15 years learning by watching

4 years building relationships

2 years buying my own stuff

Which leads to the experience of getting an email, making two phone calls and calling the seller back within 30 minutes of their email to say, “we’ll take it!”

I don’t advocate buying property sight unseen, and after I gave the seller a verbal we still had a chance to do a full walkthrough, but I’ll explain why I felt fine with this one.

1. A wholesaler I trust. The email came through from a wholesaler who I trust and my parents have bought from before. I trust their numbers and the types of properties they offer. They emailed me a 4-bedroom townhouse they had an contract on and were looking to assign. With properties like this there’s almost no way you’ll be able to get a 1st mortgage, so you’re left with bridge financing or closing in cash, and you’ve gotta do it fast.
2. A condo complex, neighborhood and renovation plan I know. They happened to find a property in a development I already own one unit in and am very familiar with. I like the board, the construction and know quite a bit about the recent sales. I know exactly how much renovation will bring how much value. It made the purchase a 90% automatic yes.
3. A joint venture partner ready to close. Being able to pick up the phone and have an experienced JV partner who could come up with $200,000 cash lined up is huge. This isn’t a particularly rich deal for me, but being able to help put it together was a significant personal achievement.
4. Skilled eyes for the one and only walk-through you’re likely to get. Bringing in my Dad, who is a great Realtor, Property Manager and who happens to be a Certified Engineering Technologist and a Journeyman Carpenter is like having a walking home inspection service. Then to bring my Mom in, who has done a lot of renos and is an Accountant is icing on the cake. We could have a second look if we really wanted, but when it comes to great deals, I want to be the easiest person on the block to deal with, so I’m looking to say yes/no as soon as possible and be true to my word. When it comes to wholesale or pre-foreclosure deals, the homeowners are frequently a little skittish so you want to be very careful about how you treat them.
5. Multiple exit strategies. This one is planned to be a flip, and we know the neighborhood well enough to make sure our renos fit the types of sales we’re looking for. I also already have a potential purchaser lined up. I also did the numbers and know that it’ll cash-flow like crazy if we end up having to hold it for unforeseen circumstances.
6. An all-star renovation team and contractors. Knowing which contractors I can have, including some ballpark estimates from a few contractors thanks to my wholesalers means the budget is pretty solid. Concerns are few, risks are low, awesome is high. There’s sure to be things that pop-up unexpectedly, but it’s great to know we have a wicked team to handle it.

Now I’m just looking forward to the process of getting the renos done!

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When you start buying properties with the assistance of Joint Venture partners, you end up putting a lot of trust in the hands of someone you might not know very well. Particularly if they’re the money partner, they can get cold feet at the last minute and leave you standing at the altar with no way to close on the deal.

Neil sent me an interesting email on this exact topic.

Hi Chris,

Hope all is well and you had a nice long weekend.

I have an interesting situation/dilemma with a few potential JV partners that I wanted to share and ask you about:

Before spending time and putting effort into looking for a new property for you and your JV partner, how do you make sure they will not walk away last minute (either before closing or before releasing the conditions) and you just wasted a lot of energy and time finding a good property?

I am considering having them sign some document, perhaps an intention to purchase with me or something similar to what RE agents use(?) not sure though especially since some of them are kind of friends. Do you have your partners sign something before you start working on a new purchase? does it help?

Thanks,
Neil

So here’s what I wrote back:

Hi Neil,

I do have several levels of paper-based commitment, all out of the REIN JV Secrets package (there’s also a new e-book that’s like JV Secrets-Lite and is only $37), talking to other investors and my own experience. Not every partner has to jump through every step, but everyone gets at least a written JV agreement and usually a letter of intent (which is what you’re looking for). It seems like a lot of steps, and it will reduce the number of people who make it through to the other side but you’ll reduce your risk substantially and end up with better JV partners. This is what works for me, and if nothing else, the first three steps will take care of 90% of the problem people you’re likely to find.

The full funnel for Joint Venture partners that I use on people who are less-well known to me has 9 or 10 steps and goes like this.

