Hi There,

If you are new to real estate investing, one question that you will face is:

Do you manage your rental property yourself or do you hire a property manager.

Valid arguments can be made for both sides.

However, you should know that most real estate investors, are not very good landlords.  As such, if you are not good at being a landlord, you need to get the help of a professional property manager.

Here are 4 Reasons Why You Need A Property Manager.

1) Your Tenant Is Behind In Rent

If your tenant does not pay you on time once, there is a high probability that they will repeat this behaviour again and again.  If they are repeatedly not paying you on time, you are not doing your job effectively as a landlord, bottom line.  As a landlord, you must collect your rent on time.  If you are having trouble with this you need to hire a property manager who will step in and ensure that your tenant pays you on time.  Timely rent collection is an essential skill that you require.

2)  You Have Not Raised The Rent

Many landlords once they have a tenant move in, never raise their monthly rent.  Depending upon where you reside, in most places you can raise the monthly rent  on a periodic basis (often annually).  If you have tenants that have lived at your rental property for several years, and who have not had their rental amount raised, that is not good for business.

As a real estate investor, you are a business operator.  In business, your objective should always be to maximize revenue.  What better way can you maximize your revenue than by increasing your rent?  Increase your rents…bottom line.

If you are afraid to raise your tenant’s monthly rent, step out of the way and let a professional property manager take over as the landlord.  They will be able to give your tenant the proper notice and have them pay the increased amount in rent, guaranteed.

3) You Don’t Like Confrontation

If you are not good at dealing with conflict, you will struggle as a landlord.  Whenever a problem arises with your tenant, you will have to be communicating directly with them.  It may be a problem that is not your fault, however, you have to come up with the solution to it…that is the job of the landlord…

For example, your tenant may call you frustrated and let you know that their washing machine has not been working for 2 weeks.  Further, the washing machine has broken down with a full load of clothes in the wash and that the machine has water in it and is not draining.  Further, they might also tell you that they need the washing machine fixed today, because they are all out of clean clothes and they need to have access to the washing machine to wash all of the clothes for their new born baby.

This is a situation that you have to deal with immediately.  The longer you leave this situation unresolved, the further frustrated your tenant might become.  If you don’t like dealing with frustrating circumstances like this one, you need to have a property manager step in and handle situations like this.  They will be able to communicate with the tenant directly and co-ordinate any maintenance people that may be required to come and fix the washing machine in a timely manner.

4)  You Are Not Good At Keeping Records

Keeping records is actually a very important skill to have as a landlord.  Depending upon how many rental properties you end up buying and depending upon how involved you are with your tenants, you will likely have to keep very detailed records.

Detailed records are required when a tenant has not paid rent.  The tenant is now behind with the rent payment.  A few days from now, they may make a partial payment of rent.  A week later, they may make another partial payment of rent.  Simultaneously, you will have to file the paperwork with your local governing body that deals with Landlord and Tenant Issues.

There is a lot to keep track of when things go wrong with your tenant.  As the landlord, the onus is on you to keep flawless records.  If you are not good at doing this, give up the job as manager of your rental property to a professional property manager.

These are just 4 reasons why someone would need a property manager.  There are many other reasons why you should hire a property manager.  We will leave that discussion for another day!

Happy Investing!

Neil

ps: If you are new to real estate investing and are looking to buy your first rental property, you might also be in search of the money to do this.  Finding money to buy a rental property can sometimes be hard.

The quickest way to find some money so that you can purchase a rental property might be through finding a joint venture partner.

Presenting to a Joint Venture partner is a challenge to a lot of investors.  But when you discover there are only 3 powerful ingredients that influence people to say “YES” to your deals, it’s not so hard anymore.

My friend and fellow real estate investor, Joey Ragona just released a video on this, and it’s awesome: https://rl163.isrefer.com/go/JVPF-intro-direct/SBA45/email

He really simplifies and breaks it down, and explains why MOST investors are wasting their time chasing people who will NEVER give them money. You’ll learn:

•  Why people say “NO” to your deals
• The 3 HUGE mistakes investors make when they’re looking for JVs
• Joey’s 3-Step Presentation Formula ingredients
• How the 1-Page JV Presentation filters out people who will waste your time

Joey shows you in this video, so check it out before he pulls it down.https://rl163.isrefer.com/go/JVPF-intro-direct/SBA45/email

Enjoy the video.  And take some notes. Don’t worry, there’s no opt-in required.

In Part One of this article, we discussed the first four common questions that Joint Venture Partners ask.

In this article we are going to cover the last four common questions that are asked by Joint Venture Partners. I have listed them below in no particular order.

