Pulling The Trigger

“Owning Up” – Confessions of a Real Estate Investor

Pulling The Trigger, Making That First Investment

Your first time is always filled excitement, anticipation, and a certain amount of trepidation. This can be a first date, first car or first home. Buying an investment property is no different, in fact, those emotions will likely be heightened.

You have heard all the negative nellies – those who can’t and won’t ever own income properties: “My aunt had a house that the renters trashed”, “Renters have all the rights”, “My friend gets calls in the middle of the night to unplug toilets”, and on and on it goes.  It sometimes appears that these individuals don’t want you to get ahead of them, so they drag you down to their level.

But another part of you knows that 90% of all millionaires are self-made using real estate. You have seen colleagues at work retiring early with income from rental properties. A cousin owns multiple properties and is building equity using monthly rental revenue.  

As Rich Dad-Poor Dad author, Robert Kiyosaki said, ”Real estate investing, even on a small scale, remains a tried and true method of building one’s cash flow and wealth.”

You would like to achieve the wealth and freedom, but are unsure if you can, or will pull the trigger. This blog post today will offer some suggestions to help overcome those fears.

Getting Started

The biggest hurdle is your attitude.  So the first step is keep the negative nellies out, and surround yourself with positive people. This can be accomplished by joining the local investors club and making new acquaintances. Hang out with the members and visit their properties. There is lots of room in the investing field and people won’t see you as a threat; in fact most will welcome the opportunity to share their experiences.

Read motivational books and listen to audio tapes while driving. My list of recommendations includes: “Think, and Grow Rich”, “The Seven Habits of Highly Effective People”, “The Millionaire Next Door”, Rich Dad – Poor Dad” especially “The Cashflow Quadrant” and “The 4 Hour Work Week”.

The second step is getting educated, establish some criteria about the types of properties that interest you and become an expert in that niche. Real estate investing education is readily available – search the internet, go to the library and local book store, and again, don’t forget the investors club.

“If you want to be successful, find someone who has achieved the results you want and copy what they do and you’ll achieve the same results.” Tony Robbins

Tony Robbins refers to modeling as a process for gaining expertise, your models can be mentors or coaches.  Mentors are those experienced individuals who take you under wing and share their knowledge with you. Mentors can be found at your investing club. Coaches are paid for sharing their expertise. They can be found by searching the internet.

Some general guidelines for your first property:

  • Stay within your comfort zone, if you live in a house then look at houses; likewise, if you live in a condo then look at condos.
  • Buy  a “low hassle” property. This would be a newer property in a good location, priced at or near the median price for your property style.
  • Follow standard procedures for purchasing, have your down payment ready and be pre-qualified for a mortgage.  Avoid private lenders, seller financing, rent-to-own properties for your first investment.

Some other words of advice:

  • Have some money, or access to money, in case of emergencies. Don’t overextend your finances and put your current lifestyle at risk.
  • Be prepared to subsidize the property for at least two years while you gain experience.
  • There is never a perfect time, nor is there ever the perfect property but don’t let this stop you.  

You Have To Want This

One final thought to pulling the trigger – you have to want this investment,  so make the commitment by writing it down and following through.

Cash Back at Closing – Two Case Studies

“Owning Up” – Confessions of a Real Estate Investor

Cash Back At Closing: Two Case Studies

At the RENTS Boot Camp this past weekend, a question was asked about how much money should be put down.  The expert panel collectively agreed they would put the minimum down providing the property would cash flow. Someone should have asked if they have ever been paid to take a property.

Cash back at closing happens more frequently than one might imagine. The typical scenario involves a property being financed for more than purchase price – properties are financed based on after-repair-value (ARV) when significant reno’s are being planned. This often occurs when there is vendor financing or private lenders involved. The two examples today are different.