1. Interest Questionnaire – who you are, where you work, what you have, etc. Weeding out the tire-kickers.
2. Letter of Intent – Ballpark numbers and general agreement. E.g. JV Partner A brings $100k and JV Partner B does all the management. Acquire a 4 bedroom townhouse on a long term buy and hold, split 50/50.
3. Cash Deposit – $1,000-5,000, best if it accompanies the Letter of Intent.
4. Draft Joint Venture Agreement – in tandem with the search for a property, your lawyer will be able to take the letter of intent and draw up a JV agreement. Here’s where your JV has to take the draft and get their independent legal council.
5. Property Acquisition Begins. Find it, write an offer and once your offer is accepted move to #6. Now’s also a good time to make sure you have the rest of the cash (before you remove conditions).
6. Full Joint Venture Agreement Prepared – You’ve got almost all the particulars of the property, so you can finalize the JV agreement document.
7. Property Closes - Real money moves, title gets transferred and the real work begins.
8. JV Agreement Signed – Make sure everything is locked and loaded.
9. Caveat Registered – If you’re registering the JV agreement via caveat, you’ll want to do this. As a rule, I like to wait at least 6 months so as not to spook the bank if they happen to pull title. If it’s not an issue for the JV partner I don’t bother registering a caveat.
10. And don’t forget to plan for the exit. You’ll dispose of the property and have to send out a statement and a pair of cheques. Make sure to refer back to the original JV agreement to make sure you’re doing what you said you’d do. I know of a couple people who changed policies half way through and nailed their JV with fees they’d never agreed too.

It looks like a lot of steps, but it’s worthwhile. Yes, you’ll lose some people, but they’re people who will cost you more in the long run. Someone who promises $60,000 and then backs out after you’ve removed conditions can potentially cost you more than $300,000. Finding the right person with $60,000 can make you both another $60,000.

N.B. This isn’t intended to be legal or professional advice. It’s just what I do.

Photo by hans.gerwitz

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Well, Saturday morning in Calgary will find a bunch of people in a room with Russell Westcott, Don Campbell and a bunch of exceptionally successful real estate investors. I wish I could be there, meeting people, seeing what’s new and being inspired. It’s an ACREs (Authentic Canadian Real Estate Seminar) weekend, put on by REIN.

If it’s your first time at at REIN event (which will be most of the people there), here’s a selection of the over 300 posts on my site. It’s a mix of the most popular, most controversial, most useful and most personal. Enjoy!

My first ACRES/Quickstart weekend, my personal Belize (vision) and family.

• My Personal Belize – a vision statement, expressing what I want my life to be like in the future and how real estate will help get me there. It’s working out pretty well, as Megan and I have been in Ireland for the last two months…
• Kudos to my parents, who have been a major influence on my journey. And Mom and Dad enjoying a bit of their personal Belize.
• Accepting real estate’s place in my life and on this blog.
• A guest post from my younger sister. You’ll start to get the feeling that real estate is something that’s been baked into my family for quite a while (four generations actually).
• And a some words on picking a niche. Particularly apt with all the Ron LeGrande stuff going around right now: What Do I Do? and Define Your Investing Niche

Tips, Tools, Mistakes and Systems

• Six Steps to Finding Cashflow Creek
• The Black Triangle of East Edmonton Eats New InvestorsEdmonton’s Black Triangle Presentation
• The Top Ontario Rental Websites – Fall 2009
• Canadian Rental Website Rankings – June 2009
• Get Used to Scum
• Canadian Internet Marketing Resources
• 6 Things You Should Do To Your Mortgage When Interest Rates Drop

Property Management Experiences and Tips

• What to do with dead tenants
• Need a Property Manager? 10 Tips to Land the Best!
• Three reasons to put the phone down instead of calling your property manager
• Bugs in your Buildings? (Protecting your Real Estate Investment if you Self-Manage)
• How to Cut Vacancies by 50%
• Property Mangement Rocks!

