1. Visit your properties

This is usually a no-brainer, but it’s easy to get into a groove where the cheques show up and you don’t get out to check on something that appears to be working fine. If nothing else, this is a great chance to drop off a Christmas card and gift (see #5 below). Make special note of what needs to be fixed, if you tenant needs extra supervision and try asking them if there’s anything they’d like renovated/fixed/replaced.

2. Get repairs done in the quiet time

This has been a mild winter, meaning trades are less likely to be running around dealing with cold-weather emergencies. This is also a good time get some work done since trades are less likely to be working on big jobs and may have time to slot you in. I’m a big fan of giving my trades as much latitude in terms of work/cost/time/material as possible, putting them in touch with my tenants to get time/access set up and trusting in their work. One of my mantras is that you get three options – fast, cheap or good – but you only get to choose two. The quiet parts of winter are the best time to get cheap and good, since you’ve got lots of time to give.

3. Decide how much money you want to make this year

Tax planning is a very large topic and generally beyond the scope of this blog. That said, you should have some idea of how you did in the past two years, how much money you’re likely to make this year, and then how much you’re planning to make in the next 2-3 years. For myself, I’ve started a new business this year which means I’m going to have a smaller taxable income this year than the next couple years (hopefully). If I can, I’m going to make sure that I keep as much income in this tax year as possible. The reverse applies as well – if I can push out expenses to next month (next tax year) then I’ll do so.

That said, there’s always an important consideration when it come to saving on tax. When you have a low taxable income, you also have low mortgage qualifying income. Brent and I spent an interesting hour with our accountant discussing a corporate structure that’ll save some tax when it counts, but also gives us the best possible income for mortgage qualifying.

4. Capital Gains and Losses

It’s almost tax time, so here’s some important year end tax stuff you should discuss with your accountant. Capital losses can only be applied to capital gains, so if you’re making a bunch and (for example) want to dump a stock you own but are losing money on, do it before the year end to get ‘er done. Also, when deciding what deductions to take and where/when to apply them, remember that home office expenses cannot be used to create a loss, but you can carry the deduction forward indefinitely.

5. Be Smarter than the calendar

While you’re doing things like checking the postal code of your property to send Christmas Cards, take a flip through your calendar and record important dates:

• Birthdays
• Lease renwal dates
• Last/next rent increase dates and the notice period (90 day notices should be in your calendar 105 days before the actual increase so you remember them)
• Anniversary dates or other important dates

6. Start shoe-boxing now!

And you’ve got the files out, so now is the perfect time to start compiling your paperwork for tax time! Sort by income, expense (categorized/dated) and tax information. You should have an ongoing tax file so you have a history of what you’ve claimed against the property. A perfect example of this is Capital Cost Allowance (CCA, aka depreciation).

7. Send out Christmas Cards and Gifts!

Love your tenants! Make sure you send out a card – even a simple one. Gifts are always a good idea – keep it simple with gift cards or try nicer gift baskets like the ones we buy from Little Helpers. Remember, even a tenant paying $800/month for a little basement suite is still paying you almost $10,000 a year!

8. Write two ads

Even if you don’t have any vacancies, sit down and write two ads right now. Make one appeal to a family with a new baby; make the other appeal to an older couple looking to downsize. It doesn’t matter what theme you’re using, write a couple so you have some prepared for when you eventually do have a vacancy and are feeling less than inspired

9. Take a week off

Give yourself a full week with no phone. The week between Christmas and New Years can work, even thou you’re likely to be busy. A week in February is even better – go skiing and give the phone to someone you trust. You’ve got to sharpen the saw sometime.

Photo Credit: Aforeo on Flickr

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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.

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

I’ve been in several multiple offer situations this year and learned of several interesting situations that other REALTORS® have experienced.

First, someone had a great question on myREINspace about how you know if there’s another offer on the table. As an agent we’re required to disclose when there’s another offer. That said, an offer isn’t really an offer until you have it in writing with a deposit cheque. The vast majority of us, as listing agents, will call and tell another interested party if there’s an offer coming in.