The common denominator in the case studies are that both sellers were despera…I mean highly motivated.  They wanted out of the properties and they wanted out yesterday.

lombardy

Case Study 1: Lombardy Trailer Park

My friend Tony replied to an ad on kijiji regarding a trailer for sale. Tony is an expert on trailers and trailer parks in Prince George so he responded to the ad.  The seller was new to investing and bought this trailer with the intent of selling it on a rent-to-own, and profiting that way.

The trailer was located in the Lombardy Trailer Park, down in the ‘hood. The trailer park is notorious for its criminal activity – drugs, prostitution and the like.  The seller was asking $15,000, trying to recoup his costs.

The RTO buyers hadn’t made payments for several months and the seller was finally able to evict them after a prolonged process.  Before they left, they trashed the interior and turned off the heat.  The water pipes froze and split; holes were punched through the wall panels and clutter was everywhere.

Tony viewed the property and found that squatters had made their way in, and despite the lack of power and running water, used the place as a party house.  Without getting into the nasty details, it would be fair to describe the property as distressed.  Tony however, saw an opportunity.

He made the following offer – “You give me a $1,000 and I’ll take it off your hands.”   The seller initially refused but with on-going pad rents at $350 per month, and with no other offers, the seller agreed to the terms the next month.

Tony is very handy.  The pipes only needed two elbows replaced.  The bathroom floor had a soft spot but the lino needed replacing anyways, so while the lino was lifted, he was able to patch in some new plywood. The old style wood paneling had holes punched through them, but Tony had the exact matching paneling from another project; these were stored in a shed at his house and he was able to replace the damaged panels for just his time.  A couple of loads of clutter to the dump and a thorough cleaning and the trailer was ready to sell.

All in, twenty hours of sweat equity and $200 for pipes, plywood and lino completed the makeover. Comps were in the $15K to $20k range but Tony flipped the property to another seasoned investor for $9,500.  Tony with his potty mouth explained:

“I turn sh*t into cash, that’s what I do.  I made over $10,000 in under a week.  I can do two or three of these a month and make a pretty good living.  I sold this property to an investor I’ve done business with before so I left some meat on the bone so he can see some profit as well.  Return  on investment – good enough.”

 

pine

Case Study 2:  Pine Street

Mark, a realtor and investor, is married to a teacher.  On the school district website, is a Buy and Sell tab and his wife found this house for sale.  The ad said “Need To Sell” which sounded like an opportunity to Mark.  He called the owner.  The owner was a teacher who had accepted a teaching position in another district and wanted to move on.

The property was dated but livable. It was in a marginal neighbourhood but not in the ‘hood.  It was a half duplex with two bedrooms with a full bath up and one bedroom with half bath down.  The biggest problem was that the owner had purchased the home in 1996 when the market was peaking.  By 2003, the market had fallen substantially and the owner was upside down on the financing.

$55,000 was owed on the mortgage but fair market value at that time was just $45,000.  Mark offered to assume the mortgage but wanted $10,000 to pay for the shortfall.  After some negotiating, Mark agreed to assume the mortgage and the seller gave him $7,000 to do so.

Mark rented the unit out and the rent more than covered his costs – mortgage, taxes, insurance, etc.. The market rebounded in 2004 and Mark was able to sell the property for $86,500 in 2006.

Reviewing Cash Back Cases

The two cases had one thing in common – highly motivated sellers.  In the case of the trailer, a newbie investor got in over his head with “professional” tenants who scammed him.  After dealing with non-payments, pad rental, taxes, arbitration hearings and bailiffs – he was done. Tony could probably have asked for more and gotten it.

The seller of the duplex was motivated by different circumstances – he was transferring out of Prince George to another location a thousand kilometres away.  He wanted to close the door on Prince George and start anew in the next place.

Cash back at closing does not happen often, and will never happen if you are not looking for it.  In both cases patience and sharp negotiating paid off for Tony and Mark.