Before we kick things off, I would like you to check out after reading my article,  a recent article by Florence Foote.  Florence discusses, investing in the path of progress, a concept that I will soon be writing about on my blog.

Now, back to business…

5) JV Partners will ask, “What is your share in the deal?”

The answer to this questions is very simple and straight forward. You tell your JV Partner that as the real estate investor you will be doing all of the work, the joint venture partner will be putting up all of the money and the profits and cash flow will be split 50/50.

6) JV Partners might ask, “This seems rich, is this negotiable?”

Your answer to this is, “No”.

You must say no politely but with authority.

There are 2 reasons why your answer is ‘No;.

First, if you have never purchased a property with a JV Partner, you will learn quickly that you are going to be earning your 50% because there is a lot of work involved in buying and managing rental properties. There is a lot more work than many people think, especially people who have never invested in real estate before.

Second, when asked if the split is negotiable, if you waiver and say that it is negotiable, you have lost value in the eyes of your JV Partner.  You will also seem less attractive to give money to. If you are backing yourself into a corner in which you are re-negotiating, your perceived value has decreased.

There will be instances where people will push you on this. They will want to make you agree to a split other than 50/50.

Take note that you will not agree to a split other than 50/50. There is a lot of work involved on your end.

If you cannot come to agreement with the potential joint venture partner with regards to the 50/50 split, politely tell them that this opportunity is not for them.  End of conversation.

7) JV Partners will ask, “Can you offer a guaranteed rate of return?”

Your answer to this is, “No.”

You have to be honest if you are going to attract joint venture money. The real estate market is not linear, rather it trends up and down. By knowing historical trends in real estate values, we know that in the long term, it trends upwards.

Knowing this, you should never guarantee anything. To say that you ‘guarantee’ a rate is wrong. You can provide projections to your joint venture partner of your anticipated returns, however, never guarantee anything.

One year you may have a return of 57%, the next year the return may be 18% and the following year the return could be 27%.  The ride may look something like this:

It is important to emphasize with your joint venture partner that if they don’t make money, then you will not be making money.

You can also tell them that you do not wok for free, so you are going to make sure that both you and the joint venture partner are going to make money with this particular venture.

8 ) JV Partners will ask, “Can I see the property before we buy it?”

Your answer to this yet again is going to be….

You guessed it…

“No”

I have never shown a joint venture partner a property before purchasing it.

You never show a joint venture partner a property before purchasing it because real estate investing in not based on emotions, it is based on numbers.

I say again…

Real Estate investing

is not based on emotion,

it is based on numbers!

For example, if you are investing in the stock for Telus, you do not drive to the Telus headquarters, open the doors of the building and look inside. If you do not like the tile in the building, or the light fixtures, or the way the front reception desk is designed, do you chose not to invest in the company? Of course not! You chose whether or not to invest in this company based upon your analysis of the company’s numbers, or if a trusted party that you know says that Telus stock is a good stock to buy.

It works the same way with real estate investing. You either crunch all of the numbers yourself, or you take the advice of a trusted party who has done all of the due diligence into the deal at hand.

Once you have closed on a property, you can take pictures of the property and send them to your joint venture partner.

Remember, there is no emotion with real estate investing. Leave your emotion out of it.

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Part One – The Eight Common Questions that Joint Venture Partners Ask

If you are interested in buying your first rental property and you do not have the funds that are required, you have to determine where you are going to find this money, if you want to eventually buy your first rental property.

One method of acquiring money is through finding a Joint Venture Partner.  In a classic joint venture partnership, the money partner provides all of the required capital, and the real estate expert does all of the work.  A fair trade off.

Many new investors tend to find it difficult to attract joint venture partners.  Often times new investors complain that they are having no success in finding joint venture partners.  New investors are often baffled at the ease at which experienced investors are able to secure joint venture capital.

The more experienced a real estate investor is, the more ease they have in attracting capital.

New investors should not sit on the sidelines and sulk because of this.  Rather, new investors need to study the principals that make experienced investors good at attracting partners.

My friends, it all comes down to one word:

CREDIBILITY

[youtube]http://www.youtube.com/watch?v=uAN7uRALf8M[/youtube]

People will invest in YOU if you demonstrate to them your credibility.

So what can make a new investor, who is struggling to find joint venture partners credible?

4 things can.

Here they are, in random order.

1)  Get some credentials

What makes you knowledgeable in real estate investment, other than you interest?  This is a valid question that many joint venture partners may ask you.  You need to demonstrate to your potential partners that you do have specialized knowledge in real estate investment.  This can be done by being an active member of real estate investment groups.  Many of these groups serve as tremendous information and networking centres.  Many real estate investors only become successful due to their association with these investment clubs.  Personally, my success in real estate investment has skyrocketed ever since I made the decision to join real estate investment networks.  The best Canadian real estate investment group is, The Real Estate Investment Network, REIN.

