Tuesday, March 6th 7:00 – 8:30 PM
Forest Heights Community Library
251 Fischer-Hallman Road, Kitchener
LEARN:
How you will benefit from an experienced Realtor
How you save money using a Mortgage Broker
Why your Home Inspector is your best friend
What to expect from your Real Estate Lawyer
Bring all your questions & concerns.
Door prizes and refreshments
Register at wayne@waynekuhn.com
Wayne Kuhn – Broker
RE/MAX Real Estate Centre Inc. Brokerage
519-741-0950
Posted in I am a huge advocate of building equity through owning rental real estate.
When I find a property that matches your needs and financial requirements, there are three ways you can win with this property through building equity.
Equity = The value of a property minus the owner’s outstanding mortgage balance.
One: Buy a property or Condominium that will increase in value over time. This is not a guarantee; however since 1995 we have had a slow and steady increase in property values in the Kitchener – Waterloo area. As long as you maintain the property and there isn’t a major economic correction, this trend will continue.
Two: Buy a property where you can increase the equity through making small improvements. Painting, cleaning, and replacing floor covering are examples of low cost improvements that add value.
I remember a property I had where weeding the flower beds, trimming the shrubs and cutting the lawn made a major difference in the way the property presented itself. On a scale of one to ten, with ten being very good, try to buy a two or three and make it into a ten.
Three: You will build equity through every mortgage payment you make, whether weekly or monthly. You use the rental income to pay the mortgage expense. Your mortgage consists of two parts, interest and principle. The principle amount goes straight towards reducing the principle amount of the mortgage hence the equity in the property grows.
If this sounds too simple, maybe you are making this principle too complicated. It is indeed simple but does require some time and effort.
March 6th, 2012 7:00 – 8:30 PM
Forest Heights Community Library
251 Fischer-Hallman Road, Kitchener
LEARN:
- Valuable buying tips from experienced Brokers
- How to structure your mortgage financing
- What to expect from your home inspection
- Why a real estate lawyer is important for your protection
Bring all your questions & concerns
Register to qualify for door prizes
Wayne Kuhn: Broker – wayne@waynekuhn.com
RE/MAX Real Estate Centre Inc. Brokerage
519-741-0950
Let me share with you what I do and why it works for me.
Many years back I owned a duplex. This means I had two tenants in one building.
Being a busy Realtor, working long hours and many weekends, I found that I didn’t have time to cut the grass and look after the exterior as I would have liked. Having our own home and a cottage, I already had enough outstanding projects that needed my attention. On top of that were the family responsibilities. There is never enough time.
The solution may have been to hire a property manager. However, as a new investor that was not a consideration at the time. Perhaps it would be a consideration today.
Tenants are not usually great at keeping the lawn cut and the flowers blooming. Any property you have will require some outside maintenance. Your investment of time is well worth the return.
My preference is to buy condominiums.
They work for me because the exterior is completely looked after by the condo corporation. This includes, in most cases, the windows, doors, patio, fences, roof, driveway, snow removal and lawn maintenance.
Many people have the attitude that the condo fee is money thrown away. I don’t understand this thought-process. What the condominium corporation pays through my condo fee is the same as you would pay if you own a property that isn’t a condominium.
Another plus to buying a condo is the low cost to get into the market. Condos will start as low as $130,000 in the Kitchener and Waterloo area. This is slowly going up as well.
Another argument is that for the $200 condo fee I can carry another $30-40,000 in mortgage. Yes you can, however that also means you need a larger down payment.
We can volley the pros and cons all day, however, at the end of the day, condominiums work for me.
Investing in Real Estate:
Part 3 – What’s your Preference?
Now that you have an idea as to your financial picture and are working with a knowledgeable realtor, the next decision is choosing your preference in investments. I can guess you are doing this for the money, however what you buy will determine your pay back.
For example: You can purchase a property that needs a lot of repairs and up-grades and is priced below market value or you can buy a property that is in good condition and you rent it out.
Whatever strategy you use will determine your time of pay back.
1. Buy, fix and sell, commonly known as a flip, is your quickest return. However, it has a higher risk as you need to know your costs to repair, carrying cost and selling costs. All factored in, is there any profit and is it worth your time?