Evicting The Undesirables

“Owning Up” – Confessions of a Real Estate Investor

Evicting The Undesirables

I was part of the very successful RENTS Real Estate Boot Camp last Saturday.  The all-star list of speakers included Thomas Beyers, Rich Danby and Russ Westcott; all very successful investors, best-selling authors and renowned speakers. It was truly an inspiring day.

At the end of the day, there was a Q&A period with the panel of experts. A question was asked about evicting non-paying tenants. Below are their responses.

Rich Danby:

You need to start at the beginning by carefully screening your tenants to avoid this situation.  Once the tenant is selected, it is explained to them that these rentals are a business.  If the rent is not paid on time, then an eviction notice will be presented the next day. But life happens – if something that comes up that delays the rent payment, call and explain when the rent can be expected.  Communication is key to keeping a good owner-tenant relationship.

Thomas Beyer:

When people do not pay, there is a process* in place.  It can take several weeks to get the tenant out if the process goes through to the final stages. Notice has to be given and the process starts when the notice is given so delays in presenting the notice delays the eviction process.  Occasionally, tenants will prolong the process by paying one month’s rent when the notice is given but then revert back to non-payment.

Russ Westcott:

When dealing with non-paying tenants, it can very emotionally draining – feelings of anger and frustration can take over.  For that reason, professionals are called in; try to distance yourself both physically and emotionally from the situation.

My Response

Like Rich Danby, I also sit down with new tenants and explain that this is a business, eviction notices will be given, and that communication is a must if the rent is going to be late.  I do go one step further, I attach an addendum to the Residential Tenancy Agreement which outlines “house rules”. It varies somewhat from tenant to tenant, but does include items such as “No painting without owner’s written authorization” and “Guests are permitted to stay only 14 days in any calendar year.”  In this way, I cover all of my expectations for tenants. I stress, “Do not duck me if there is an issue about the rent. Talk to me if you are going to be late.”   

Thomas referred to the process*. I have pasted the link to the government website below.  The process starts with presenting the Notice to End Residential Tenancy (NERT).  There are various reasons for landlord giving notice, one of which is failure to pay rent.  If the tenant fails to leave, then landlord must then apply for a court order of possession. If the tenant still ignores the order to move out, the landlord must apply a writ of possession so that a bailiff can be hired to forcibly remove the tenant and their possessions.  

Only once in all my years have I had to go to this length to remove a tenant.  Ultimately, it took over three months and cost almost $7,000 in lost rents, court costs, bailiff fees and locksmith fees.

* http://www2.gov.bc.ca/gov/content/housing-tenancy/residential-tenancies/ending-a-tenancy

So when Russell Westcott stated that the eviction process can be emotionally draining, I empathize.  Like Russ, I hired a property management company to handle the eviction process. They are professionals who have been through the process before and know its ins and outs. I was obligated to use the property managers for another year afterwards, but it was worth it.

An Alternative Approach

I am fortunate that I have only had one eviction since. The tenant had been late several times in the few short months of her stay.  In June of that year, she hinted that she would be moving in July but did not give notice. When July 1st arrived, I was not surprised that no rent was received.  

I went to the door and spoke with her directly to confirm that she was not paying rent for July, and she was moving.  She confirmed those details adding that her brother was going to be there the following Friday, July 9, with his truck to move her things.  I said  I needed her out as soon as possible and I would pay for her move. I got her to sign an agreement to move out on Monday and the movers would be there at noon to pick her things up.

I enlisted the help of my son’s friends and offered them $200 for three hours work moving this tenant. They agreed. When Monday came around, the two arrived at noon with a pick up and starting moving her things out.  At the same time, I had the locksmith there to rekey the unit.

It hurts to pay when someone owes you rent, but as Russell stated, the eviction process is emotionally draining.  In this case, the pain was short-lived; she was out in less than a week and I could re-rent for the 15th.  I kept her security deposit so I wasn’t really out of pocket. I didn’t tell her I would have gone a lot higher to get her out, but I would have. Given this experience, I would always offer money to get someone out before getting too deep into the eviction process.

