Vancouver real estate fun club. 2.

 

 

 

 

 

Mike Skvortsov -   WHAT DOES IT MEAN TO BE  A  REAL ESTATE INVESTOR? 

Pauline Tonkin - With the rule changes in 2010 all real estate investors are required to put a 20% down payment on all purchases or 20% equity position for a refinance.  This new requirement presented a challenge for investors previously putting as low as 5% down payment on a purchase.  Since most of my investor clients chose a cash flow strategy they were using a standard 20% down payment, so the rule changes didn’t affect them greatly.  Did this change in down payment eliminate the average person from investing in real estate?  Although it may have reduced the opportunity for some people, the market, as always, makes adjustments.  This actually created an opportunity for people to find new ways to do business.  Partnerships for ongoing purchases and joint ventures for one-off situations are being created.  For example, one person may bring the down payment while the other person locates the properties and negotiates the best price.  I have several clients with successful experiences in buying properties with a partner agreement.  Typically these are for rental purchases.  However, I also have investor clients buying to fix and flip where someone provides the money while the others provide the labour and project management.  In the end they split the profits 50/50. 

The first thing I tell people who come to me and new to real estate investing is to think about what they will and won’t do.  For example some people think they can be a landlord but once they consider what is involved they realize they can’t.  In that case maybe they need to get a partner who can handle the day to day operations and they simply provide the money or they find and negotiate the deals.  Or they may decide they want to buy and flip properties instead of hold and rent.  The more clear you are on your overall objective and goals the higher chance of success you have as your ability to focus and make informed decisions helps you connect with the best opportunities.  I always advise people to build a team of professionals around them – especially a realtor who is knowledgeable in the market area, and a financial planner and a mortgage broker who will help them set up an overall plan to invest. 

 

Pauline Tonkin - I believe and my longer term real estate investor clients will agree – you can make money in any market- it is the “deal” that counts.  Even today when prices in BC are among the highest in Canada you can negotiate a good price on a property.  If you know what you need to make the deal work then you price accordingly.  If the offer is rejected then you revisit your numbers.  If it won’t work – you move on to the next deal.  I have clients who make several offers on different properties and then lock down 1-2.  In the end they may only finalize the purchase on 1 property but they learn alot in making several offers and negotiating.

Pauline Tonkin - I have clients who have purchased houses in Vancouver and multi-family buildings across BC.  For example, a client purchased a house on the west side last spring just at the beginning of the hot spring market.  The seller had listed the property a bit below market value possibly hoping for multiple offers.  Due to a holiday weekend there was little activity on the property.  My client made a low offer which was declined.  After 2 days of negotiating the client managed to lock down the property for $50,000 below asking price.  Over the next few weeks the market became quite hot with properties in the area selling for $150,000 over what my client had paid.  The client didn’t buy to flip the property but to rent.  With a small renovation in the basement they were able to create 2 suites.  Rental income for upper and lower floor is $3500 per month – creating $900 per month cash flow after expenses.  In the summer of this year I had had clients purchase a house in Langley.  They purchased a foreclosure property with the intention of renovating it for quick resale.  They made a low price offer which was declined, they negotiated and locked in a price below tax assessed value.  They went to court and no other offers were presented.  The court accepted the offer.  Over the next 60 days they renovated the house with a $20,000 budget.  They listed the property and sold within 2 days for $50,000 profit (after all expenses).  
A couple of months ago I have two clients purchase multi-family buildings in Prince George below market value.  In both cases all units were rented so the clients had no loss of revenue upon closing.  Each investment cash flows and little renovation work is required.  Personally I have been looking for multi-family buildings in the valley area.  Sellers are still asking for prices that do not allow cash flow and not accepting lower offers. However, time will tell. I suspect over the winter some of those sellers will see their market soften a bit more and some good deals will result.