Joint Venture Partners

• Five Ways to Flush $50k
• Six Reasons No One Wants to Buy Your F-ing Real Estate Investment

Business, Stats and Misc

• 20 Years of Detailed Edmonton Real Estate Prices
• Economic  – What Stats Do You Want to See? and everyone’s responses.
• Mike Rowe on Hard Work and Dirty Jobs
• 8 Essential Real Estate Investment Business Processes
• More Fun with Stats- Monthly Edmonton Statistics
• Edmonton Real Estate Prices Since 1962
• Why Real Estate Works in a Recession
• 8 Tips for Recession Proofing Your Real Estate Business Model

And some roundup posts:

• 2008 in Review
• Most Popular Posts of 2008

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Dan Barton of Oasis Properties dropped me a line about a webinar/teleseminar series he’s running on a subject near and dear to my heart: Raising Joint Venture money.

Dan’s done a lot of deals, and Oasis is a serious player in REIN circles. I’ve chatted with Dan and Greg briefly at REIN events and I have a lot of respect for what they’ve done and the help they give others on myREINspace.

It’s going to be a series of six hour long webinars on Wednesday evenings starting January 13th, and the cost is $147 (that’s $24.50 each). You can register on the Oasis Properties website or call 1-888-234-0093. Wednesday • Jan 13th – Feb 17th 2010, 6:00PM PST – 7:15PM PST

I asked Dan a couple questions earlier this week, including one about how interactive it was going to be for participants. Here’s what he had to say:

The seminars will be open for dialogue, [and] it will be interactive with me as that is the best way everyone will learn. We will be utilizing the mute and un-mute function that the conference provider allows, as long as the users understand to mute when they are not speaking – which always proves to be an interesting task. I will also be fielding questions and topics that are important to the participants by e-mail prior to the start of the series and the calls.

Here’s a quick video Dan shot to discuss it.

They’re also going to be recording the seminars, and Dan’s graciously agreed to give me access to them. Looks like a great program.

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There’s a great Real Estate Investment Network (REIN) event in Edmonton coming up soon, June 26-28th.

Friday night starts with an economic summit with key speakers, some top Canadian economists and veteran analysts. You can download the PDF brochure here, or click here to register.

The panel for the summit will include:

• Carl Gomez, Vice President, Research, Bentall Capital
• Todd Hirsh, Senior Economist, ATB Financial
• Ron Gilbertson, President and CEO, Edmonton Economic Development Corporation
• Mary MacGregor, Chief Economist, Government of Alberta
• Peter Kinch
• Don R. Campbell

Saturday is the Advanced Landlording and Investing Fundamentals Expo and Brent is participating on the panel of property management experts.

The other panels and participants are:

Property Management Panel:

Keenen Tameling
Tyler Uzelman
Rebecca Bryan
Brent Davies
Carol Garrett

Overcoming Obstacles Panel:

Marnie & Ryan Griffiths
Dan Heon
Julie Hoffman
Garth Chapman
Philip McKernan
Troy Sirett
Tana Wheatcroft

Raising Money Panel

Thomas Beyer
Mark Garrett
Arlen Dahlin
Greg Habstritt
Russell Westcott

The cost for the Economic Summit is $199. The LIFE weekend is $787, but if you click here you can get $200 off ($587), and be able to bring additional guests for $387.

You can submit questions in the myREINspace thread for the panels, and see get  information and a lot of videos in this thread.

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Having great statistics is a vital part of what I do, and I’m sure that it’s important to all sorts of investors. I need them to help understand the market, creating Joint Venture presentations, blog posts and other presentations I do. 

One of my favorite sites is StatsCan (Statistics Canada). I’ve used the stats from The Daily in the past, like this post about unemployment numbers. What I (finally) did the other day was add The Daily to my RSS reader. Now it’s easier than ever, and much more digestable. 

You can get the RSS stream here: http://www.statcan.gc.ca/dai-quo/rss-eng.htm

Each day has 3-6 different reports, like today’s which looked like this:

Tuesday, May 12, 2009
Released at 8:30 a.m. Eastern time

Canadian international merchandise trade, March 2009
Canada’s merchandise imports and exports both declined in March, largely due to volume reductions. Imports decreased more than twice as fast as exports.

Aircraft movement statistics: Small airports, 2008

Export and import price indexes, March 2009

Chain Fisher real export and import values, March 2009

Public Service Employee Survey, 2008

Featured product

Canadian Social Trends, May 2009 online edition

New products

So go check it out!

