getting a home inspection.

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

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

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

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

Holy Trinity Rule #3

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

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

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

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

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

Guess what?!

You have just purchased your first rental property!

Take some time to click your heels and celebrate!

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

Not really.

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

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

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

Related Articles:

Step One – How to buy your first rental property

Step Two – How to buy your first rental property

Step Three – How to buy your first rental property

Step Four – How to buy your first rental property

Step Five – How to buy your first rental property

Step Six – How to buy your first rental property

Greetings Everyone.

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

Step One:  Determining WHY you are buying a rental property

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

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

Step Four:  The ecomomic influences of your location

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

What does ‘property type mean’?

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

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

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

Reason Number One

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

Reason Number Two

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

Reason Number Three

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

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

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

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

A question for you!

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

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

Feel free to place your comments in the comments section.

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

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.

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

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

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

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

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

Determining your location

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

1) Contact your local Realtors Office

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

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

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

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

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

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

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

3) Join a quality real estate investment network

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Determining your down payment

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

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

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

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

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

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

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

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

Get your pre-approval from your mortgage broker

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

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

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

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

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

For example, your mortgage broker may tell you:

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

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

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

Happy Investing!

Neil

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

Related Articles:

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

email me: NEIL@FIRSTRENTALPROPERTY.COM

In this article series, I will explain in detail all the steps that you need to take in order to buy your first rental property.

People new to real estate investing often have no idea where to start. I get a lot of questions from aspiring real estate investors as to how they should begin, and what they should be doing.

Getting started in real estate investing can be a daunting task. However, if you take the time to build a solid foundation of knowledge before you begin, you will be off to the races. If you follow the advice precisely in this article series, you will have all the information you need so that you can confidently buy your first rental property.

Sometimes people need help buying a property.  The H.O.P.E. Program has helped more than 12,000 people get homes who never thought they could, helping even those with BAD credit get qualified.  This program is the premier Rent To Own Program as it gives access to thousands of listings for Rent To Own homes.  CLICK HERE to enrol in the H.O.P.E. Program or to have your credit repaired.

Step #1
Determine why you want to buy a rental property

This step is extremely important. However, it is a step that is often overlooked by people because they do not perceive it as being an important step.

It is an important step because, knowing ‘why’ you are buying your first rental property, will help you to stay motivated and focused on this goal when times get tough for you.

In the world of real estate investing, times often get tough because owning and managing real estate is not easy. It takes time, effort, and organization on the investor’s end in order to successfully manage a portfolio of rental properties.

Also, people who do not have a clear sense of why they are buying their first rental property tend to get confused. If you don’t have a crystal clear vision of why you are doing it, it is easy to lose your focus and shift your attention towards another project. For instance, one day someone could be interested in real estate investment, the other day, they could be interested in stocks and the financial market. Although on the surface, this may sound okay, it is not. A lack of focus is never a good thing. You need to be focused like a laser.

Here are some clear examples of ‘why’ an individual would invest in their first rental property.

Example #1

An individual needs the extra monthly cash flow from the rental property.

With the cash flow, the individuals decides to pay down the mortgage on their principal residence. As such, they are able to dramatically reduce the time it takes for them to pay off their mortgage. Paying down their mortgage faster is an important goal for this individual. This is a strong ‘why’.

Example #2

A young couple is trying to save money for their young child’s future education.

In order to save for this education, they decide that investing in real estate is the best game plan. They plan to buy a rental property, keep it for several years, and then sell it. They will use the equity from the sale of the property to pay for their child’s education. Making sure that the child has enough money for their future education is extremely important to them. Therefore, they are motivated in making sure that this plan works. This is a strong ‘why’.

Example #3

Similar to example #1, here the individual requires cash in order to pay down their debt.

Instead of using the cash flow to pay down the individual’s mortgage on their principal residence, they use the monthly cash flow to pay down bad debt such as credit card and loan balances. Here the individual might be quite motivated and focused on paying down this debt, until eventually all of the debt is paid off. This is a strong ‘why’.

Now, here are some examples of situations where an individual does not have a strong ‘why’ as to why they are buying their first rental property.

Example #4

They want to make a lot of money from their rental property.

Neil’s Commentary: “What exactly does this mean? This is a very vague goal. Vague goals are not good because they are impossible to measure. How much is ‘a lot of money?’. Goals need to be more measurable. In order to be a more specific goal, this individual should quantify how much money they want to make from their rental property. For instance, they should restate their goals as follows:

“I want to make a lot of money from my rental property as I will be holding the property for a minimum of 5 years. My expected equity appreciation over this time from is going to be $50,000. Once I have reached this equity appreciation target, I will sell the property.”

Example #5

An individual wants to buy their first rental property and then they want to become a real estate investor full time.

This if often a lofty goal that is not achieved by many real estate investors due to lack of focus. Again, this is a very vague goal that is difficult to measure. In order for this goal to be more focused and more specific, numbers and time lines need to be stated.

For instance, this goal can be restated in the following manner:

“I want to buy my first rental property by the end of this month. The property will be cash flowing $500/month. I then plan on purchasing 6 properties a year over the next 5 years with joint venture partners, all of which will be cash flowing at least $500/month. ”

Buying your first rental property requires you to follow a step by step process. The more organized that you are on the front end the easier time that you will have with purchasing your first rental property.

Step number one can never be skipped. With step number one, you need to clearly understand why it is that you are purchasing your first rental property.

Happy Investing!

Neil

PS:  The H.O.P.E. Program has assisted more than 12,000 people get homes who never thought that they could, helping even people with POOR credit get approved.  This is the best Rent To Own Program as it gives access to thousands of property listings for Rent To Own homes.  CLICK HERE to enrol in The H.O.P.E. Program or to have your credit repaired.

Related Article:

Step Two – How to buy your first rental property