Pauline Tonkin - I currently do not invest in the US real estate market.  Although most of my clients invest in Canada I do have a few clients investing in the USA.  Typically they have purchased for a second home to share with family in the Phoenix or Palm Springs area.  I have one investor who purchased a few years ago and now with prices continuing to drop has to hang onto the property in Arizona.  If the plan is to hold the property and rent this could be a good investment because it is quite easy to cash flow in the house or condo market.  I have listened to tax specialists present on the longer term issues.  I am not convinced the capital gain opportunity will be sufficient to negate tax implications by the US government as I believe those rules are under review.   There are some real estate specialists within networking groups such as REAG who I would refer to for anyone wishing to look at investing in the USA. 
  

Pauline Tonkin - When I look at a deal I begin with understanding the market.  If I am looking at purchasing a house with a suite for rental I need to know more about the geographic area.  Are there a lot of rentals, is it close to transportation, shops, a university, etc?  What is the market rent in the area?  What kind of renters – families, students, elderly people?  What have housing been selling for over the past 6-12 months and even longer?  Is there any development in the area or will a major road be coming into the neighbourhood that could negatively affect values? Research the area to be clear.   Then I consider the specific deal.  I run my numbers to determine how much income I can expect compared to my expenses – short term and long term for maintenance and renovations.  I must be able to cash flow the property.  I use a debt coverage ratio (like a lender would) to consider the investment potential.  For every $1 of expense I want to earn a minimum of $1.10 income.  This way I am more than covering my expenses and the capital appreciation is not part of my numbers – that is purely gravy.  For example I purchased a property where my debt coverage ratio was 1.2.  The property is in Port Coquitlam (a solid rental market), close to all amenities including schools- rented to a young couple.

Pauline Tonkin - I believe any real estate investor should treat each purchase and the management of their portfolio like a business.  You need to be clear on your goals and your objectives for being in business.  I have clients with a portfolio of 10 properties.  Their goal was to create a portfolio of $1M+ that they could hold for 10 years with potential to more than double.  Over the course of 5 years they purchased condominiums only in Western Canada.  They would only purchase for less than $100,000 so the units would cash flow.  They had paid off their house and used the equity to buy the properties.  As they purchased the markets continued to move upwards so after the first 5 years their portfolio was worth over $1.2M and growing.  These clients are very clear on the market, what they will and won’t buy, their objective on each purchase and their overall goal.  They have a recipe that works for them and they continue to be successful. 

Pauline Tonkin - As an independent mortgage specialist I help my clients to review their objectives, goals and understand how to access financing.  I help them create a real estate kit which includes all the documentation required by the lenders to get financing approval.  By keeping all the property purchase details, taxes, strata information, rental agreements, etc in one place we are 100% aware of all the financial details with respect to the portfolio.  This enables myself and my clients to know the debt coverage ratio for each property and the entire portfolio.  So when my clients are ready to make another offer they can know before they make a move what price range will work and how to structure a deal with the highest chance of success.  In some cases we can go with a standard mortgage from a traditional source such as a bank.  In some cases we have to look at alternative financing options.  In the end if the numbers work for my client and the deal can be successful I have provided value for my client in helping them reach their overall objective.  I also have a network of professionals who can support my clients, from realtors, financial planners, insurance specialists, home inspectors, staging professionals, interior design and renovation specialists, accountants and lawyers.

 

About Pauline Tonkin, fully licensed, independent mortgage specialist, Innovative Mortgage Solutions-The Mortgage Centre. 

Originally from the United Kingdom, Pauline has lived in the lower mainland since she was a child.  She has been investing in real estate within BC for over 20 years.  She works with a range of investors who purchase single family homes, condominiums, multi-family buildings and commercial properties in the lower mainland, throughout BC and across Western Canada.  She is an active member and presents to real estate investors through REAG and REJVC.  Pauline is a proud member of the Mortgage Centre Network and the Accredited Mortgage Professionals Association (CAMP).  For more information on upcoming events or to sign up for the monthly newsletter, visithttp://www.mybcmortgage.ca/ or follow Pauline on Twitter PTonkinMortgage or on FaceBook at Pauline Innovative Mortgage Solutions or on LinkedIn.