11 Things I've Learned About Investing In Real Estate
Eleven things I've learned about investing in real estate
$86,000 seemed like an awful lot of money back then, but the fact that my dad was so excited about real estate investing reassured me that, at 19 years old, this was the best thing I could do with the $10,000 I had saved.
I originally had a car in mind, but a house was the first thing my dad invested in when he had the money. Looking back, that purchase was motivated more by making him proud than how I would have imagined it was going to positively change my life. The purchase happened quickly. At first, I didn’t understand the investment part but was mostly excited about owning something.
Twenty-four years of real estate investing and a portfolio shaped by that first purchase, I’ve sure learned a lot.
Now I’ve managed to get to a position where I treat every day managing them like a separate job and less of a hobby. After years of talking to others about owning real estate and the investment side of it I have refined my view on it and love to share what I have learned. I am far from the only investor in town and learn something new all the time. I welcome anyone to share their views.
Below is some counsel borne from a couple decades of real estate investing – the good, bad (not much), and ugly (mostly toilet fixing) experiences, and I hope you enjoy the read.
1. The first one is the hardest
The nerves. “What if I can’t rent it?” I hear this too often. It’s hard to reassure that uncertainty sometime, but purchasing an investment property is a very calculated decision. We are all afraid of what we don’t know as well. If I was buying a ski home or a place in Florida to rent, I would have the exact same concern. Frankly at this point my decisions in real estate are so calculated I could buy a piece of real estate easier than I could decide on a pair of sneakers.
2. It takes time
I have always said, “Its more about time in then timing.” Waiting for markets to crash, a better deal, or interest rates to fall lower just keeps you out longer. Time in, when the distance between what you own and what you owe grows wider, is how you will succeed.
3. Treat it like a business
If you had a store would you have dirty windows? A lousy product? Never go by and check in? There is your answer: a hands-on approach in the beginning gives you expectations for hiring someone later. Take care of what you own and it will take care of you.
4. Do the work yourself first
During those early years of owning rental properties the last thing I wanted to do on a Saturday was snake a toilet, but my dad was steadfast that “You can’t afford to pay someone else to do it. That’s not how to get ahead.” So, I did all the jobs I could. As my portfolio grew, it gave me knowledge of what things cost, and which ones were worth hiring someone to do. That hand on approach has paid huge dividends in my life.
5. Re-evaluate every 5 years
As my mortgages mature, I re-evaluate my equity position. Simply put, if I have grown to a substantial amount (an amount that can be used to purchase a better, or even more additional properties), I re-evaluate how the property performs. If I continue to see value in the property even at today’s prices because of the strength of its performance, I may refinance, moving equity into the acquisition of more property. If I feel the value has risen to an amount I cannot support, I become a seller, using the proceeds to blossom into more ownership and hence increasing the incline of the performance of the portfolio.
6. The investment of a home is overlooked too much
Relax, you are already investing in real estate. Forget just rentals, your principle residence will prove to be one of the best assets you ever own. Think about it. If you live in a $500,000 home, and real estate rises by 5%, you are making $25,000 tax free for year one of owning that home. How much money do you have to earn to save $25,000 tax free? Frankly, most people just can’t. Home ownership is like a watchful parent, making sure you are saving money instead of wasting it. Live in the house you want. I hesitate to call it an investment because it is an asset. However, the minute it makes you money, it is one.
7. Renting a property can be a lot like flipping
I have always put more into my rentals than others thought I should. In fact, I probably would continue to raise the bar if I had my way. The better it looks, the more rent you will get, the better the tenant, maybe even the longer the stay. Houses sell for more money when they look great. Renting is no different.
8. Take care of small problems before they become big problems
A $500 dollar leak can become a $5,000 disaster if left untouched. Make sure you do monthly inspections of both rentals and your home. Maintaining a watchful eye can be the difference. Check the downspouts. Clean the gutters. Don’t overload the washing machine. Clean the furnace filter. Ever hear the expression, “a clean car runs better”? Home ownership is no different.
