Things have started moving a little more quickly in the Edmonton rental market this spring. Incentives have almost totally disappeared, and many Property Mangers and investors have said they’re starting to test the waters, moving rents up by $50-200/unit. Vacancy is down more, slightly below 4% according to Colliers, and things are (usually) renting quickly. I’m still seeing positive cash-flow in detached single family houses without a suite, with nice units renting very quickly. In one case the bank did a rent appraisal which came in $150/month higher than our assumption before purchase!

Here’s the July 2011 update to my Edmonton Rental Market Survey. We had another 36 units updated, bringing the total to over 750. I’d still like more input from investors, managers and brokers, so please subscribe and I’ll email you next time I’m pulling the data.

You can download the PDF version of the Rental Market Survey here and you can signup for updates here. Happy Renting!

Related posts:

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

The most fundamental attributes of Real Estate, beyond the fact that it’s, well, real, is that is can be borrowed against. The action of borrowing money, much like a lever for moving physical things, has the effect of amplifying things. A small push on the right lever can move a large object.

This amplification has several effects on real estate and other financial instruments. Leverage amplifies returns (profits), as well as risks and loss. Much like a sensitive electric guitar plugged into a big amp, small changes have a much larger impact.

So here’s the basics of leverage for real estate investing.

First, leverage can be calculated by dividing the purchase price (i.e. asset value) by the cash required to purchase it. For most purchases, for most people, this is 1.

So when you buy a $100,000 house for all cash, your leverage ratio is 1.00.

However, with Real Estate it’s normal to borrow part of the purchase price with a Mortgage. This amplifies the numbers, leading to a leverage ratio of 10.

What this does is amplify the return (or loss) on investment. Return on Investment (R.O.I.) is calculated with the following formula:

So assuming we buy a $100,000 home and it appreciates (or otherwise generates a return of $10,000), we get a return of 10%

If, however, we’ve only put down $10,000, as above, we get the 10x leverage as above, creating a return on investment of 100%.

The principle of leverage is one thing that separates real estate from other investments, and has made home ownership possible for millions of people over the past several hundred years.

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I always get a million questions about buying and making money from real estate investments. There were a number of thoughtful, curious questions from commentors earlier in the week who honestly wanted to understand what, how and why I’m doing what I’m doing and why I’m such a big fan of real estate over other investment vehicles.

I’m going to write a series of posts about what I consider to be the basics of real estate investing. Lots of this material is going to be drawn from my own experiences investing, working in property management and from the training that the Real Estate Investment Network offers.

I want to make sure I’m not missing any topics (and make sure you don’t think I’m dodging hard questions about the risks involved in real estate), so here’s my thoughts on 11 topics I want to cover. Let me know if I’ve missed something you’d like to read more about.

REI 101 Topics:

1. Leverage
2. National and Macro Economic Indicators
3. Property and Local Market Evaluation (the Property Goldmine Scorecard)
4. Real Estate Cycles
5. Cash Flow Analysis
6. Negotiating and Buying Properties
7. Financing your Investment Properties
8. Filling Vacancies
9. Hiring and Managing a Property Manager
10. Raising Investment Capital and Joint Ventures
11. Taxes and Exit Strategies

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There comes a point in every landlord’s life where you have a tenant who:

• Doesn’t pay on time
• Damages their own unit
• Damages the common property
• Fights with other tenants
• Does something illegal on the property
• Threatens or attacks you
• Is paying old and very low rents
• Doesn’t play well with others
• Hasn’t paid in several months

Often it’s when you’ve just taken over a new property. If you’ve just bought a multi-family property then it can be even more frustrating, because you’ve inherited 10-200 tenants all at once.

Brent’s going to be talking about this topic at the upcoming October Edmonton and Calgary REIN workshops, and he’ll also be on a panel at the Advanced Landlording and Investing Fundamentals Expo in Calgary October 16th and 17th. (I’ll be there for the Friday and Saturday I think.) If you’re at either meeting, you’ll hear him and Don talking about some strategies to kick out the deadbeats, and how we approached the reality of handling well over a thousand tenants.

To help him get ready and cover the common and interesting situations we’ve encountered in many, many years of dealing with other people’s properties, Brent and I sat down and ran through the types of situations where you’ll need to deal with a payment issue, a legal issue or just want to change the tenant demographic. One of the things we figured out is that for the tenants we’ve put into buildings that we’ve managed for a while, we have start disciplinary proceedings on less than 2% of them. For buildings we take over with poor management by the owners it’s closer to 10% and sometimes as high as 20%. (Note I said poor management by the owners, because in our experience it’s almost never the property managers’ fault, but that’s another topic.)

