Better Times Ahead For Savvy Investors & Landlords

July 30th, 2010 · 3 Comments · Buying or Selling Your Property, Commercial Property, Property Management, Rental Property

I have rarely been accused of being a merry ray of sunshine. I’m also not a psychic. This means that I don’t usually make predictions. I also believe that good real estate investments can be found in any market if you know what you’re looking for. Investors, especially new ones, don’t know what they are looking for. They are generally looking for something exactly like all the investors are looking for. A nice, clean, pretty place in a great location that is well managed and cash flows like crazy.

Competition is a Problem

Demand for these rare properties means that you can’t actually buy them at realistic prices that will cash flow. Real estate agents have worked around this little problem by not accounting for any property management, maintenance and vacancy expenses in their cap rates. This way they can make a negative cash flow property look like a winner. The only person who will buy this crap is the new investor who has read too many real estate guru books. For an anti guru reality check, John T Reed’s site has a BS detector for Real Estate Gurus.

What really gets me going!

I have no problem with someone buying a negative cash flow property if they know that that’s what they are doing.  Vacant properties are cash flow negative. So is land. What gets me just livid is people misrepresenting buildings as great investments when they aren’t. Sure if all the stars align you might pull a few thousand out. But that almost never happens. Stuff breaks, tenants leave and suites need to be turned around and rented. Everything costs more than you think it will.

Back to Cheeriness

I wrote a post for Million Dollar Journey about the Good News for Landlords & Investors. Basically people are going to have to come up with some serious cash before investing 20% for investors for residential, 30% for mixed use and 5% down for homeowners. This means no more going around with your underwear and a good job and buying some “Great Investment”

As more people rent while they save we’ll get some more decent renters. Investors putting more sizable chunks of cold hard cash will start to ask for some return.

Speaking of renters Mr Cheap wrote a couple good posts about his travails finding good tenants recently on Money Smarts Blog The posts are titled Finding New Tenants Part 1 and Finding New Tenants Part 2.

I’m quite convinced there is a sizable number of investors out in the great blue yonder wondering why they aren’t making money with their real estate. Their first act will be to blame themselves thinking they are doing something wrong because “everybody knows” that you can make money in real estate. They don’t know that if you pay too much there’s no way you’ll make money, or that if your business plan counts on the daft idea that you’ll be luckier than the last guy it won’t work.

My thoughts are that getting great value is a good idea. The building is just the shell of your renting business. As a property manager you never get to pick your own building. You have to make what you got work. My philosophy has always been to work smarter than the last guy and know what my job is. Lots of property managers are glorified accountants. That’s not my bag. I always figured my job was to make sure the owner made money. I can make pretty reports too, don’t get me wrong; I’d rather go and knock on some doors and collect rent arrears or call a bunch of contractors to get better prices quoted.

What You Think Is a Good Investment Isn’t

I see money in a beat up, badly managed, half empty property. Sure you’ll walk in there and have to put out more money to make it work. There’s good profit in buying what no one else wants at a discount. It also looks like the market is headed for a correction. A good time to buy would be when the newspapers start freaking out that real estate prices are crashing. No one else will be buying at that time. Sounds like a deal to me.

More Good News !

I’ll be attending the Canadian Apartment Investment Conference. I want to hear what smarter, more educated people have to say about the state of the nation. I’m always quite willing to learn. I don’t know everything. So I’ll be telling you all about that after I attend in September.

Even More Good News !

I wrote in a another post for Million Dollar Journey that Vacations Can Make You Money? That one was about the importance of taking a break every once in a while and being kind to yourself. This helps you make good business decisions and think creatively about any problems that come up. I’ve been taking my own advice to heart and taking mini breaks and making sure my son gets to the pool on a regular basis.

My mother-in-law is visiting and she can’t believe how long it takes for me to write my posts and articles. Then she compliments me on how great she thinks my writing is. Then a remark about how the dishes didn’t get done by themselves yesterday. Yesterday morning I took a break from writing and published a post I wrote a while back. I then went out and fixed the retaining wall that fell down when they repaved my driveway last year. Said retaining wall is made of large, very heavy limestone blocks. The afternoon was spend laying on the couch hoping that I didn’t permanently damage something important. Now that that impressive task is out of the way I can go find some pretty flowers to plant.

Everyone else was raring to go and very ambitious this spring when plants were expensive. Now I can go get some bargains. My local grocery store had perennials on sale for 75% off. I like my flowers just like my buildings, beat up, out of favour, sustainable year after year and on a deep discount.

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3 Comments so far ↓

  • JW

    I figure that in a market like this, it can be pretty tough to make an income-property purchase “work”. A high purchase price (at the top of the market, as we are in today) just means less flexibility in setting the rent, less money for maintenance and less profit overall. Plus if “everyone” is buying, your pool of potential renters shrinks. Right?

    • Rachelle

      Your pool of potential renters becomes limited to people who have horrible credit, people not settled, people who don’t make any money or other people who don’t want to buy. Now we’ll get the people who are planning to buy but have to wait until they can save. It’s a crucial change and quite welcome.

      Prices on income properties should go down as investors also have to save more to put more down

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