9. The numbers speak. Learn to look closely at their performance
I went from “I think it should break even,” to analyzing my return on equity in years 5-10. The numbers of a rental can tell you a lot about the performance. It’s one thing to look at what a property makes you per month, but another to look at the performance in later years. Doing this gives you the ability to prepare for decisions and perhaps accelerate the performance by being ready.
10. You get a return on the down payment, not on the value
If I buy $500,000 of stock and it goes up 10%, I’ve made $50,000. Great, right? But if I buy a $500,000 property, I may only have to put down $100,000. If the value goes up 10%, I’ve still only made $50,000, right? But, it’s a 50% return on what I put in. You just can’t beat it. Trust me, I’ve tried.
11. It is never too late to start
Too many people have said, “I should have started when you did.” My answer: Start reading the article again.
Navigating the real estate landscape Welcome to the first instalment of our monthly series dedicated to Baby Boomers and even some Gen X’ers navigating the real estate landscape and embracing lifestyle changes. In this series, we will delve into various aspects of the home-selling journey, offering valuable tips and insights specifically tailored to the unique needs of this demographic. The decision to sell your home as a baby boomer is often more than a transaction; it's a pivotal moment that marks a new chapter in your life. Whether you're an empty nester looking to downsize, seeking financial freedom, or simply ready for a change, this series aims to be your comprehensive guide. In this inaugural article, we'll explore why now might be the right time for baby boomers to sell their homes. From the emotional aspects of letting go to the practical considerations of market dynamics, we'll cover it all. Without further ado, let's dive into the first topic: Embracing Change – Why Now Might Be the Right Time for Baby Boomers and even some Gen X’ers to Sell Their Homes. As the winds of change sweep through the real estate landscape, many baby boomers are contemplating a significant life decision – selling their homes. While the emotional attachment to a home can be strong, there are compelling reasons why now might be the opportune moment for baby boomers to make this transition. Empty Nest Syndrome: The kids have flown the coop, and the once vibrant family home might feel a bit too spacious now. Downsizing can not only reduce maintenance costs but also provide a newfound sense of freedom and simplicity. Financial Freedom: With property values having likely risen considerably from the time you purchased your first home, selling and downsizing can provide a substantial financial windfall. If you are Gen X or Baby Boomer, this is a tremendous opportunity to bolster your retirement savings, embark on new adventures, or even assist your children with their own housing endeavours, while simultaneously simplifying your life. Maintenance and Upkeep: As homes age, the upkeep and maintenance demands can become more burdensome. Selling your home now could mean leaving behind the hassle of constant repairs and yard work, allowing you to enjoy a more relaxed and maintenance-free lifestyle. Shifting Market Dynamics: The real estate market is ever-changing, and keeping a close eye on current trends is essential. With high demand and low inventory in many regions, baby boomers may find themselves in a seller's market, potentially fetching an optimal price for their property. Even when the overall market has cooled, as it has over the past 18 months, there are always properties where it doesn’t matter what the market is doing, demand will always remain high with Sellers still fetching a premium for their homes. Lifestyle Changes: As Gen X or Baby Boomers entering a new phase of life, your lifestyle preferences may evolve. Selling the family home can open the door to new living arrangements that better align with current interests, whether that be a smaller residence, a retirement community, or even a travel-centric lifestyle. While the decision to sell a home is deeply personal, considering the current market conditions, lifestyle changes, and financial opportunities can help you make an informed choice. Embracing change and seizing the moment might just lead to a more fulfilling and comfortable future. If you feel you may be ready to embark on a new chapter, explore different living arrangements, or capitalize on the current market dynamics, or, you're a baby boomer that is contemplating the sale of your home, let's have a conversation. Together, we can explore your options, discuss market trends, and create a personalized strategy to maximize the value of your property. Contact me today to schedule a complimentary consultation. Let's turn the page and embark on this exciting journey together. Your next adventure awaits! Written by: Tom Hillson, Sales Representative