Determining Fair Market Rent

“Owning Up” – Confessions of a Real Estate Investor

Determining Fair Market Rent

Often, new investors are overly ambitious about the rent that be charged or conversely, they underestimate ‘fair market rent” for their rental.  Two methods for finding the correct value of FMR will be discussed as well as specific strategy that purposely asks for less.

Using Comps  

Using comps to determine fair market rent is a tried and true method. Comparable properties are examined to identify rent range and then adjustments up or down for specific amenities, condition and location are made to determine best rental rate.

Where are comparables found?  You can start with talking with friends with rentals; how much are they renting for and what is included in the rent. The online ads – kijiji and craigslist, and print ads – your local newspapers are good too. And another very good place to search is the internet – check out listings of local property management companies.

As an example – you identify the features of your unit –  a recently renovated one bedroom, 400 sf with shared laundry.  Heat, power, cable tv and internet are included.  There is a parking spot and the unit is located three blocks to a bus stop, and a 15 minute drive to university and downtown. What could this rent for?

A comparable rental has been found; a 1-bedroom basement suite is located nearby and has been successfully rented for $800, utilities included.  The extras include heat, power, cable and internet.  It is smaller, needs updating, has no off-street parking and is 5 blocks to the nearest bus stop.

By comparing the features, it is apparent that your unit can command higher rents as it is in better condition, has off-street parking and is closer to the bus stop.

A second comparable is identified. This unit is across town and has been recently been renovated.  It has off-street parking, includes all the same utilities, located within 1 block of a bus stop and is only a 5 minute drive to the university and downtown. In addition, this unit has in-suite laundry and a dishwasher. This unit is advertized for $1,000.  

Your unit will likely rent for less than this example. The second unit is larger and closer to downtown and the university and has in-suite laundry. Comparing the two comps; your unit should rent for between $800 and $1,000.

However, there are some flaws to this approach:

  • First, if the unit for $1,000 is already taken, then the next person may rent your unit for $1,000.  They may not have viewed the $1,000 rental or your unit may be the best available at that time.
  • Second, there is no accounting for personal taste.  Something as simple as paint colour, flooring or a strategically placed window may sway some prospects to pick your unit.
  • Third, the seasonal impact; August is a time when students are returning for college and university.  Their influx squeezes all rental inventory resulting in higher rents. January has the fewest people looking for rentals resulting in lower rents.

Using The Response Approach*

This is a term I have coined for my usual approach to pricing my rentals.  I place my usual ad on kijiji without my phone number included. I do put the monthly rent in. I then wait for a couple of days and see how many responses the ad generated. If I get too few responses, less than five, then the rent being asked is too high. And if the ad generates too many responses, more than thirty, then the rent is too low.  

My optimum number is twenty responses.  In this way, I have twenty prospects to choose from. After checking references and conducting a phone interview, some won’t be suitable tenants and some suitable tenants will choose to live elsewhere. My goal is to shortlist three to five suitable tenants who are interested. It is to these prospects that I show the unit. This is all about streamlining the renting process; using your time more efficiently and getting fair market rent.

*A friend refers to this as the Goldilocks approach – One is too hot, the next is too cold, and the last is just right.

Alternative Approaches to Pricing

When I meet other property owners and talk about their rentals and the rents they charge, there is no shortage of opinions.  One charges the most he can. His duplex is well maintained with recent upgrades but its location is marginal. His duplex is the nicest on the street and it does command higher rents than neighbouring properties. The problem is the type of tenant that street attracts. This is a lower income area and his rent stretches their budgets, consequently tenants frequently find the place unaffordable after a few months. Higher turnover and more frequent maintenance increases the “hassle” factor.

Another property owner charges substantially less than market rent for his rental units. He owns several duplexes all of which are older one-bedroom units, each with its own fenced yard near the city center. His ideal tenant is a senior with a small pet. This type of tenant is known for staying for long periods of time, and being a responsible tenant during their stay. This is comfortable for him, he likes the steady cash flow, the low turnover, and low maintenance that comes with renting to seniors; low “hassle” factor.

