The brother of a friend of mine heard that I invest in Edmonton real estate and started asking questions of my friend. He apparently looked around my blog, and asked “isn’t there a post on there that explains just what you do?”
I figured my About page explained that, but then I realized that it only makes sense those who know what phrase like positive cash flow mean.
I’m going to try to explain what I’m doing in simple terms.
First, we’ll take a page from Stephen Covey and start with the end in mind. Take a look at My Personal Belize. This was an exercise to visualize what I want my life to be like. I’m not in real estate to make millions of dollars; I’m doing this to create a life for my family which enables us to life the fullest lives possible, without having to try to make money at it. Consider Kevin Matwichuk who took his wife and four kids to the Caribbean where they lived on a sailboat for 7 months. That’s amazing and inspirational.
Second, why real estate? That’s fairly simple. All my life I’ve worked with my family managing other people’s properties through our work at Davies Management and Realty. My grandpa’s done very well with it, as have my parents. They helped me realize the power of leverage (you can buy a lot more real estate than you can stocks because you can borrow to buy it). We’ve also learned about cash flow, renovations and the need to fix things when they need to be fixed. A normal dinner table conversation with my family has around 150 years of real estate experience at it. (And it occasionally drives Megan nuts) I’m also a member of the Real Estate Investment Network, and I use their proven systems together with my experience buy the best properties in the best places.
So just exactly am I doing? I’m buying real estate. I buy it, rent it out and hold it for 5-8 years. After the 5-8 years I refinance or sell. (Refinancing is preferable)
Typically I like townhouses, but I’m open to condos, houses and multi-family buildings. The key is that each one must support itself: the rent must cover the mortgage, taxes, utilities, insurance, a maintenance and vacancy allowance and maintain a sizable reserve fund. If all that still leaves cash left over at the end of the month (most months) then I’ll buy it. I prefer to put 10-20% down, which keeps the amount of cash required manageable, cashflow decent, CMHC fees down and risk low.
How much money do I make? I bought a townhouse in October 2008 for $250k. Right now it’s routinely clearing $500-600 per month which is split between me and an investment partner who gets 50% of the cash flow and profits.
For a property like that, if I invested $50,000 at the start and property values increased by 5% a year, I’d get ~$120,000 in 5 years. That’s the simple & conservative number.
The only thing is it takes time, effort and some careful management. I’ve got a great team of realtors, property managers, accountants, bankers, mortgage brokers and lawyers. (And Edmonton’s stil the best place in Canada to invest.)
Let’s say that I meet my short-term goal of buying 15 properties. That’s $3,000-$4,500 a month in free cash flow that I don’t have to work for. That’s a full-time job worth of income, and a full time compliment of time that I can then give to my wife, my kids and my community.