Purchasing a home in the current market In September there was a lot of talk on the return of the real estate summer slowdown. I addressed the concern and panic among some sellers in my newsletter, and how this shift is an integral part of the ever-evolving real estate landscape. This volume will focus on the advantages of being a purchaser in the current market. Healthy Market Stability: While the market's pace may have slowed down, it’s important to recognize that this is a sign of a healthy and balanced market. Buyers now have the opportunity to conduct thorough due diligence before finalizing a property purchase. Conditions like financing, inspections, and sale of property are back in play, allowing buyers to make informed decisions. Fixed Interest Rates: The topic of interest rates has recently experienced day-to-day fluctuations. With the Bank of Canada bond yields decreasing this week, we anticipate a continued reduction in fixed mortgage rates. It's important to note that bond yields and fixed mortgage rates have a direct connection. Meaning when bond yields lower, fixed interest rates decrease. Although lenders have begun to reduce their fixed rates, the decrease is not as significant as the fall in bond yields. Current rates for an insurable 5-year fixed are 5.75%. Lenders rates tend to take the elevator on the way up and the stairs on the way down. Overall this is excellent news for anyone with a mortgage renewal approaching in the near future.
Real estate in Guelph I am not going to pretend I know what is going to happen, but with so many people asking me, it’s only fair I try. I mean, I have my opinions, and I will continue to make my personal decisions when it comes to real estate and investing based on them – and when my clients ask, I will share how I feel. So, how do I feel about the real estate market? Well, actually pretty good. And how did I feel last month? Well, pretty good. What about a month from now? Yes, pretty darn good. How can you feel good about something that so many are feeling bad about? Well, I am not quite sure that the owning of real estate, or the homes people want, or the investments they hope to make have people feeling bad; I imagine it is more about the new interest rates. Let’s look at the investment of real estate first. Whether you are renting it out or living in it, it is a choice of what to do with your money. For the people that are living in it, it’s great to know that it is an investment, because you have to spend money on housing regardless. When we look at any investment we always ask ourselves, “Does this make sense?” The simplest way I can look at real estate and answer that question is to say, I have a product and the people that want and need this product are growing, and the availability of this product does not seem to be doing the same. Describing it this way helps make the most sense to me. I guess I could say the same thing about Coca Cola, but there is Pepsi, Sprite, water, beer, and this Prime drink that my kids won’t stop talking about (don’t get me started). So real estate as an investment makes sense, as there is no alternative to housing. What about everything I am reading about prices going down? Well, real estate prices are going down now, since the rates people use to afford them have gone up. When the rates go down, you know the prices will start to climb again. The market is very healthy – I have been saying this for months. The reason we’ve noticed some homes not selling is due to the sellers adjusting their price expectations downwards slower than the buyers are. The sellers are still willing to accept the price of a spring ago, but the buyers are the ones calculating the interest rate. When rates go up that quickly, it’s hard for sellers to accept things fast enough, so buyers wait, and one by one new sales prices give data to sellers that say “You see, these are the new prices,” and a reluctant decision takes place by way of a price adjustment and then another sale happens. In the spring market of 2022 prices rose but when interest rates started to climb prices fell. Although real estate goals still existed, and people still wanted to invest, the falling prices is what grabbed the headlines, so that healthy underbelly lies just below the surface. Now here we are, in the early part of the year and what can sometimes be the barometer of how our real estate market will perform. How is it going? Well, the supply and demand levels have once again tipped in a slight favour of the seller, but buyers armed with a different interest rate are taking a more calculated approach instead of having a fear of missing out. To conclude, a properly priced home will sell, an underpriced one will sell for over asking, and an overpriced home won’t sell at all. You see, nothing to see here, just a regular old spring market in Guelph. Thanks for reading, and I thought this quote would be fitting. “When the market is greedy, I get scared. When the market is scared, I get greedy.” -Warren Buffet