I have an approach where I will ask for slightly less the market rent, especially in January.  As stated earlier, January is a difficult month to find prospects especially suitable prospects. Armed with this knowledge, I purposely place an ad with slightly lower than market rent in order to attract more prospects.  I may take a short term hit but I will raise their rent as often as permitted to catch them up with the others.  For me, it is important to minimize vacancies – bad enough to lose one month but worse to lose three holding out for an extra $25 or $50.

In closing; two approaches to finding fair market rent were discussed – using comps and the response approach. Both are useful for indicating a range of appropriate rent but they also have their own flaws.  Lastly, alternative approaches to pricing the rent were examined: maxing out the rent, minimizing the rent, and pricing slightly lower market rent.  

   

Understanding Cap Rate

“Owning Up” – Confessions of a Real Estate Investor

Using Cap Rate to Calculate Property Value

There are several ways to express property value. Assessed value is identified by property assessments and is used for tax purposes. Replacement value is the cost to replace the building and is used by insurance companies. Appraised value is the best estimate of market value of the property and is used by banks for lending purposes.

In trying to determine a property’s value, appraisers use two approaches – looking at recent sales of comps (comparable properties); and the income approach.

Cap rate, short for capitalization rate, is used for the income approach to valuation. Commercial properties can be anything from offices, to convenience stores, hotels, and used car lots but for the purpose of today’s post, commercial property will refer to multi-family residential properties. When professional appraisers are called to determine the value of a property, they use cap rate in their calculations.

Cap Rate is a ratio, expressed as a percentage, to quantify rate of return on properties.   

The calculation is:  Property Value X Cap Rate = Net Operating Income

This similar to ROI (Return On Investment) where one can calculate how much return they will receive from a given investment. If a $1,000 bond pays 5% interest, how much interest will the investor receive?

Bond Value X Interest = Return On Investment,  $1,000 X .05 = $50.

*Reminder – convert %’age to decimal form when using a calculating, 5% = .05

So for every $1,000 bond the investor holds, he will receive $50 interest.

Similarly with Cap Rate and property value, return can be calculated.  If a commercial property has a value of $1,000,000 and current cap rates are 5%, then the net operating income “should” equal $1M X 5% = $50,000.

This is not the usual discussion when appraisers use cap rate in determining property value.  Using high school algebra, the formula is recalculated as:

Property Value = Net Operating Income / Cap rate.

If a property shows a NOI of $40,000 and the cap rate is 8%, then the the income approach would calculate:

$40,000 / .08 = $500,000.

Property value has an inverse relationship to cap rate; that is property value increases as cap rate decreases.  Using NOI = $40,000 and cap rate is 7%.

$40,000 / .07 = $571,000.

How is cap rate determined?

Cap rates will vary from location to location and reflects what investors are willing to accept as a return on their money.  

In today’s heated Vancouver market, some properties are using cap rates as low as 1% whereas some smaller centres such as Quesnel and Vanderhoof may use cap rates of 10%, 12% and more.

Where I invest in Prince George, current cap rates today are in the 6% range. This would be for a newer property in a good location. A newer property will likely be maintenance-free in the next few years, and would meet all current building codes. A purchaser could expect low maintenance costs and low vacancy rates for the foreseeable future. If a property showed NOI = $50,000, then 6% cap rate would yield a property value of $833,000

Conversely, given an older property in a bad neighbourhood, the appraiser may assign a higher cap rate when using the income approach. Here the purchaser would likely experience higher maintenance costs, more vacancies and more hassle. Suppose a property down in the ‘hood showed a NOI of $50,000 and the appraiser identified a cap rate of 8%, then the property would be valued at $625,000. Note that both properties showed the same NOI but the values were $200,000 apart because of the 2% difference in cap rates.

