Do's and Don'ts of Successful Real Estate Investors

Do's and Don't of Successful Real Estate Investors

Recently I was asked for some do's and don'ts to being a successful real estate investor for a radio interview and it was an interesting exercise to grab all of these thoughts together.

I thought I'd share these with you and ask that you add your own from your personal experience:

Do's

#1 Build a strong team that supports your long term vision. All of whom should have extensive experience with real estate investors. These include: accountant, corporate lawyer, real estate lawyer, mortgage broker, realtor(s), research source, fellow investors.

#2 Eliminate 'Day Trade' mentality with real estate. Stock markets can move substantially on a day to day basis and because of this many investors watch their stocks every day. With real estate, there is no get rich quick... it is a long term process that is driven by long term economics. Fluctuations will always occur in the market.

#3 Study the economics that support your region - rather than national 'averages.' Become a specialist in one or two geographic areas. The smaller your niche the more apt you will be to be successful. It will be easier for you to stay focused on what matters to YOUR bottom line.

#4 Focus on positive cash-flow - no matter what the market conditions positive cash flow is important and makes your life easier and allows you to get closer to your Personal Belize.

#5 Don't be afraid to ask anything of anyone. Learn from those more successful (or more experienced) than you. If they are too busy to help, ask someone else. There are no bad questions and definitely no reason to play the loan wolf trying to solve problems on your own.

Don'ts

#1 Don't allow yourself to get too high when you hit a home run or too low when you make a mistake. This also goes for market conditions, if the market is screaming hot, don't get caught up in it and when it comes back to normal don't talk yourself into being too low. It is what it is and as a business owner you can't afford the emotional roller-coaster.

#2 Don't line-up for a pre-build condo. That is speculation not investing.

#3 Don't buy a property just because it seems cheap - you may quickly find out that it wasn't so cheap after all.

#4 Don't let a property promoter sell you a property without you doing your own due diligence on the area. If you fell pressure to buy, step away! The quick decisions are always the ones that turn into the mistakes.

#5 Don't ignore tax planning in your overall scheme. Speak to a real estate accountant, give them your plan so they can help structure your whole program

#6 Never, Ever buy a piece of real estate based on a 'Tip' always follow your system -don't skip steps they are there to protect you during market fluctuations. Many skip steps in the Quickstart system during hot market times only to find that the steps they skipped are the ones that would have saved them during real market conditions. The steps are there for a reason not just for fun.

visit www.myREINspace.com discussion forums to post your do's and don'ts

Hot Real Estate Topics for Summer BBQ Talk

Hot Real Estate Topics of the Summer of 2008.
A quick overview of the hot topics around the BBQ this Summer.

Suddenly it seems live everyone you meet at a summer BBQ is a real estate expert and they want to share with you all of their extensive knowledge about how the world will end.

If you have seen the Lotto commercial with the two snobby 'rich' people talking about what to where at a BBQ and what to speak about you will understand that the ad is funny because it has a base of truth to it. Their one comment is while at the BBQ with those who haven't won a lotto, "talk about fuel costs because they like that." Well that commercial should now be changed to 'talk about interest rates and property values."

Here is part 1 of an overview of these hot topics and some analysis of each one, I trust you'll find it useful to have some perspective based in the reality of the market.

BBQ Topic #1 Elimination of zero down mortgages and 40 year amortizations.

You would think by some comments I've heard and read from people not really active in the real estate market that this was one of the signs of the apocalypse when in reality the elimination of these came as no surprise at all and not that much of a big deal.

Only a VERY, VERY few investors ever took advantage of these two options during the time they were available, and many banks didn’t even offer the program (despite CMHC's backing). These changes will not have much of an effect on the market. I find it quite entertaining to watch the gyrations and pontifications of people who have never used these products stating that it is the end of the financing world, when in fact it was a brand new product and the market has done very well over the last 100 years without it. It also ensures that the Canadian market won’t set itself up to be like the US and UK. A smart move by all concerned.

Most investors have been taking advantage of the 30 year amortization mortgage to increase cash flow as cash flow is the key in all markets.

BBQ Topic #2 First time in 6 years that average year-over-year Canadian Real Estate price was ‘down’

Anyone investing based on national average prices isn’t really investing, they are guessing and speculating. Sophisticated investors focus on the economics behind a specific market not generalization (like national averages). When prices were up in some areas, they were down in others – hence the reason the overall average is down.

That being said, as we discuss just about every month in REIN – Prices and markets never run on straight lines (although that would make life a lot less exciting ). There will always be fluctuations in the market… it is just that so many beginning investors believe the concept that the markets should skyrocket every year (like they had the last 3 years) and so as soon as the inevitable pause occurs, panic set in. Markets that have gone up at a too fast rate, will always adjust to find their new normal based on the real economics of the region, and then begin once again to build from their new base.

The only way to be a true investor (rather than a speculator) is to study the unbiased economics that we present every month and because we aren’t in the business of selling real estate, and don’t profit whether you buy, sell or hold we can cut through the positive and negative hype and get to the truth. Those who actually understand the importance of research have had an amazingly relaxing summer knowing that their decisions are based on long-term fundamentals – not month to month (or even year-to-year) gyrations of the market. And that is why we have so many members who have been coming out every month for 15+ years!

If you truly want to cut to the reality, take out the goldmine scorecard and re-do the work on your target area. It is designed to protect you in all market conditions. That way if you are feeling fear, following the goldmine scorecard system will make sure you have all the facts (either justifying your fear or eliminating it by just looking at unbiased, non-emotional facts). Another way is to tap into the conference call and interview archives we have in the downloads section of www.myREINspace.com as they will provide you with the facts you need as an investor.