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There’s a natural progression within Real Estate education, it’s a lot like school. I’m going to try and paint a picture of what I think this looks like for Canadian investors. I’m using the metaphor of school because it’s familiar to us all, but don’t think that it’s literal. For many investors there’s a 10-20 gap between elementary and middle school, of from high school to university. Some people never go to university and fewer still become grad students (Masters and PhD), and an exception group of individuals become full professors.

Play Nice and Share

photo credit: marge727

The Elementary School experience for most of us is the time we spend early in our lives when we learn our own basic financial literacy (or lack there of). It’s the important experience of receiving an allowance and having to decide what to spend on what. I’m sure my parents could come up with several examples where I foolishly decided to spend all $10 on a cap gun or something else “big” which broke or was used up in the first hour. There’s a pretty big gap between a made-in-china toy and success in real estate investing, but these are the experiences which start to define our attitudes, values and goals. The whole point of the game during this phase is learning to play nice. More than any other time, this is where you learn how to work together and start the skills that will ultimately define your success.

For lots of us we start to move towards Junior High or Middle School we take our first part-time job. Maybe we go through the adolescent phase where we just want to be rich. Beyond being a teenager, there’s some physical objects here for the first time. The working tools of the “real estate teenager” are books like Rich Dad, Poor Dad
and The Wealthy Barber. Those are two great books that the university graduate might turn to again for refreshment or to help educate others as they move towards teaching, but with very different eyes.

Workplace Skills

Now we’re into the exciting years of High School. Lots of people don’t start learning this stuff until well into their 20′s or even their 30s or 40s. In life you likely have a career, possibly a family and hopefully you’ve had experiences like going away to college or university, traveling on your own or buying a house for your principle residence.

You start to move on to move complex books, and some of the more basic courses. You might take the book learning into the real world but you don’t have a true focus or idea of what you want in the end. You’re probably still thinking in terms of ‘retirement’ or simply saying you don’t want the conventional experience of learn-work-retire. You’ll buy more complex books, probably American. There’s an enormous variety of them on Amazon. You’re learning in a very simple way what works and what doesn’t.

Just like in the real world, the skills in high school you can theoretically make it in the wide world. The problem is that you’re still just following someone else’s tactical system. From an education standpoint I think that most of the seminars you see advertised in the newspaper or on TV, and almost all the ones you see online are the educational equivalent of grade 9 or 10. The Rich Dad (by which I mean the Darren Weeks sales-pitch) seminars might be able to hit the high school graduate level if you’re very dedicated and take the extra training beyond the $1k weekend, which starts to put the total cost up around the $10-15k mark. I also have heard a number of people saying the content isn’t sufficiently Canadian.

There’s a number of other seminars which are at the same level, and offer some mentoring (often again at the $10k mark) including Ozzie Jurock. The Robert Allen crap is purely American, and the tactics don’t apply to our market. There’s lots of options, some of which will help you graduate from high school, and might even make the community-college diploma level, but there’s a lot of crap here too.

College Frosh Week

photo credit: jmilles

Welcome to University/College. I put the REIN materials here as a solid undergraduate education. The ACRES home study is like your first two years. You can learn some solid skills, and use it to execute some tactics, but it’s kind of like you dropped out after year two. You’d have be a very dedicated person to keep things moving forwards. The real live in-person ACRES weekend, with all the material you get to review after is a pretty solid Bachelor’s Degree in Real Estate Investing (that’d be a BScREI). I think it’s true because more than any other group I know of people attend the weekend, go out and take action. Even if it’s a simple as putting together their banking binder and getting pre-positioned, they get things moving. And there’s an awful lot of people who go out and write offers within the first month or two after. I did (it was a dual-offer with a 30% VTB as the second offer!).

Your Thesis and Continuing Education

The thesis of your undergraduate education is the first three properties you buy. This means you’ve had to deal with financing, legal issues, possibly joint ventures and property management. You’re learning how to speak the language of more sophisticated investors, and developing a clear picture of what you don’t know.

