First Rental Property

Hi Everyone,

I hope you are doing well.

Very often we hear about real estate investors who have become successful at investing.  We can read about these people everywhere, especially on the ‘Blogosphere’.  People like to write about their successes, and how well they are doing as investors.

However, we don’t often hear from the real estate investors that have failed, and who are no longer investing in real estate.

I have yet to come across a real estate blog written by a former swiss made rolex clones real estate investor, who has lost all of their money, and who are no longer investing in real estate.

The reality is that when people fail as real estate investors, they disappear into the night and we often never hear from them ever again.

This is unfortunate because these people have made mistakes that all of us can learn from.

As my blog has become a lot more popular over the past year, I have spoken to a number of people who have failed as real estate investors.  The truth is that there is not much of a difference between those that have failed and those that have succeeded.  For the most part, everyone starts off with great ambition, and with hopes of accumulating wealth through investing in real estate.  This is fine and dandy, but…

In only takes one mistake to fail.  Often it is this one mistake that wipes out the real estate investor altogether.

I will share with you one common mistake that is made by aspiring real estate investors.

This mistake relates to the purchase of new construction properties.  On a number of occasions, I have seen people make grave errors with this investing strategy.

Unlike many experienced real estate investors, I am a proponent of buying new construction.  If the numbers work, and you are buying in the right location, under the right market conditions (ie: transitional area)  you can really do well in terms of equity appreciation with new construction.

Despite all of the advantages of investing in new construction, I have witnessed people make huge errors with this this buying philosophy.

For example, In the Greater Toronto Area there were increasing numbers of people buying new construction from 2003 until about 2007.  The area was experiencing a rising market, and it was easy to look like a genius if you purchased new construction during these years.  It was not uncommon to realize  double and triple digit returns year over year, depending on the size of your down payment.  It was a great time as a real estate investor, and those that purchased during this time, realized substantial gains in property values.

This rising market made people believe that it was easy to make money investing in real estate, and as a result, people did not take the time to do their own personal research before buying.  They blindly jumped into buying new construction properties with that hopes that the property would rise in value and that they would profit.

I have been contacted by a number of people who bought new construction during the past several years and who have now found themselves in a position in which they are unable to obtain a mortgage for their new property.  Some of these people were able to able to obtain a mortgage at the ‘eleventh hour’, by bringing in mortgage partners,  however, many of these people ended up losing all of their deposit, and in some cases, even more than just their initial deposit.

I have seen people lose between $20,000 to $50,000 when they have attempted to purchase new construction properties and have not been able to close (obtain a mortgage) on the property.

When people are not able to close on the property, due to the fact that they are not able to be approved for a mortgage, they lose their deposit to the builder, and in many cases are sued by the builder for additional amounts.

There is one common mistake that these would be investors make, that results in the eventual loss of their money.  Their mistake is as follows:

They deposit money with a builder to buy a new property, yet they NEGLECT to determine if they are able to obtain a mortgage on the property, prior to making their deposit.

When the closing date for the property draws closer, they then try to obtain a mortgage by approaching their bank or mortgage broker.  This is often too little too late.

Had the individual first consulted their bank or mortgage broker, prior to depositing their money with the builder, they would know from the very beginning if they are able to afford purchasing the property or not.

It is a sad state of affairs, however, I have seen a number of people fall into this trap.  This truly is the dark side of real estate investing.  It is not pleasant to witness these people lose so much money.

What is even more troubling to me is that people think that they are invincible.  I have had a few occasions in which people have approached me and asked me questions about buying new construction.  I have spoken to them about the pros and the cons, and have advised them that BEFORE they do anything, they must first consult an experienced mortgage broker, so that the mortgage broker can advise them as to whether nový Mentolové příchuť Náplně or not they are able to afford the eventual mortgage on the new property.

I have given people this advice and on a handful of occasions they have not listened to me and gone ahead and purchased a new construction property, without even checking to see if they are able to afford the mortgage.

Having only been investing myself for under 6 years, I am not sure if this phenomenon of stupidity is a recent one, or if it has always been around.  I am wiling to bet that it has always been around, however, I would like to hear from those of you who are veteran real estate investors and who have insights to share on the new construction market.  Please share your comments.

In summary, there are a lot of people who lose large amounts of money trying to become real estate investors. We seldom hear about these people, and only seem to hear from those that are doing well and having a certain degree of success as a real estate investor.

It is very important to be aware, that with just one simple mistake (the mistake of not consulting a mortgage broker or bank) prior to purchasing a new construction property can very easily end a real estate investors career before it even begins.

If you make this type of mistake, you may dig a hole for yourself that may take you a lifetime to climb out of.

