Last weekend Brent and I attended one of the Real Estate Investment Networks’ ACRES weekends. It’s always a good refresher weekend and the people I meet there always amaze and inspire me.

We often take out a booth to share our listings and our services as REALTORS®. However, since Brent joined me this July, we’ve been quite busy on the multi-family side of the business.  To help promote a few listings I did up 20″x30″ posters of a couple apartment buildings which are available. There’s always lots of discussion on what information goes into a proforma (financial summary) for a property and what investors can/should plug into REIN’s Property Analyzer for cash flow analysis. Here’s some assumptions you should consider, and some you should be aware of.

Inflation – Remember, the Bank of Canada aims to have inflation running between 2-2.2%, so for any costs that change, that’s my baseline.

Purchase Price – you should know your local market (or work with a buyers’ agent who does) well enough to know what the value of a property is before you look at the list (asking) price. Getting a discount with respect to list price does nothing but feed your ego. Know what properties have sold for, and be able to explain that to the sellers, personally, through your agent or in a cover letter. For some areas in Edmonton, I know the ballpark, so for quick analysis I just take 1-2% off the list price because for properly listed prices, that’s what things sell for. Again, there’s no substute for good data on sold properties and an agent who knows the area and the history.

Repairs and Renovations – I always assume at least $2,000 will be spend in the first few months. That’s both spent tidying up little things they sellers just did a quick fix for and also for normalizing the properties or making tenants happy. I usually get asked what I mean by ‘normalizing’. Ideally, all my properties have the same faucets, appliances, flooring, locks/door knobs, light fixtures, etc. That makes it faster, easier and cheaper to repair things when they break.

Current Rent – If you’re buying something that already has tenants in it, either single family or multi-family then this number comes from the vendor and should be confirmed before going unconditional and buying the property. If it’s vacant then you need to know what it’ll rent for today. Again, market knowledge is king and part of the reason I’m a fan of buying several units in a complex which you already know. To help make things easier for Edmonton investors, I’ve surveyed several property managers and investors to create a rental market survey that you can download for free.

Projected Rent – The projected rent comes in two flavours. First, this is how much you can rent it for or raise the rent to when you are next raising the rent or filling a vacancy. The second is where rents will go in the next few years. CMHC publishes some information and limited projections. For example, spring 2011 has the average 2-bedroom at $1030, with a projected 2012 price at $1060, or a 3% increase. If nothing else, I use a 2-2.2% increase, which is the Bank of Canada’s mandated range of inflation.

Vacancy – CMHC publishes lots of stats, but I also use my own historical vacancy because I have better than average property management. For apartments I use 4% and for single-family I use 5%.

Utilities – For all my single family properties I have the tenants pay the utilities. If I’m on the hook I look for actual historical amounts from the vendors, while for multi-family that’ll be included in the financial information provided during the due diligence period.

Property Management – As a rule I use 10% for single family through to 4-plexes. For multi family I use ~6% up to 8 doors, and 4-5% beyond that.

Financing – I use prime plus 1%. That’ll put us somewhere between the VRM and fixed costs. I also use a 30 year amortization, since that’s what I look for myself.

Multi-Family Specific Assumptions

Expenses – CMHC will use ~$3,600/suite/year in their projections unless you can prove that the real costs are lower than that. It’s still a good ballpark. Costs will be higher on older buildings, higher on concrete/steel construction that wood frame, and higher on poorly maintained buildings.

CAP Rate - Capitalization rates are always tough to figure out and one of the reasons we pay for private sources of sold commercial data. Today (Fall 2011) in Edmonton sellers are asking 4.5-6%, while CMHC is financing a maximum of ~7%.

Ownership and Tax - For multi-family buildings in Edmonton I always assume that the property is held in a company and will be subject to the top tax rate, which in Alberta is 17%. I also assume that the goal of the investor is long term buy and hold unless we’ve discussed otherwise. That way we have a base to determine how to handle slightly more complex items like maximizing the use of terminal losses if you decide to tear the building down and rebuild after several years.

There’s a projection for everything, but be sure to use realistic numbers. Also, it’s always a good idea to do a 5-year cash-flow model to get an idea of the impact of time on your investment.

Related posts:

1. Buying Multi-Family – Sellers’ Market Tips It’s 2011 and Edmonton’s still a funny market when it...

My wife and I started the New Year with a bang. At 6:30pm on January 1st Alex came out to join the rest of us.

I’ll try to get some blogging done, but I’ll be chilling out at home for most of the week just spending time with baby and Mommy trying to be helpful.