2. Buy, fix and hold will maximize your return as you build in equity immediately and buy at a below market price. Again, you need the time and resources to manage this type of investment.
3. My style is buy and hold. I don’t have the time for major repairs and I am looking for gains over the long term. This is slow, steady and almost risk free.
There are three ways to make money.
First is to save money in the buy. Look for a property that is a bit tired and messy that you can buy below market value. With a little soap and water or paint you can have it looking presentable for tenants.
Second, as the tenants pay the rent they are paying down the mortgage, building up equity in your property.
Third, if you follow the real estate stats you will notice there is an overall increase in property values. This is not a guarantee, as we saw in 1990-95 when the market dipped, however the overall effect still had positive gains.
Ask yourself what type of investment you want. Talking to other investors will help you see the pros and cons. Evaluate your resources and your time.
Next week, look for Investing in Real Estate: Part 4 – “My Preference”.
Investing in Real Estate
Part 2 – How to Get Started
If you research some of the wealthiest people in the country you will find that many of them used real estate as the foundation for their wealth. It is known to be a comfortable, low risk investment tool which you can see, touch and improve and it likely won’t disappear on you in a bad market.
If you are buying a house to live in, this type of real estate is more about emotion. Is it in the location you want to live? What can you afford and what features do you want in your home? How many bedrooms do you need? Do we need a garage? Is the kitchen big enough? It’s all about you and your family’s needs and wants. Getting the idea?
On the other hand, buying a property as an investment is less about feelings and more about facts. We want to feel good about what we are doing and this will come with education. Knowledge that you are doing the right thing will bring you confidence. Treat it like a business. Set up a separate bank account where you can track your income and your expenses. So, what do we do first?
The first step in becoming an investor is starting to gather information. Plan to attend a few seminars on investing in real estate. If you like to read, check out the library for books on investing. Make sure they are printed in the last 10 years and that they are authored by Canadians.
I believe that if you want to achieve something great, then get to know people that have done what you want to do. Hang out together. My experience is that most successful investors are very low profile and will not stand out in a crowd. Search them out. They are proud of what they have but don’t need the world to know. Don’t survey the general public about what you are planning to do. Talk to those that are doing it. In the Kitchener and Waterloo Area we have WRAMA (Waterloo Regional Apartment Management Association). These are investors and landlords that meet to share and educate each other. Check out their website www.wrama.com.
Start interviewing real estate agents. You should be working with an agent that has experience in dealing with investment properties. Note that agents who own investment properties themselves tend to be more informed about the market. They will advise you on good value properties, favorable locations and the type of tenants they attract.
It is also time to visit your bank and review with your banker how much money you have available for a down payment. I don’t recommend you talk to your financial planner as I suspect they will discourage you from cashing in mutual funds to diversify into real estate. As a Realtor, I always recommend my clients talk to a mortgage broker even if it is only for a second opinion. Many clients find this an “eye-opener” when they find that the bank didn’t give them the best rate and terms available. Shop around. Take your time.
Next week look for Investing in Real Estate: Part 3 – “What’s your Preference?”
Investing in Real Estate
Part 1 – Leveraging
I attended a seminar this past week on investing in real estate. I heard about a person’s success in buying real estate in the local Kitchener and Waterloo area and I wanted to know more about his strategy for building wealth. Having investments myself, I still look for ways to improve. Let me share some thoughts with you. . . .
I thought the way to accumulate wealth was to make more than you spend. That works. However, the faster way to more wealth is through leveraging.
Most of us are familiar with owning a house, a cottage or condominium, so we are already investors in the real estate we live in. What would happen if you bought a second house or condominium and had a tenant pay for it through renting? If you are already a homeowner, then this is a small step that takes little effort. The end result is that at some point in the future you will have two houses paid for instead of one. Sounds simple? It is!
Why do only a few people do it?
If you take the time to educate yourself, you will soon see the benefits of using real estate to leverage your way to accumulating more wealth and an early retirement.
What is Leveraging?