Using Cap Rate When Negotiating The Purchase Of A Multi-Family Property

As you become more experienced, you may find a time when you want to enter the arena of multi-family properties. After doing the due diligence of inspecting the property, looking at comps, etc… you come to the point of writing an offer.

The first number you need to know is the NOI. Often the seller won’t provide that information but educated projections for maintenance costs, vacancies, taxes, insurance, city utilities, and management can be made. If the NOI is $30,000 and the going cap rate is 6%, then value equals $500,000. But if you base your offer on cap rate of 6.5%, then the value is $461,000 thereby saving almost $40,000 on the purchase price.   

In closing, investors need a working knowledge of cap rates when buying multi-family properties – normally properties with five or more residences are considered to be commercial.  Cap rates change from city to city and from neighbourhood to neighbourhood within each city. Having this working knowledge of local cap rate allows investors to make informed offers.  

    

Profiling Prospective Tenants

“Owning Up” – Confessions of a Real Estate Investor

Profiling Prospective Tenants

Successful landlords use profiling as part of their tenant selection process. Profiling is simply identifying the characteristics of desired tenants and matching those characteristics to your property.

My property contains six townhouse style units with three bedrooms two baths and a full basement.  It is an older building with many recent updates and is centrally located to schools, the college, shopping and downtown.  Because of the space, it can accommodate many different living arrangements from families, older grandmothers living with adult children and grandchildren.  I have had singles in the past, young couples, and friends with roommates.  When a vacancy occurs, I get a lot of different groups applying and the task of of selecting the best can be daunting.  

Some profiling is obvious – a family of five won’t fit into a studio unit, but the subtle nuances are what make one prospect score 5/10 and another a 9/10; this requires a more intensive process.

The process starts with a conversation with the prospect.  I start with an open-ended question, “Tell me a little about your situation.”  If needed I prompt them with,  “Will you be living alone or with others?” And, “Are you working or are you a student?” 

Desired Attributes of My Ideal Tenant

My ideal tenant(s) is working at a moderately paying, steady job and has online banking.  They respect the peace and privacy of their neighbours, and will stay for an extended period of time.

Moderately paying, steady job:  

  • Prospects need to earn enough money to afford the rent and they need to have a stable job to ensure that they will continue to afford the rent in the coming months.  Prospects that earn past a certain threshold won’t stay long, they will move into something more upscale or buy a house of their own.

Online Banking

  • Tenants are required to pay the rent with interac e-transfers; cash and cheques are not accepted as I can’t be in PG at the start of every month to collect.  But not having online banking privileges can be a warning sign that something isn’t right with their finances or credit.

Respectful of Neighbours:

  • The need to respect the peace and privacy of the neighbours cannot be overstated. The complex has six attached units and disturbances in one unit impact the others; the goal is to eliminate all conflicts and dramas between neighbours. Certain age groups and certain family groupings are more respnsible than others.

Extended Period of Time

  • I look for prospects that will stay for an extended period of time, two years and longer is ideal.  Reduced turnover reduces maintenance costs and vacancies while ensuring a steady, uninterrupted cash flow.

I take all the usual precautions.  I ask for references – a previous landlord and a work reference.  The references are asked about the prospect’s reliability and their interactions with others.  In addition I google their names and see if anything comes up in the news; as well as their facebook page and the facebook pages of their friends are checked.  

Prospects I like:

  • Older single women with a small pet.  These have proven to be the quietest, longest term tenants of all.  They pay their rent on time and they never complain. One woman stayed thirteen years, and she gave three year’s notice as there was a wait list to get into senior’s housing.  The downside is that the unit needed a lot of work after thirteen years.  The other downside is that the rent was low because of the limits on raising rent.
  • Families with preschool and primary school children.  These are normally quiet and respectful; there is a elementary school in the next block that houses several preschool and after- school programs.  Families will stay due the close proximity to the school.
  • Younger (22+ y/o) working singles with a roommate and young working couples. These groups are usually focused on their work and not into partying. They are past that first-time-away-from-home syndrome.
  • Third year and grad students.  These students are buckling down and focusing on their studies.  One issue is that they leave after two years, sometimes less.
  • Grandparents raising grandchildren and parents living with their adult children.  Normally quiet, respectful, and reliable.

