Have you been searching on MLS for months and feel like you can’t find any deals? And when you do find a deal, they are located in high crime rate areas and beside crack houses?
Or, you feel like your city is overpriced because you live in one of the most expensive cities in Canada?
One of the biggest challenges real estate investors face is finding deals THAT CASHFLOW. I have felt this pain for years, searching Canada-wide for deals. Since accumulating properties in 4 different cities and reflecting on their performances, it hit me that the best ones are ones where I created the deal.
My goal in sharing this article is to showcase how patience reigns supreme and that deals are possible even in ‘A’ neighborhoods if you are willing to be creative and roll up your sleeves.
I want to share more if these posts so I can share the good, the bad and the ugly so you can learn from my mistake, jumpstart your knowledge and be on your path to Financial Nirvana.
In this article, I’ll share how I bought my 13th rental property and most importantly help you learn:
How I found this house so that you can learn to create deals. p.s., it isn’t as easy as finding a cashflowing deal on MLS
Why I chose this rental property so that you learn the success factors that makes up a good property
How to find a rental property that is aligned to your LIFESTYLE.
How Did You Find this Awesome Property?
I’m always keeping an eye out on prime real estate in several key neighborhoods.
And getting deals from real estate agents or other real estate investors under 350k catches my attention for starter family homes.
When you spend months looking at listings, you get good at knowing what’s a bargain in that neighborhood.
What caught my eye with this listing:
there were 2 exterior pictures on MLS for this property (awesome flag that it was too ugly inside for realtors to take pictures)
It was on MLS for at least eight months.
And the price was steadily dropping every couple of months.
And after talking to my fellow neighbors, it was a secret estate sale.
Following the scattered breadcrumbs, I knew I could make this work. I had to be creative and work with my realtor on how to make an irresistible offer.
How Do You Starting Finding Awesome Deals?
Remember the first time you were looking for a home to buy and live in, you probably chose a couple neighborhoods and poured your soul looking through the properties. And after looking at many listings, I betcha you developed a knack for spotting a potential deal.
Finding a rental property is a similar process but much less time consuming because you screen them based on your number crunching skills well before you decide to invest your time and make a visit.
And if you are creative, you can develop a win-win deal by solving the seller’s pain and get an awesome deal yourself.
How I Chose this Rental Property Based on my LIFESTYLE:
I’m going to demonstrate how this property meets my lifestyle formula:
The key to Buying a rental property is one that aligns to your LIFESTYLE:
Location:
This property is located in a desirable and safe neighborhood. There are kids playing outside in the streets and several notable schools in the area, including a top-rated French immersion.
And most importantly, I feel safe walking outside late at night in the neighborhood so my tenants will, too. Plus, I can head over to the river, go for a long run or bike ride along the trails.
Here are more awesome things about this location:
near large shopping centres
major transit routes,
Minutes away from major employment centers (government buildings)
Adjacent to parks
20 minutes from downtown
Great ways to determine the desirability of your rental property is checking out the walk score, bike score, and transit score here.
The higher the score, the more desirable a property is for renting and selling, the higher the quality of the rental pool you can draw from and the higher the rent you can potentially charge.
Improvement potential:
This property had no interior pictures on MLS so no wonder it wasn’t getting a lot of attention. But it caught my attention.
When I walked into the unit, it confirmed my suspicions – it was pretty ugly inside. Imagine stepping into 1970’s again. The cupboards were pale yellow, and the linoleum had yellow flowers with brown tracings complementing it. The carpets were an ugly faded green and the walls matched it.
But I saw the potential and a lot of upsides – an opportunity in disguise. The property only needed cosmetic changes – known as ‘lipstick and rouge’. It needed paint, new kitchen cupboards, new carpets and hardwood floors. The property only needed simple cosmetic upgrades. Plus, it had a huge front yard which is a plus for tenants with pets or animals.
After blinging the property – here’s what it looked like:
Finances:
Cash flow is key to surviving any downturn in a business. Real estate has cycles, when there is an up, it’s usually followed by a down. And as much as I love appreciation – CASH FLOW is what pays the bills and covers future CAPITAL expenses like roofs, tree removals etc.
After crunching all the numbers using this calculator, average rent in this area COVERS all expenses (mortgage, property taxes, insurance, maintenance and HELOC payments)
AND
Meets my minimum monthly cash flow requirements of $200/month after all expenses.
2.5 years later, this property has netted me $4800 in cashflow plus $12K in equity paydown even after paying for an expensive tree removal, and a new furnace.
For the NUMBER LOVERS, here’s what a joint venture partner could make (if I wanted one) and I used super conservative appreciation numbers too!