The continuing education component for your undergrad is going to come in the form of a REIN membership, listening and learning from other investors, news and some of the same resources (books and seminars) which characterized the junior high and high school years. The difference is you’re looking at them with new eyes. You can start to put them into the strategic plan you’ve started to develop (or the 50,000 ft view to use David Allen’s
term). Before they were little more than entertainment; the flaw in those programs is they’re not aligned to support your long-term education and success, they’re intended to make their champions money first, and ‘educate’ you to support that goal.

Graduate Seminars and Masters’ Degrees

photo credit: Miguel Vera

Now you’re fully able to begin taking a 360-degree view of your portfolio, team, goals, family, the local, provincial, national and global economies, and you’re ready to diversify. You have the ability to effectively raise Joint Venture money, consider moving to a multi-family property (6-units +) or small commercial/mixed use. You might even have a good enough team to try a condo conversion. Towards the end of a Masters (M.REI) some people make the jump to going big: public offerings, large multi-family and development.

The important part is you’ve developed the ability to assess your own knowledge, and the more important skill of valuing and implementing advice from more experienced professionals. There’s a great discussion on myREINspace right now about leverage and financing. There’s a strong theme running through it talking about risk at a more abstract, full portfolio and long-term perspective.

The Doctor is In

In the academic world your PhD takes 2-3 years, assuming a masters takes 18 months to 2 years. It’s completely variable because the whole operation depends on your research, the creation and the defense of your thesis. A senior PhD student might be someone like Thomas Beyer, whose thesis defense might be a visible sign like his presentation to the REIN meetings in Alberta and this interview with Russell Westcott. You’ve been successful, you’ve made some colossial mistakes and you’re now into sharing them with others.

Who would I award a doctorate to? In REIN circles: Don Campbell, Russell Westcott, Greg Habstritt, Michael Milner, Owen Shaw and Tasha Adams, Valden Palm, Thomas Beyer, Brent Davies and Arlen Dahlin.

The skills these people have is that to work from a 50,000ft view, provide the same detailed level of analysis for multiple investments, businesses and to take it beyond to other areas of your life.

Maybe I’m completely out to lunch, but that’s what I think the landscape looks like. I’ve been really happy with the level of discussion on myREINspace lately, as I think we’re moving to a more sophisticated, more intelligent place that also welcomes the complete newbies with thoughtful, helpful commentary.

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For me, and for all the REIN members like me, we’re buying or are preparing to buy. I have no doubt in my mind that the properties I buy today will have appreciated significantly in five years’ time. Why five years? Because that’s the minimum hold that my Joint Venture partners and I agree on. Real Estate is a long term game, and flipping is a good way to break you neck, but that’s another story.

The question right now is how do you continue to get the strong rents you need to keep the positive cash flow going. There’s more units on the market right now and tenants are getting a little choosier. Some are asking for discounts, and other are threatening to move. Yes, vacancy rates have increased slightly, but they’re still relatively low.

What you need to do is make sure that your business is operating flawlessly, that you’re doing the extra 10% and you’re working with a spirit of continuous improvement. That said, there are:

Eight common things you already do and you should have written procedures for

This helps you, helps your tenants, reassures your JV partners and reassures your banker.

1. Deposits – What ways you accept payment, where it goes, how/why/when you issue receipts, and how you track from whom and for what. 
2. NSF Cheques – How you get notified, how you notify the payor, make sure bills still get paid, get repayment, fees and tenant policies. (Chronic NSF cheques constitute substantial breach in Alberta, and that’s grounds for eviction)
3. Changes in the Prime Lending Rate – Reducing the payments on your variable rate mortgages can have a huge impact on cash flow and return on investment. 
4. Mortgage Renewal Tracking – You won’t believe what the banks will do to you if you miss a mortgage renewal. It’s your one penalty free chance to shop around and be proactive about the single largest expense your business has. 
5. Paying Bills (and getting mail) – How to know which bill is for which property, which account, which JV. Decide which bills to pay when, how, and which ones you should look at a little closer. ($2,600 for painting a one-bedroom?!?)
6. Tenant Screening – One of the most important parts of due-diligence, making sure you’ve got good tenants. A bad tenant can cost you thousands of dollars, so use the REIN landlording tips, learn from other people and add in some good old fashioned common sense. 
7. Rent Increases and Lease Renewals – You should already be using a calendar to track when the tenant moved in, when the last increase was, and you’re ready when it comes time for the next increase. In Alberta, you can increase once a year, with 3 months notice. This means you should have a calendar warning you at t-minus 4 months, then 3months, and then on the date of the increase. 
8. Tenants Vacating – It’s not the end of the world when someone moves out. Make sure you get the move-in paperwork together, get ready to show the suite, decide on market rents and your rental rate, and get advertising. 