Once you are a member of a few of these investment groups, let it be known!  Put these credentials on your business cards, in your e-mail signature, and draw reference to your association within these groups when speaking to potential joint venture partners.

2)  Get published in a leading newspaper or real estate industry magazine

Increase your credibility by being published by the media.  Contact the editor of a newspaper or magazine and ask them if you can contribute to one of their upcoming editions.  Write about a topic, that people will be interested in reading about.  This topic that you chose should demonstrate that you have knowledge in real estate investment.  You can write about any topic that you want.  Remember, that you do not have to be a complete expert on this topic, you just need to know more than the general public about this topic.  If you know more than the general public, then you are coming from a position of expertise…because you know something that they do not.  You are sharing your knowledge with them. Sharing is caring.

If you are struggling to find a topic to write about, you can easily come up with a topic idea by doing the following…

3) Read at least 5 of the best selling books in the real estate industry

This point is crucially important, as this will help you to increase your knowledge.  Many of the leading minds in your industry wrote these books.  As a result, there is a wealth of knowledge in these books, and much that you can learn from them.

4)  Become a real estate speaker

Becoming a real estate speaker, can take your credibility through the roof.   Speakers generally have a noteworthy amount of knowledge on the given topic that they are speaking about.  When someone says that they are a real estate speaker, this carries a certain degree of weight and people respect this.  This shows that you are an action taker and a go getter.  Someone with knowledge, who is getting out there and sharing their own knowledge with others, who serve to benefit from this knowledge.

To demonstrate to you that I practice what I preach, as a real estate investor who is actively attracting joint venture partners, I am:

• A BRONZE Member of the Real Estate Investment Network, and co-organizer of the REIN Hamilton Mastermind Meetings
• I was featured in the October 2009 issue of The Canadian Real Estate Magazine

• My 5 favourite books on real estate investment and investing in general are:

1. 97 Tips For Canadian Real Estate Investors – Don R. Campbell
2. 51 Success Stories From Canadian Real Estate Investors – Don R. Campbell
3. Real Estate Investing in Canada: Creating Wealth With The ACRE System – Don R. Campbell
4. Investing In Rent-To-Own Property:  A Complete Guide For Canadian Real Estate Investors – Mark Loeffler
5. Rich Dad, Poor Dad – Robert Kiyosaki

• I am also a real estate video blogger, speaking in numerous short videos on YouTube.  You can check out my videos on my YouTube Channel.  My audience for these videos are novice real estate investors.

For my latest real estate speaking opportunity, I am presenting at a real estate investment conference for W & B Academy. I will be speaking alongside a Senior Market Analyst from Canada Mortgage and Housing Corporation.

Most real estate investors I know are liars.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

There are a number of ways in which you can come up with the money required in order to purchase an investment property. Despite what many beginner investors might think, you do not need to have a lot of your own personal savings in order to buy a rental property. Using The H.O.P.E. Program is a great way to find the money to buy a rental property. The program has helped more than 12,000 people get homes who never thought they could, helping even those with bad credit get qualified. CLICK HERE to find out more about the program.

Let’s also take a look at all of the different ways in which you can find the money to buy a rental property
.

1) Your own personal savings

You can use your own savings in order to buy a real estate investment. This is probably the least common method that is used by real estate investors. It is not a common method used; because, generally you have to come up with a significant amount of cash in order to purchase an investment property. When I say significant, I am referring to tens of thousands of dollars. Most average income earners do not have tens of thousands of dollars saved. Furthermore, if somebody has a plan to buy more than one investment property, then by using this method, they will continually have to come up with tens of thousands of dollars of their own money.

2) Leverage the equity in your home

This is the most common method that I see being used by fellow real estate investors. This is also the method that we have used most recently to purchase our last 3 investment properties. This is a powerful method to use, because you are utilizing leverage here. If this method is used, it is recommended that a secured line of credit be used. In order for this method to work, there has to be equity in your home. Generally speaking a secure line of credit can be up to 80% of the value of your home, minus any outstanding mortgage balance. Here is an example to demonstrate. Let’s assume that you live in a house (your principal residence) and the value of your home is $400,000. You have a mortgage on your home and the balance is $250,000. Therefore, 80% of the value of your home (valued at $400,000) works out to be, $320,000.
We then take $320,000 and deduct your outstanding mortgage balance of $250,000. $320,000 minus $250,000 equals $70,000. Therefore, in this scenario, you would have approximately $70,000 that you would be able to use to purchase an investment property. With the secure line of credit, you only pay interest to the bank on whatever amount you use. Meaning, that you can be approved for the $70,000, and you can utilize the funds at your discretion when you are ready. The interest rate on a secure line of credit usually is around the bank’s prime lending rate. This method is one of the cheapest ways to borrow funds, especially if you are in a low interest rate environment.