Continually educate yourself when it comes to real estate investing, and learn from the mistakes of people who have gone before you.

Best Regards,

Neil Uttamsingh.

PS: I can help you avoid the mistakes that many new real estate investors make.  Subscribe to my blog today. 

If you are a novice investor, one of the questions that probably is going through your mind is:

“If I buy a rental property, how do I know that I am buying it in a good location?”

If this question is going through your head, this is a good thing.

With investment real estate, there are many great areas to buy a rental property and then there are also very bad areas that you could buy a rental property.

The key thing to know is how to identify which are the good areas, and which are the bad areas.

By spending a little extra time and doing your homework, you can ensure that you are buying a piece of investment real estate in a solid area.

There are many factors to consider when buying. I have highlighted some significant factors that you must take into consideration before you purchase your first rental property.

For starters, you must ask yourself if there are any transportation improvements that are occurring in the city or town that you are looking to invest in. Transportation improvements can consist of things such as a new train station, a new subway station, new highways, or new airports. The construction of new transportation channels in a region is always a positive sign that the local economy will do well in the long run. When the local economy does well, so too will the short to long term appreciation rates of real estate.

If you are noticing transportation improvement in a region, this is a good sign. Begin to study the region further.

Another sign that you potentially are buying a rental property in a good area, is if the area is experiencing population growth. Not only should the area be experiencing population growth, rather the population growth of this area should be outpacing other adjacent areas. If this is the case, we know that there is a demand here. People want to be moving into this area. It is a desirable place to live. People will not want to move into an area that is undesirable. As such, there must be something special about this area. Continue to research it as a potential area to buy a rental property.

A third factor that you should consider when selecting your geographical area is the average income of the people living there. Most importantly, you need to know if the average income of the population is increasing. It is important that you know this information, as people with increasing incomes will generally have more disposable income. Not only will they have disposable income, in addition, homeownership for them potentially is easier due to their above average earning power. It is important to note that not all of these above average income earners will be homeowners. Many of them may very well be renters. As such, if you own a rental property in an area, where people are making above average income, you will be able to market your rental property to an audience of tenants who you know can afford living in your rental property.

Another important factor to examine when you are looking to buy a rental property in a particular area, is to observe and determine if the property is located in a transitional area. Transitional areas are often areas that are a bit rough around the edges, however, they are also areas that are experiencing significant long term change. It is through this change that long term real estate values can be affected positively, and in an upward trend. Not all transitional areas are created equal however. Some transitional areas many be at the very beginning stages of the change, whereas other transitional areas might be much further along the way with respect to all of the changes occurring. As long as you have identified a solid transitional area, with potential upside, this area could serve well as an area to purchase your first rental property.

Another factor, that is very important, that a lot of novice real estate investors forget to consider, is the political leadership of the given area. Whenever you are looking to purchase an investment property in a particular town or city, you must always ask yourself, ‘How is the political leadership in this community?’

This is a tremendously important factor to consider, as strong, forward thinking political leadership can help to increase the value of real estate prices in the long run. A city or town that is very innovative, entrepreneurial, and flexible will attract good things to that particular area. Big companies want to open offices in areas where there is good political leadership. Businesses want to operate in these areas, where they know that business, opportunity, and an entrepreneurial mindset is being rewarded.
Big companies do not want to open up offices in places that are experiencing slow growth, or negative growth. These companies do not want to operate or be associated with policy makers that are not going to work along side with them.
Strong and supportive political leadership in a region has a great effect. These are the areas that you want to be investing in.

If you are considering buying a rental property, and you know the area, but are unsure about the political leadership, call the town or city council and ask to talk to the mayor. Forward thinking, innovative mayors will want to speak with potential investors. They want to talk to you because they want you to invest in their city or town. They want their local economy to do well, and it will do well, if real estate investors like you, inject money into their local economy by buying rental properties.

If the mayor of the city or town is too busy to talk to each potential real estate investor, someone in the mayor’s office will probably put you in touch with the Economic Development Office. This is the office in the city or town, that knows everything, or should know everything about the local economy, the current policies, and the future plans of the region. If you speak to energetic staff at this office that are really passionate about their region, this is a good sign. Note this region down as a good place to potentially invest.

Ideally, you want to see present all of the factors listed above in a particular region before you buy a rental property. There are many areas that have these characteristics, as such are great places to invest. On the flip side, there are many areas that do not have any of these characteristics at all and are consequently terrible places to invest.

No matter what area you chose to buy your first rental property, make sure you do your homework, and exercise the necessary due diligence.

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

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

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

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

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

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

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

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

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

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

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

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

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

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