And to get the latest facts, ensure you are on myREINspace.com regularly to read the economic fundamentals. This will help you keep a long term perspective while still keeping a close eye on what is going on today. Then you can make decisions based on reality not emotions.

BBQ Topic #3 What’s next for interest rates, there is talk of rising Bank of Canada interest rates

Financing properties, even for the average home owner is taking more effort than it did over the previous 3 years. So remember not to get mad at your banker or mortgage broker – the goalposts have moved and they are just the messengers of this change.

That being said, as predicted at REIN, the Bank of Canada is between a rock and hard place on interest rates. They need to keep an eye on inflation (and keep a cap on that) by raising interest rates, but at the same time they want to keep them low so the dollar weakens and the Eastern Canada market can revitalize. Raising interest rates may be inevitable (due to food and fuel inflation), but that would have a detrimental effect on the manufacturing based economies in the East.

The good news underlying this situation is that it can only be a gradual increase when they do it, and will provide investors lots of time to lock-in their variable mortgages in the future

Right now, variable rate mortgages are still one of the cheapest and most flexible options available to investors. The gap between variable and fixed can be as much as 1.5% - thus increasing potential cash flow. Recent variable deals that REIN Members have arranged have been prime minus .25% and a more rare prime minus .6%

If you are someone who can’t sleep at night worrying about interest rates increasing, then locking in at a great rate (not the posted rates) is a good option for you, but understand that safety will cost you money on a monthly basis.

BBQ Topic #4 There seems to be inflation on the horizon. What does inflation mean to Real Estate Investors?

During inflationary periods, hard assets perform the best as their values increase along with inflation. Property values ride the inflation wave, rents increase (as many of the rent controlled areas increases are based on the CPI) and as an informed investor you will have chosen your properties in areas where demand is to continue because of job increases and in-migration. The other thing that occurs during times of inflation is that wages increase more rapidly (and there is more labour unrest, strikes etc as more people demand more money to fight inflation).

Inflation also can drive interest rates up, so ensure that you keeping listening at the REIN Workshops as we discuss whether it is time to lock in or not.

The cycles of inflation / deflation / stagflation are somewhat predictable, what has lead to more attention on these items this time around is the 24 hour news and business news that is available to the average consumer (even if they don’t understand what the story means to them.) and #2 the ridiculous lending practices that were being followed in the US and which are coming home to roost right now.

In the next post I’ll be discussing other hot topics of the summer BBQ season:

• The US housing markets,
• The US economy,
• Energy & commodity prices and how they are going to affect certain markets in Canada,
• How a Saudi Arabia investment will affect Canadian real estate demand
• How REIN predicted the massive changes to the automotive industry in Ontario June 5th 2005 and how that past prediction can help you today.
• How market sentiment can affect your property values even when economics don’t change
• And other hot BBQ topics important to investors

Please remember that the Western Canada REIN conference is coming very soon where we will be releasing the BRAND NEW Top 10 Alberta Investment Towns as well as other research revealed for the first time. REIN Members attend FREE as part of their Membership. Here is a link to other details on this annual event.

Eliminate 'Tenants' From Your Life To Change Your Paradigm

Attracting Your Best Customers For Your Business

We are about to change the paradigm of landlord and tenant relationships. The time has come for us, as investors to start to understand the business that we are in is actually a business. No different from any other business out there.

Many people call the purchase and operation of rental real estate an investment and by doing so lump it in with all of the passive investments such as mutual funds. This, in turn, creates the belief that real estate investing is similar to other investments, when it is truly not. Yes CRA rates real estate income as passive income when treating it from a tax perspective, however the truth is that it is far from passive if you want to do it right.

Let’s face reality, by investing in real estate, you are starting up a business, a business that provides a product and service to the community. This business has every component that a successful business has (and most other investments do not): marketing strategies, income, expenses, accounting, financing, management of the day to day operations and balancing of assets and liabilities.

Investment real estate, whether commercial or residential, is also like other businesses in that it will only be successful if you find a way in which to attract quality loyal customers to purchase your product or service and to provide it to them at a price that makes sense to both you and your customer.

That means that the absolute first step in becoming a sophisticated real estate investor is to begin to think of your tenants as clients or customers. Without them you do not have a successful business no matter how hard you work or how many properties you own. Change your thought paradigm from tenant to customer and your marketing and business opportunities will begin to grow exponentially.

This subtle shift opens up a whole new thought process for your business, you can immediately start modeling other successful businesses (in any industry). At one time we have all been customers of businesses that we enjoy and became loyal to, that means we have first hand knowledge about the power of customer loyalty.

You can learn from your experiences by analyzing what they do to keep you as a loyal customer. Pay more attention to why you return to the same store or service provider over and over, then begin to find ways to transfer these strategies into your rental real estate business. For instance:

Is it like they know what you’re thinking?
Does it seem like they intuitively know what you need?
Do they listen to your concerns?
Do they make dealing with them an experience you enjoy?
Do they reward you with loyalty rewards?
Do they do little things to thank you for your loyalty or repeat business?
Do they appreciate your business?

As simple as this thought shift sounds, it truly is one that will change how you look at your business from now on and more importantly help you to stand out and become a landlord that renters WANT to stay with over the long term.

Over the coming weeks we will be going into detail on changing the paradigm of passive investment to active property owner and the strategies that will allow you to simply increase your bottom line and decrease the hassles.

In this thread, why not add your experiences from interactions with companies that you have become loyal to or really enjoyed. Take a shot at writing why your drawn back to them. Then we can start a conversation on how those experiences can be adopted into the rental real estate business