A method of financing an investment by which an investor pays only a small percentage of the purchase price in cash, with the balance supplemented by borrowed funds ( a mortgage), in order to generate a greater rate of return than would be produced by paying primarily cash for the investment; the economic benefit gained by such financing.
Let’s look at a simple example:
You purchase a property for $200,000. Put down 10% or $20,000 and take out a mortgage of $180,000.
Over time, the value of the property goes up to $220,000.
The equity in the house goes from $20,000 to $40,000.
You will notice that the value of your property went up $20,000 or 10%.
However, your initial investment of $20,000 is now $40,000 or an increase of 100%.
(this example shows only capital gains, no expenses)
This is Leveraging in action.
Next week look for Investing in Real Estate: Part 2 – “How to Get Started”.
Many Sellers ask their real estate agent, “How long will it take to sell my house?”
We could look at the stats and give you figures, like the average home in the Kitchener – Waterloo area is selling in 35-40 days. However, where does your home sit on this scale? Is it average? Is it higher or lower than average? The trained eye of a professional Realtor could give an answer based on what the market is doing at the time. The short answer is “It depends”.
This week I listed and sold a house in 3 days with 4 offers on the table to choose from.
Let’s look at the facts that may have contributed to this:
1) The house was in a good location at the back of a quiet court with a large well-groomed backyard.
2) The house was very clean and showed well, not over-improved and not extremely updated. A home stager was not required in this instance.
3) There was little competition, meaning a buyer looking in this area and price range didn’t have a lot of homes to choose from.
4) We did a public open house at the first earliest date and posted lots of pictures on www.mls.ca to ensure the house was exposed to as many Buyers as possible. I knew if we could get multiple offers at the same time we would net more for the Seller.
5) We looked at homes of similar size that sold in the area and made sure we were in the price range of what the Buyers were willing to pay. This process is referred to as a CMA (Comparative Market Analysis). The Seller often falls into the trap of thinking their property is worth more than it is. This is why a CMA is important.
If your home fits into the above criteria, you can start packing your bags as the sale of your home is almost guaranteed!
Have you noticed the lot sizes of properties are getting smaller and smaller?
Do we have a shortage of land?
If you live in Toronto, your answer would likely be yes. Living in the Kitchener, Waterloo, Guelph golden triangle, with our wide open spaces of farm land, you may say no. There is Lots of Land.
Inspired by an article in the Guelph Mercury, on Oct. 5th 2009 titled “Residents Oppose Housing Plan”, residents object to a developer wanting to amend the present zoning bylaw to give him flexibility to build a variety of types of housing units, Not single family homes as the present neighboring area is.
This has been on going for years and we need to get use to it. “It’s the way of the future”
Two main reasons come to the forefront:
1) Developers want to maximize the land usage. I recall many times sitting in the City Counsel meetings where Developers are requesting changes to the plans to reduce lot sizes from 45 foot lots to 40 foot lots. And now I see 30 foot lots. This is pure economics. Costs increase, and bigger homes on smaller lots means more net profit.
2) The Government is now legislating higher density. To put it simply, the green plan is to make better use of the land, requiring Cities to have so many people living in a square mile. Higher Density.
So get use to it. “It’s the way of the future”
If you live beside an open lot, it may be the next site of an apartment building in your area.
Many of my clients are looking for a house with a larger lot. This is becoming a bigger challenge for me as the developers are building homes on smaller lots and the Government is legislating higher density. More people living per acre.
This is favorable for two groups:
First, the younger demographic that works all day and comes home famished! The last thing on their agenda is to cut the lawn, weed the garden or shovel the snow. They are thankful for the townhouse or condominium with the patio-size yard and the 42 inch big screen TV.
The second is the top side of the boomers, now empty nesters who are totally stretched between the cottage and visiting the grandchildren. They too are happy to relax in their condominium with no lawn to mow or weeds to pull in the garden.
So, you still want a large lot with a garden, flowerbeds, a pool and lots of trees? Then listen up! There are homes available. Opportunities! We don’t have to go far to find the 50 foot lots. Check out the areas built in the 1950’s-1970’s. Many of these areas are well established, affordable and have good size yards for gardens, kids, and maybe even a trampoline.