First Rental Property

Today I would like to give a special mention to a  few noteworthy blogs.

I have been paying particular attention to a couple of blogs over the past few weeks.

I find the content on each of these blogs to be very good. Also, from my observation, the people that write these blogs have good integrity and they are smart business people.  Both blogs do a very good job of creating an image of the people ‘behind’ the blog. 

Below I have listed the links of the two blogs that I am speaking of.  I wish both of these blogs continued success because the information and the message that they are providing is very valuable. 

The blogs are…

Mark Loeffler’s Blog.

Mark Loeffler, a.k.a. The Versatille Investor is a fellow REIN member. Mark has expert knowledge on the Rent-To-Own method of real estate investing.

Nick and Tom Karadza’s Blog

Nick and Tom Karadza are two brothers who are real estate investors and Realtors. They are very genuine guys and master online marketers. Their blog is very interactive and well laid out. A must view.

Check out these two blogs and let me know what you think of them by commenting below.

To stay up to date with my blog, click on the orange RSS button on the top of this page.

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!

The Rent to Own System of real estate investing is by far better than the out of date Buy-Hold-Rent method.

Some of you may not have heard of the Rent to Own method before. That is okay. Here is an explanation:

A real estate investor has a rental property that they would like to rent out. They find a tenant who would like to rent the home, with the option to purchase it down the road. (In this scenario, we are going to refer to the tenant as the tenant/buyer). An agreement is established between the investor and the tenant/buyer. Contained in this agreement are a number of things. First, in order for the tenant/buyer to rent the home from the investor, they have to provide a down payment to the investor. This down payment that is provided will be used toward the future purchase of the home by the tenant/buyer. Second, the tenant/buyer agrees to pay the investor their standard monthly rent. In addition to the monthly rent, there is a premium that the tenant/buyer pays over and above their monthly rent to the investor. This monthly premium is credited to the tenant/buyer’s down payment and factored into the final sale price at the time of the purchase. Also, the final sale price of the home is usually established on day one by the investor. The final sale price of the home can be the market value of the property at the time of sale, or there can be a fixed appreciation model in place. For example, if the term of the Rent to Own agreement is 3 years. It can be pre-determined that the property will appreciate in value the first year by 4%, the second year by 5%, and the 3rd year by 5%. Usually, Rent to Own Terms are established for 2 or 3 years. After this term has been completed, the tenant/buyer has the right to exercise their option and purchase the property.

The benefits of the Rent to Own system to the tenant/buyer are plentiful. In my opinion the most important benefit is that the tenant/buyer is able to realize home ownership sooner rather than later. They are able to realize homeownership sooner because the ideal Rent to Own candidate has sufficient income in order to qualify for a mortgage, however their credit may be slightly bruised, and in need of some repair and attention. The tenant/buyer works with the investor over the course of the Rent to Own term, in order to repair their credit, so that they are able to purchase the home at the end of their Rent to Own term.

The benefits of the Rent to Own method to the investor are equally as plentiful. In my opinion, a couple of significant benefits are, 1) the increased monthly cash flow, and 2) significantly reduced repairs and maintenance required on the property.

This is an area where The Rent to Own and Buy-Hold-Strategy differ quite substantially. With the Rent to Own arrangement, the tenant/buyer is often times responsible for all repairs and maintenance on the property. In addition, Rent to Own tenant/buyers generally speaking have a high degree of pride of ownership. With this increased pride of ownership, properties are often treated better by the tenant/buyers, and they are not treated the same way as a straight rental unit.

So why is the Rent to Own Method better than the Buy-Hold-Rent strategy?

Two reasons.

1) As the real estate investor (which you are), you are (or should be) concerned with the cash flow of your investment property. The more cash flow that can be generated by a property, the better.

2) You do not have any repairs and maintenance to worry about. This point should not be underestimated, as many beginning investors are terrified of being a Landlord, and they are terrified of the duties and responsibilities that come along with this new role.

In addition, the Buy-Hold-Rent method of investing is less favourable than the Rent to Own Strategy, due to a number of reasons.

1) You are responsible for repairs and maintenance. No matter if the property is brand new, or many years old, there are repairs and maintenance issues that come up on all properties. If you are not a handy person yourself, then you should be delegating this work out to qualified handymen. This comes with an addition cost though.

2) Not as good cash flow is another reason whey the Buy-Hold-Rent method is less favourable than Rent to Own. Often times with these properties, your profit margins can be thin. Any unexpected repair or maintenance issue that you have to have completed can potentially wipe out your positive cash flow for the month, or even for the entire year.

The Rent to Own Method is gaining more popularity and support among real estate investors due to the clear advantages over the outdated buy-hold-rent strategy.