I’ll cover a bunch of what we discovered in a post after the ALIFE weekend, but I want your input before we finalize things.

• What was your most frustrating tenant issue?
• How have you successfully changed the tenant profile in a building?
• What are the most important parts of your tenant screening system?

Photo Credit: “Woodfall’s Law of Landlord and Tenant” by umjanedoan, on Flickr

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Several people have asked if I have another internet marketing workshop coming up, and I’ve heard some others mention going to a site several times a week to check for updates. There’s three or four easy ways to get what I write about, or to just find out about my workshops and other interesting info.

Internet Marketing Workshops and Ranking Reports

I have an email list for my workshops and other related topics. It’s seldom more than 1-2 emails a month, so this is the easiest way to keep in the loop without hearing from me every few days. You can subscribe here or use the form below.

Blog Posts, Website Updates and More Fun

If you’re a regular reader of this blog, you can get the posts sent to you so you don’t have to surf back here every day or two. There’s two ways to do that.

First, you can subscribe to my RSS feed, using a reader like Google Reader.

Second, you can also subscribe to email updates, which will sent you a nice pretty copy of my posts by email. Here’s a quick signup form for the email updates.

Twitter, LinkedIn and Social Media!

And if you want even more frequent updates, you can follow me on twitter here (@w_chris_davies).

Connect with me on LinkedIn here.

I’m an avid user of the Social Media stock market called Empire Avenue. My ticker symbol is WCD.

You can add me on Facebook if we’ve met in person, but be warned, my Facebook has essentially nothing to do with real estate, internet marketing or social media and I will not likely join your groups/like your page if it has anything to do with real estate.

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You can have it cheap, good or on time. If you’re good, you can maybe have two out of three. You cannot have all three.

Cheap and Good – This will take a long time and you’ll likely end up doing most of the work yourself (assuming you’ve got some skills or like learning)

Cheap and On-time – You’ll get the suite filled, but usually for less rent or less resale, and you’ll have more complaints and more deferred maintenance.

Good and On-Time – It’ll be great, you’ll get things moving but it’ll cost a couple bucks.

I’m a fan of #1 and #3. I’ve seen to much crap and way too many management problems with #2. It’s just not worth what you save.

And don’t expect to get all three. It’s nice when it does happen, but it’s usually only one project in five or ten when you have solid relationships with your contractors and are working with quality properties.

Photo from Lenore M

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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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Here’s a first for me, a shiny new podcast. Brent bought a sweet USB mic, so I fired it up and here we go. It’s just over 8 minutes long.

You can listen by clicking the play button below, or by right clicking on this link, selecting ‘save as’ and using iTunes or something on your computer or your iPod.  Click play and read on!

I hit three topics this week:

1. Christopher emailed me a question about my post on why you shouldn’t call your property manager.
2. Linda went to one of those other ‘educational’ seminars where they try to sell you crap. She wanted to know what’s wrong with buying real estate in Costa Rica or Honduras (or Redwater for that matter).
3. Internet marketing for real estate investors. This is a serious topic, enough for a series of podcasts on it’s own, but I touched on it briefly. Remember, this blog and this podcast are both targeted towards REIN members, and most of us are interested in Joint Venture money. I was aiming my comments at the 90% of REIN members during their first couple years after they join and attend an ACRES/Quickstart weekend.

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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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I came across an article in the Edmonton Journal the other day about Don and why Edmonton’s a great place to invest in now. (If you want more info, go check out the Top 10 Alberta Towns Report.) Photo Credit: Rick MacWilliam, The Edmonton Journal It’s stuff that I’ve been hearing for a while because I’m a REIN member, but it’s interesting to see it in the Journal. The best quotes from the article:

So is Edmonton still the best place to invest in residential real estate? “Absolutely, it is,” he said Monday during a visit to Edmonton from Vancouver. “There’s no way the world can continue to afford $30 and $40 oil. … Eventually, within 18 or 24 months, we’re going to see the market come back to something that’s more normal.”

Last summer, a REIN report ranked Edmonton as the best place to invest in residential real estate, followed by Calgary, Red Deer, St. Albert and Grande Prairie. Devon placed ninth and Sturgeon and Strathcona counties tied at 10th.

“That being said, we were so superhot here that the pendulum moved so quickly and has gone too far the other way. Like all economic pendulums, it comes back towards the norm and we’ll start to see that pendulum start to swing a little bit more for Edmonton’s sake. Right now, if you’re focusing on yields, it’s still the best place.”

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