I hope your 2011 is looking as awesome (and as cute) as mine is.

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Megan and I took our long weekend and decided to hit the road to Cowtown and points south. Here’s a smattering of pictures from our trip and our visit to Heritage Park.

Southbound!

Spring means newly planted fields and lots of sky. It’s something that I missed when we lived in BC and Ireland.

Me in the rear-view mirror.

The view out our hotel room in Calgary.

My obligatory cup of Timmy’s, standing in line for tickets at Heritage Park.

Sweet old gas pumps. They have a new antique car building/display.

A synagogue/school/community center for Jewish settlers.

Beautiful old house.

Two horses named Splinter and Shredder. TMNT anyone?

Taking photos of the blacksmith. I’m not sure what he was making, but it was pointy.

Fun with blurry photos. I’m excited to play with my new camera for shots like this.

Megan loves taking photos of grain elevators.

Elevator photo number two (of ~20).

Choo-choo!

One of the locomotives being restored in the roundhouse.

Great sign.

Megan taking a break and hiding from me.

I love old farm machinery.

Also a fan of chickens. I used to have chickens that laid blue/green eggs. They were tasty.

Every farm needs a windmill.

And every small town needs a sweets shop.

And us riding the trolly back to our car. I still like Fort Edmonton better, but this was a great weekend trip.

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The EU appears to be in a tailspin thanks to Greece and the rest of the PIGS. Slightly sketchy balance sheets and a European Union who weren’t inclined to look too deeply into the application for membership have resulted in an organization that may have some issues in it’s fundamental stability.

Does that sound a little bit like bundles of US loans to anyone else?

The TSX and the Dow both have taken huge single-day drops in the past few weeks, showing how skittish the market is and how quickly the value of those assets can change.

It’s a great time for those who have cashed out of the stock market to think about putting their cash into solid, positive cash-flow properties in strong economic regions. Screw trying to make a million dollars buying some depressed asset in Phoenix. Be more like Buffet and buy strong assets with a long-term future. Look at fundamentals of the region, the future and the market. Stop chasing the deals and look for something with a positive future.

There’s no doubt that people will still require houses in 10 years. And there’s no doubt that there’ll still be people and jobs in Alberta. There is significant doubt and uncertainty in the stock markets.

I bought another townhouse last week and I’m hoping to buy another in the next few weeks. Strong, solid properties, bought only a little bit under market. I might not get the excitement of checking my stocks every day and watching a crisis half way around the world destroy half my portfolio. What I do get is a asset that keeps writing me cheques every month, and with almost 15 years experience in property management, you’d better believe that I know how to keep those cheques coming.

So this weekend Megan and I are going to hit the road and enjoy our first Anniversary driving around southern Alberta. Then, we’re going to come home and continue kicking some serious butt. Life is amazing. How about you?

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It’s been a busy and turbulent week.

On the plus side, Megan and I found out that our Irish work visa have been approved and are winging their way to us now. They should get here early next week. We’re heading back to Edmonton around the 22nd and we take flight on the 29th of August.

On the down-side, on the same day we both gave notice at our respective jobs. Megan’s been working at the Kelowna Women’s Shelter and also at a local addiction treatment center. She likes her work, but she’s not tied to it.

I, however felt both sad and weird giving my notice at Enquiro. I’ve been there for over a year and a half, and it’s like leaving my family. I’m still going to be doing work for them as a contractor while I travel, and when I come back I have every intention of returning to work with them again. They’re amazing people to work with, great friends and an absolutely industry-leading firm. I know people there understand. One of our core values is ‘every day is a gift’. That’s a core part of why Megan and I are taking the time to go on an extended-working-vacation to Ireland. We’ve been blessed with this time in our life and we want to make the most of it.

I’m sad to be leaving friends, a career, and having to put some aspects of my real estate business on slow-motion. But I’m beyond excited to be traveling and spending a year in a cool country with the woman I love.

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Yesterday marked on month until my wedding, so today’s song of the week is dedicated to the woman I love.

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I was a big slacker last week because I was worried about closing on a condo in Edmonton and I missed posting the song of the week. To make up for it, here’s a double dose of Colin Hay. I’ve posted his song (I Just Don’t Think I’ll Ever) Get Over You before, but it’s a great one, so it’s back again. The first song is called Beautiful World and this is a great live performance.

I’ll post some details about the condo I just bought as soon as it closes (around the 10th), and some more fun stuff soon. For now, I’m happy to have a weekend fairly free. I’ll be doing some catching up on work, sleep and on time with Megan.