3) Use a Vendor Take Back Mortgage

This is a fantastic way to find money in order to buy a real estate investment. Experienced real estate investors will tell you that this method was used frequently in the 1980’s, during a higher interest rate environment. Here is an example of how this method works. You purchase an investment property from a seller. Let’s call the seller, Sanjay. By the way, Sanjay is also the vendor, because the vendor and seller mean the same thing here. When you buy the house from Sanjay you ask him if he would be willing to do a vendor take back mortgage. If he agrees to this, this is in your favour.

What is a vendor take back mortgage?

A vendor take back mortgage or VTB is an arrangement where you are obtaining a mortgage from Sanjay (the vendor/seller). In essence, Sanjay has pretty much become ‘the bank’ here. You will be responsible to pay Sanjay mortgage payments, often principle and interest, or just interest on the funds that you have borrowed from him. Keep in mind however that you still need to secure a ‘first mortgage’ from a bank or major financial institution. The mortgage portion that Sanjay will be lending you often times is in the range of 10 %to 15% of the value of the home. This is good because this decreases the total amount of cash required that you have to put into the deal.

Why would Sanjay want to give you money?

There could be a variety of reasons. Perhaps Sanjay has had a difficult time selling this property in the past. As a result, he agreed to the VTB mortgage in order to make the deal work between the two of you. In addition, Sanjay may not have needed the funds from the proceeds of the sale of his home. As a result, giving you a VTB mortgage, and making a return on his investment with these funds could be something that appeals to him. As a side note, real estate investors who sell off a large portfolio of investment properties to other investors often offer VTB mortgages as a way to, a) facilitate the deal, and b) as a means of continuing to make a return on their invested capital.

4) Leverage the equity in you rental property

Once you have equity built up in at least one rental property, you can use these funds wisely in order to continue to purchase investment properties. Financing rules with investment properties differ when compared to financing rules on you principal residence (the house that you live in). As a result, I always advise that you deal with a knowledgeable mortgage broker, or bank, in order to get the proper advice. However, the good thing here is that I can tell you how you can leverage you rental property. ☺
You can either put a secure line of credit on the rental property in order to access funds, or you can re-finance your rental property in order to pull out equity from the house. I would advise you to put on a secure line of credit, as opposed to re-financing. A secure line of credit is better because you will only pay interest on the portion that you use. If you refinance the property then you have to pay on the new mortgage balance. For instance, let’s look at some new numbers. Let’s say that your investment property is worth $300,000. Your mortgage on the property is $200,000. Rules vary as to refinancing, so once again it is important to consult a good mortgage broker, or your bank. However, let’s say that you are able to refinance your investment property to 90% of the value of the property. Therefore 90% of $320,000 is $288,000. You now have to take $288,000 and subtract your mortgage balance of $200,000 in order to determine the amount of funds that you have gained. As such, $288,000 minus $200,000 equals $88,000. So this means that you have $88,000 of new funds to invest into real estate investments. However, remember that because you did a refinance here, you owe principal and interest payments on your entirely new mortgage balance of $288,000, starting from the day these funds were advanced to you. So, as you can see, a secure line of credit is a better option, as you don’t have to pay, until you use the funds.
**Please also note that I have not factored in the cost of bank appraisals or bank fees with regards to the secure line of credit or refinancing.**

5) Purchase a Rental Property with a Joint Venture Partner

This method is used by both beginning investors as well as experienced investors. This is a fantastic method to use if you are looking to buy your first rental property or your 100th rental property. With the classic joint venture partnership, you have a real estate expert, who does all of the work associated with locating, buying, and managing a rental property. In addition you have the money partner, who provides the funds required in order to purchase the real estate investment. If a real estate investor is able to master the art of joint venturing, there is no limit as to how many rental properties they would be able to purchase. However, the most important aspect of the Joint Venture Partnership is that it has to be a win-win relationship for both parties. Having a happy joint venture partner is key. If you are delivering on your promises with them and you are doing a good job, chances are that they will become an advocate for you.

The H.O.P.E. Program has been able to help more than 12,000 people purchase homes who never thought that they could, helping even those people with BAD great.  This program is the premium 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.

Happy Investing!

Neil