Since I started my Real Estate Investor’s Group in 2010, I get a call at least once every 2 weeks from enthusiastic wannabes who want to make it rich in real estate. They’ve either read Rich Dad, Poor Dad, by Robert Kiyosaki, or have taken an inspiring course on making money fast in the real estate domain.
A lot of people get very excited, however they don’t realize the amount of work involved or the time and resources it takes to make it happen. A lot of these courses are targeted to the U.S.A. and other parts of Canada where the market is extremely different. Even here in Quebec we are governed by the Civil Code and the rest of Canada is Common Law. Quebec has a rent control system in place which the other provinces do not which also greatly affects the business.
Every style of real estate works, however in Montreal, some are some better than others. Some can take years to come to fruition and some over night. Because there are so many different styles and markets, it’s always best to concentrate on a familiar area with one or two different styles of investing.
Can you do it all and be successful?
Taking on too much will water down your time, and knowledge. When I first started in real estate, I took on a buyer who was so keen and determined to get into short term real estate. I’m sure that in the 3 years I worked with him, we looked at over 100 properties and many different styles of investing. I was new and had the time but not the experience, so I didn’t mind at first. My buyer would send me daily listings and I would check to see what the value of the building would be once it was renovated. That took anywhere between 20-30 minutes for each one. Because he was looking into numerous areas that were spread out, I had to research many different markets. This type of investigating is crucial in getting the right information asap so as not to lose any great opportunities.
Burning out your Broker
When a client is not focused on one real estate idea and on a few markets, brokers will burn out. Spending a lot of time helping buyers without anything coming into fruition is not a great business plan for brokers. If you are looking for an experience, almost all brokers will only work with clear self-directed buyers. It’s only the inexperienced brokers that have the time to run all over the place.
Here is a list of the main investing styles today:
The most popular, #1. Buy and Hold. This has great benefits. You can take your time improving the building’s value. Long-term, it could be part of your retirement portfolio. You can remortgage and withdraw equity to reuse without being penalized by income tax. There are long-term tax benefits as well.
#2. Flipping… ei: Buying a building short-term and improving its condition/value and reselling asap. High risk. Must have a grasp on renovations, the market, holding costs and more.
#3. Turning apartments into condos, whether divided or undivided. This method could be great, however in 2016 the condo market has been taking a downturn in the last couple of years.
#4. Buying houses, renovating and renting them out. If you want to use this as a business model you will need to remortgage and take your equity out to reuse it for another property.
#5. Buying a small apartment building and turning the basement into more dwellings and rent them out by improving the buildings value and the cash flow. Either hold or sell right away.
#6. Rent to own. This is a very convoluted process and there are a few ways of doing it. I hear a lot of people talking about it, but I haven’t actually talked to a person who does it regularly. I even chatted with a guy who wrote a book about it, but he actually never did one himself! The bottom line is that you find someone who has money and bad credit. You buy a home for them and they give you a deposit and pay the bills and a management fee. After an agreed upon timeline, they go to the bank (after having built up their credit score) and get a conventional mortgage to buy the property from you.
#7. Wholesaling or contract assignment. Transferring a promise to purchase to another party. This is where you have an accepted promise to purchase on a building but haven’t gone to the notary yet. In Quebec you legally have to get the sellers permission to be able to do this.
There are other styles out there, however, after years in the business, this is what I have seen the most. Becoming a real estate investor takes knowledge, and you’ll get that by getting out there visiting properties, crunching numbers and developing relationships with your resources.