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I’m renovating my fiancee’s bathroom while she’s away, and it’s inspired me to share some tips. I’ve done a couple bathroom renos with my parents and as an employee at our former property management firm. Hopefully these things will make your renovations a little easier and help you add value to your properties. You can follow my work on my flickr photo stream of the renovations. I love doing stuff like this.

1. Get a bucket for all the junk. It’ll make your life a lot easier, and you’ll save bags. It’s still a good idea to use bags, but a good old fashioned 5-gallon pail (for ~$5 at Rona) will make hauling away the old tiles a much easier job.
2. Buy something like a 9 in 1 tool to help get the old tiles off. I’ve used pretty much everything under the sun, and this is still my favorite. Place the edge against the top of the tile and use a hammer to tap the blade behind the tile. Two taps and bend outwards slightly, which should slowly crack the tile. Repeat, and focus on pointy bits of tile as you go.
3. Remove junk like shower curtain rods, towel hangers, drain-clips and the taps well in advance. And truly, just toss it, or give it to a second hand store. You’re not going to use it again, and your tenants are not going to be happy if you recycle it on them. Or worse yet, someone else’s hardware on their tub.



4. It’s going to get warm. A fan is a great idea, but you’ll save yourself a lot of sweat by simply unscrewing a couple of lightbulbs.
5. Take some pictures so you’ve got something to show for your work. Renovating isn’t always easy, but stuff like the dozen or so pictures are great for showing how far you can go in just an hour or two.
6. Measure, measure, and re-measure. I’m sure I could tell you every possible measurement of Megan’s condo. Which edge of the tub is 1/4″ low….the exact dimensions of the ‘creative’ old vanity….and the dimensions of the new (standard) 48×21″ we ordered.

Hopefully that makes things easier for you guys. Here’s a quick before and after picture from tonight…what you get in an hour and a half (which included a lot of prep like removing hardware, and doing some laundry).

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This weekend my parents were on their way through town going to Merritt’s Mountain Fest. A couple weeks before the event Mom suggested I come down for the Friday night as they didn’t particularly want to see any of the acts, and it was going to be my birthday. Sounded good to me, and if I couldn’t spend my birthday with Megan then spending it with my parents is a pretty good backup plan.

Friday at work we moved the office from Landmark IV to Landmark V (just across the parking lot) and I managed to get away a little early. Just before I left I talked to Megan on the phone. She’d not been answering her phone since Thursday, which sometimes freaks me out. When I got hold of her she said she’d forgotten her phone in a friend’s car. I said ‘I thought my parents might have kidnapped you for the weekend’. She said ‘nope’. And away I went to Merritt.

When I arrived at the campsite….Megan was hanging out with my parents. They’d brought her along for the weekend and gave her a flight back. Mountain Fest was amazing, and spending the weekend with Megan and my family was awesome and I can’t think of a better way to spend my birthday.

Then Sunday night I signed some papers for my first JV purchase.

What a wicked weekend and a great birthday!

(WordPress already ate this post once, so this will be a little shorter than I originally planned)

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Since my last post Megan and I have been back and forth to Edmonton, and I’m glad I don’t have to do any more 10 hour drives for a while. It’s been 2700km since the start of the month.

My laptop is still being a pain, so tomorrow I’m going to do a system restore back to the factory settings and see if that will fix the rest of my problems. It means re-installing all my software, but such is life. The other option is dropping $1500 or so on a new computer. For now I can (mostly) surf the net, and there is hope for my computer.

The week spent in Edmonton was great, but so busy. We looked at possible venues for the wedding reception, had a party, 3 family/friend dinners, a party at my place, a night out at the Ranch (a country bar), saw some rodeo, went to 3 lunches out, 2 church things, 1 movie night, and a partriage in a pear tree. Busy and a half. It was nice to see so many of our friends, and Megan’s mom coordinated a surprise family dinner for both sides of the family (except for my parents being out of the country).

I’ll explain the job situation, since several people have asked. I’ve had several interviews and a couple offers. They were either pretty pedestrian or decently interesting but pay less than Tim Horton’s. (No, I did not apply at Timmy’s) I’m going to do the program at CBD Networking, which is basically a professional-level placement and networking company, with a dash of head-hunter thrown in. They’re amazing people with a great program, and I’m looking forward to being challenged, as well as being encouraged to develop my career goals.

Beyond that, I’m excited for having time to relax with Megan (we brought Finding Nemo from home!), and the ski season at Silver Star and Big White opens on the 22nd!

(I’m sorry about the lack of a spell-check, that’s another one of the things I can’t do on my computer right now)

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