Easy:
This property only had one owner since it was built so it was very well maintained, as revealed in a house inspection. And it’s walking distance from my own house so management is very easy peasy on my life if I had to check on things.
Rents are also quite high because it is a nice house in a nice area in a white-collar neighbourhood.
Since blinging it through renovations, the property sells itself. It has a nice new kitchen, beautiful bamboo floors, open concept great room, 3 decent bedrooms, large basement and single garage.
Bottom line: It’s easy to rent out and attracts ‘A’ tenants.
Starter home:
The average single detached home price is well over $500K. Because singles are getting expensive, the starter home is typically a condo or a semi-detached home (aka duplex) or townhome in Ottawa.
AND this property is a classic starter home in Ottawa. Starter homes like this attract a wider pool of tenants (those who are upgrading to a place of their own or those who are downsizing) and have the most liquidity.
After buying and renovating it, the house was appraised at $425K three months later so if I decided to sell it, I could flip it for a healthy return.
Trending neighborhood:
Pockets of infills, additions, exterior changes are all over this neighborhood – proof that people take pride in their homes and the area continues to improve.
These vital signs have the greatest potential for property appreciation.
You:
Buying this property meant bringing me closer to my ‘Why’ – which is accelerating my path to financial nirvana, and more income so I continue to lead a more purposeful filled life not driven by money and to build a nice nest egg for my kids and retirement.
Low price:
The property was under market value. It was listed at $319K. The last home sold like this was $425K – three doors down.
$80-$100K underpriced…all because it needed a bit of blinging and had no pictures on MLS so no one wanted to see it.
Buying this property means making money when I buy. This is a lower priced home with good bones located in a nice area requiring simple cosmetic changes.
And after asking my neighbors about this property, I found out this house was an estate sale and the family who inherited the home was desperate to sell it to stop hemorrhaging money for monthly expenses. So I offered a quick closing to help relieve the burden on this family and get a good deal on the price! I ended up buying for $300K, a whopping $19K under listing! Six months later, the house was appraised at $400K!
Economic Factors:
Buy a home in a city (or part of town) where there are excellent market fundamentals. Market fundamentals include growing population, rising average salaries, good incomes with lots of employment opportunities, growing job force, major infrastructure projects (new skytrains, subways, highways etc.), stable rental rates, and low historical vacancies.
For example, here is why I love this neighborhood:
Population growth is greater than the surrounding area average – that’s why schools are overfilled in this area;
Ottawa is putting in a light rail transit station a few blocks down this house, part of a $1 billion dollar investment that the city is injecting in infrastructure and transportation;
Lots of local businesses and big box stores surround this neighborhood;
Easy drive or direct transit to government buildings (< 15 mins away by bus) meaning that lots of government workers and white collar professionals live in this neighborhood, keeping this area alive;
Very low vacancy rates in this area (<1.7%) compared to the city average of 3.4%; based on the latest city housing report and,
Strong housing demand.
Now that you are inspired and feel the itch to buy a rental property….
I BEG YOU – Please Don’t Buy a Rental Property Just Because of a Fancy ‘Goal’
Countless times, I meet a real estate investor who has a ‘magic’ number for rental properties. For example, I need to buy 10 properties in 5 years and then I can sit back, enjoy life, GET RICH, and drink up.
I hate to break it to you, but rental properties include tenants and they are like children. The more children you have, the tougher life becomes and you are too BUSY to enjoy life even if you have property managers to oversee your properties. I used to be that person.. please don’t be that person.
I beg you, BUY a rental property that ALIGNS to you and your LIFESTYLE.
Simple Questions for YOU Before Diving into your Next Rental Property:
Before you jump into an investment property, ask yourself these key questions:
How much time can I dedicate to real estate investing now and in the next couple of years?
Even with a property manager, some properties require more frequent care and attention than others, especially if you have more tenants involved.
Can I dedicate several weekends at a time (and maybe some of my vacation days) to renovating the investment property?
You can find hidden opportunities by looking for a property that needs work. But if that’s not your thing, look for something turnkey, or budget for contractors to do the renovation.
What kind of tenants do I want to attract?
Students, young couples, subsidized income, high income, … Each home and location will attract a particular type of tenant. Which can you most easily deal with and know how to deal with?
Do I want freehold or condominium?
There are benefits to both. However, if you want full control to modify your property and maximize its benefit, freehold is the preferred choice. And condo fees never go down so it can eat up your cash flow over time.
There are hundreds of ways to invest in real estate, so find the best property that best fits your time availability and lifestyle. If you have time and enjoy renovations, you may prefer ‘fix and flips’. If you want long term stability like I do, and more time for yourself, you want to focus on starter homes in white collar neighborhoods. Or if you want to completely hands off and get a steady return, search for turnkey solutions.