In this article we are going to be covering something that seems to get passed over too often. The topic I am referring to is the realty investor ethos. The illusive concept that there is a quick dollar to be made after the commercial break is simply not real. We have to shift our thinking and understand that this is a slower, longer-term investment that grows steadily.
So, what is the ethos of successful real estate investors?
Real Estate is not a get rich quick scheme. Think of it as planting a seed and allowing it to grow as a tenant is helping you build equity. As with the plant it must be nurtured and allowed time to grow. Keeping the property for a longer term is creating a legacy, aka generational wealth. Fair or not, generational wealth is a HUGE leg-up in the world we live in today. If you are looking for a quick turn-a-round, investment in real estate may not be for you. Holding the property is also an integral part of the “BRRR Method” (Buy Renovate Rent Refinance), but that is something to discuss in a future article.
As with many stocks, bonds, etc. your investment may go up and down in the short term but that’s to be expected. Be calm in your investment, understand that you are receiving passive income and believe in it. Until humans become something resembling a snail, humans will continue to need homes. The likelihood that a real estate investment in a rental property will drop to zero is slim… A business CAN go under… Anyone remember Blockbuster?
Ponder the big question, “Why am I investing?”
Because you saw a blog? Instagram? A Book? TV show? None of these are good reasons… The reasons should
be defined. A couple of examples of this are how RRSP is for retirement and RSP is for children’s education. These are clearly defined with a pointed outcome and purpose.Your reason for investment should be just as concise. Perhaps you are wanting to grow passive income to buy a house for yourself? Perhaps it's part of your retirement plan for portfolio diversification? Whatever the reason is, make sure you slow down and define it.
Try to understand that this is likely not going to result in immediate cash flow. You will likely need to re-invest into the property or even subsidize a bit month to month while you are first building the equity in the unit. Do keep in mind that interest on a rental property is a tax write-off, which is obviously of benefit, as well as you will in most cases be getting more back than you are having to put in per year.
Using a simple example. If the property is running at a minor deficit such as $200 a month for the first couple of years that would equal $2400 a year. Do you think that it is a safe assumption that your property will be gaining market value of more than $2400 a year? Statistically, yes. That is a safe bet.
“Everyone’s got a plan until…”
One of the subjects that comes up a lot when speaking with people that are considering becoming first-time investors is, “WHAT IF A TENANT DESTROYS MY PROPERTY?!” The fear is understandable…. HOWEVER, try not to fret about what a tenant may do or not do to a property. In most cases repairs can be made with a can of paint, some new flooring or even just a deep clean. In fact, doing these three simple things will attract a bigger pool of renters and allow you to pick better tenants that care for the unit and allow you to command the maximum rent for investment.
Statistically, approximately 30% of Canadians are renters (Source: Census 2016) which is 4.4 million households and growing. Everyone has heard some terrible stories from time to time about a tenancy gone wrong, where the property was disrespected and harmed. BUT, in the big picture this is overall a very small percentage of the general market. IE. You only hear about the planes that crash and not the many, many more that land safely at their destinations with no issue.
“If it ain’t broke….you may still need to fix it.”
Sometimes during my course as a property manager, I will come across some investors that will complain about doing some preventative maintenance and exclaim “Well I lived there for 10 years and never had to do anything, why are you asking me to do all these things?”
This is an interesting concept as, if there truly hasn’t been any preventative maintenance on a unit it is clearly time to do some and in reality, a home that never requires maintenance doesn’t exist. This holds true for both owners and tenants; however it is not the tenant’s responsibility.
So overall know that you WILL have to put some money into the investment over time to make sure that it is running properly. This will also help when you wish to sell it down the road or pull equity for the next property out of your current investment, as it will be subject to an appraisal by a lender.
Knowledge is Power.
Investment in real estate can seem like a truly scary and daunting undertaking. The best way a first-time investor can combat these feelings and alleviate stress is by speaking with professionals on your team, such as your: realty advisor, property manager, accountant, mortgage professional, etc. Information can help demystify the process and will introduce more of a sense of control and calmness.
This leads us to the next part of the investor ethos. DO. NOT. RUSH. If you are running wildly into a forest
without looking, you’re probably going to run smack into a tree. Slow down, hit every step of the process and take the time to speak with your team, get them to thoroughly explain anything you don’t 100% understand. If you don’t go through all the checks and balances you will feel uneasy, nervous and stressed. This will lead to making rash/bad decisions. Slow down. Learn. Education will help give you more insight and a sense of confidence and control.Do you have plans to build your empire for financial freedom? Using real estate and using the equity that you will build over time is one of the strongest ways to do it. The earlier you start the stronger it will be over time.
If you have any questions about the items we have covered please feel free to get a hold of me either on my cell phone at 604-522-4777 or via email at haze@hazerealty.com we are always here to help!