Prospects I don’t like:

  • First year university and college students.  This is often their first time away from home and they are in the party mode.  They will stay for eight months at best and leave the place in a mess.
  • Teenagers and high school students.  Without adult supervision, teens are like first college students but worse – their high school friends hang out in large groups, getting into stuff they ought not to be getting into.  And even if the teen tenants are respectful, their friends don’t have the same level of respect.
  • Single parents with teens, especially if they work evenings.  Like renting to teens and high school students, there is no adult supervision to ensure teens and their friends behave responsibly.
  • Large families of five or more.  There is the temptation to set up the basement as a bedroom.  It is illegal and unsafe to do as the furnace is there.

As mentioned earlier, there are no absolutes when profiling but the profiles I identified have been reliable for identifying the 9/10 prospects especially when combined with the reference checks and personal interviews.

Other landlords may have different criteria due to differing styles of rental units.  Someone with a newer unit may look for better paid prospects, or perhaps someone who runs a BnB is looking for a student for eight months. Whatever the criteria, it is best to know who makes your desired tenant. Profiling streamlines the search.

It’s Not What You Earn

“Owning Up” – Confessions of a Real Estate Investor

It’s Not What You Earn

There’s an old saw that states, “It’s not what you earn, it’s what you save.”  I take that on step further, “It’s not what you save, it’s what you do with the savings.”  The underlying message of the first is to live within your means and save some of your earnings.  The underlying message of the second is to invest your savings wisely so they will grow over time.  The goal of all investing is to prepare for retirement and by investing wisely you can live your dream.  And real estate is the best investment tool of all.

A Plan for Younger People

Everyone needs a place to live.  That truism highlights the opportunity for rental income for everyone.  Extra space is needed, a spare bedroom or unused basement.  A roommate or a boarder can provide additional income. I found a place on airbnb.com in Kamloops where some students were renting a townhouse and were offering a room for $53 per night – imagine, rental income from a property they don’t even own!  How good is that!  

A simple business plan would start with the purchase of a single family home with a suite or the potential for a suite.  The suite will provide rental income to offset expenses and possibly build up a savings account.  After a period of time, perhaps two or three years, you will have built up some equity and perhaps saved more money for a down payment on a second house.  Keep the first house renting both the upstairs and the basement to create a positive cash flow.  Move into the second house and repeat.

Repeat this process as often as you want, or branch off into multi-family properties.  Over the course of ten or fifteen years, you will see significant increase in net worth – equity will be generated through mortgage pay down plus capital appreciation.  Along the way, positive cash flow will increase.  In this way, you will be well on your way to living your dream.

A Plan for Middle-Aged People and Those Approaching Retirement

Most middle aged people are typically established in their careers, possibly have a company pension plan, and may own their own home.  Some may have endured a divorce, job rationalization or some other dramatic event which wiped out the wealth they may have accumulated.  Regardless of personal circumstances, real estate can enhance your current living situation and retirement plans.

During retirement, cash flow is more important than savings,  Cash flow from rentals is sustainable/renewable, whereas savings are depleted over time.  Rental income is better than dividends from the stock market.  Income from $500,000 worth of property can generate as much income as $1.5M worth of dividend bearing stocks.

A simple plan starts with the purchase of a home with a suite.  The suite can be rented to students during the school year.  During the summer, the space can be as a BnB when rates are significantly higher.  A one bedroom suite in Kamloops can rent for $800 per month through the school year and that same suite can rent for $150 per night as a BnB during the high season.  How much would $800 per month improve your situation?

In closing, people of all ages can benefit from real estate investments.  And it is easier than most think to get started.