And the bonus step, tenant move-ins. This should include all the steps from #6 above (tenant screening) the lease, security deposit, the application, keys, and the in-report. 

You’re running a business; treat it like one

Write what you do down. Show it to your JV prospects. Show it to other investors. Keep to the procedures you’ve laid out. I did it the other day when I got the mortgage rate change notice from TD. My procedure said pick up the phone and call the bank to ask them to lower my payments. Just that one phone call resulted in a 200% increase in cashflow and approval for a second mortgage.

I’m going to do a series of posts detailing what my procedures look like, as well as the how and why of their design. (I can tell you’re excited for the ‘paying bills’ procedure!)

And finally, REIN members! Remember, you’ve already received a bunch of procedures and due diligence checklists with your member binder, or if you attended a Live ACRES/Quickstart or got the homestudy system. That stuff is like gold.

Write it down. You’ll be glad you did.

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My name is Chris, and I’m addicted to powerpoint.

They say that admitting the problem is the first step to recovery. I just happen to like making good presentations. And I like helping other people make good presentations.

Presenting Real Estate Investment Numbers to Joint Venture Partners

Today’s slide deck is an example of the slides I’ll use to communicate some numbers to a joint venture partner. It’s hard to communicate a lot of numbers using presentation software (powerpoint, keynote, Google docs, open office or whatever you use.) What’s the solution?

Don’t use slides to communicate complex numbers.

Powerpoint isn’t supposed to be a document. It supports what you have to say. Create a document or a spreadsheet with all the numbers, and give it to them as a take-away. Then you’re free to make a slidedeck with only the information you want to share, and actually maintain people’s focus.

How do you un-suck un-clutter your slidedeck?

Delete everything you possibly can.

Slide number 10 in this presentation is a good example of what I mean. As few numbers and words as possible; no need for any axis clutter, only labels for each bar. No grid lines, I’ve used the values instead. There’s only one point on the slide, and you can’t miss it. $21,520.15 in positive cash flow .

There’s only one element where I added more detail than is needed. I’ll mail a cookie to the first person to correctly guess what that is.

About the numbers

I struggled with these numbers. What I’ve used is the real numbers from my last property. It’s not a typical revenue property by my standards. We got a good deal on the way in, and the renovations went off without too many hitches. We originally guessimated $20,000 for the reno. It ended up being just over $25,000 (the actual number is in the slidedeck). The $250,000 appraisal is an actual hard number. It’s currently rented to a nice couple who are paying $1,500 a month and utilities.

I thought about dumbing things down; making the $250,000 appraisal to be just $230,000. Using a 3% per-year appreciation model, instead of my standard 5% appreciation.

In the end, I decide to be completely transparent with the numbers. We did buy it for $190k. The renos were just over $25k, and it does rent for $1,500. The mortgage will be 4.5% or less, with interest only payments, and I’ve included the CHMC fees for doing a 90% mortgage. I may post the spreadsheet in the future.

Here you go!

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James liked my earlier post about the philosophy of using Lego to find JV partners.

He found this great website called Lego a Day. I particularly like their one with Wall-E and the Stormtroopers.

After the discussion the other day on Sheldon and Sara’s blog, I’m going to post some numbers of what my investment analysis look like. Someone commented saying that real estate is a good investment for average people. Really, real estate is a great investment is a great investment for the rich too. I can point to rich people and say “they did it”, but it’ll be simpler if I show you some of the numbers.

Does anyone want to see some real numbers?

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