There’s a specific protocol to be used for multiple offers and my esteemed colleague Brett Turner, a REALTOR® in Calgary, laid it out very simply:

When a listing REALTOR® receives a second offer they are required to follow protocol set forth by their local real estate board and also overseen by their governing body (the Real Estate Council of Alberta in AB, or the Real Estate Council of Ontario in ON)

Basically it works like this:

1. You put your offer in and you are the only offer currently on the table.
2. Buyer 2 comes along and submits their offer.  They always know there is an offer already in play.
3. Listing realtor is required to notify your agent that there has been another offer submitted after you submitted yours. The brokerage representing them and the agent working for buyer 2 is required to be disclosed.
4. If you choose to change your offer then buyer 2 is notified that buyer 1 has amended their offer.
5. If a third offer comes in then the listing realtor must notify both other agents and tell them that there is a third offer submitted.  Again, brokerage and agent info is required to be disclosed.
6. If you or buyer 2 amend their offers then everyone (buyer 1, 2 and 3) are notified that a party has amended their offer.

This is of course assuming that the listing agent is a pro and is doing their job properly.
So long story short the brokerage and agents representing each buyer are made known to the other parties.  They can be contacted to verify this if you want.

The advise for you as the buyer (or the Buyers’ Agent) is to confirm the status of the other offer. Do they have a purchase contract and at least a copy of a deposit cheque? If not, don’t even think about amending your offer to do something stupid. If they do, then you know you’re actually up against another legit offer that the other Agent has seen and didn’t reject out of hand.

Secondly, be cautious about what you do in the heat of the moment. A friend of mine who is a REALTOR® in St. Albert told the story of a multiple offer situation during the boom where his clients’ offer (one of three) was the only one which had a condition on it, which was a home inspection. The property in question was a $500,000 detached home. The listing agent started laughing at them across the table. Craigs’ a pretty tough guy to shake and one the other agent stopped laughing he said “mind telling us what’s so funny?” The listing agent said “Don’t you know that only a fool writes a conditional offer when there’s multiples?” Craig didn’t miss a beat, saying “Don’t you know only a fool takes a half-million dollar risk with no backup?” His buyers ended up winning the multiple situation in part because the sellers agreed with Craig and his clients!

I’ve written unconditional offers myself before, but that’s never something I recommend to a client unless they have extensive experience buying and selling real estate, doing renovations/construction, property management and VERY deep pockets. Craig’s right – you could be putting $500K on one spin of the wheel and lose it all and more! An unconditional offer can be a great tool, but it can be just as dangerous. Don’t feel pressured to write unconditional offers, but don’t be surprised when you lose out on them.

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1. Can I have the trampoline too? That’s a picture of one of my clients enjoying her...

That’s a picture of one of my clients enjoying her new (to her) trampoline. It cost just a little over $300,000. Included with the trampoline was a very nicely renovated and maintained 1,200 sq ft bi-level in St Albert.

Usually when you buy a house the offer to purchase has space for two types of chattels (i.e. stuff) – included and excluded. The simple rule for chattels when you buy a new home is this – if you can just unplug it and carry it off the buyer doesn’t get it. That’s why listing sheets include a list of included chattels (typically the appliances). There’s a grey area when it comes to articles like very nice front loading washing machines, expensive attached mirrors, built-in shelving, wall mounted TV’s and more fun goodies.

The best way to handle the situation is to list the chattels you want to keep. Don’t leave it up to the sellers’ whim if you’ll be disappointed if they remove the nice shelving unit or the trampoline. Two tips I’ve learned from investing; take a couple pictures when you view the property and on the offer write ‘as viewed on August 5th, 2011′ so there’s no doubt. The latter saved my clients some grief just last week when adding that line brought to light the fact that the sellers were planning to take the very nice front loader washer and dryer out and replacing them with the (still very nice but not quite as nice and not blue) builder-spec appliances from their new home.

But what about the non-standard chattels, like that trampoline in the picture?

First, don’t be greedy. This isn’t a chance to get a bunch of stuff for free. If you’re reaching, you’ll end up overpaying for the property and weakening your negotiating position.

Second, ask, but be wiling to hear a ‘no’. Sometimes sellers have sentimental attachment or have plans for the trampoline/shelving/TV etc at their new home. There’s a positive quirk of psychology that most people will feel bad for saying no, and be willing to give something else back in return.

Third, be polite. Compliment what they’ve done. I’ve always been most successful in getting stuff like trampolines when you spin the explination such that you flatter the sellers. Usually you want the item because it’s perfect for the room/yard/decor, or it’s unique. If people can get the price for the house they want, they’re often willing to throw in just about anything.

Fourth, document exactly what you’re asking for and the condition you’d like it in. There’s been a lot of good discussion lately about just what items are ‘attached’ and sellers often have a different idea of what attached means. I’ll extend that by saying that more listing agents should be putting exclusions on their listings (such as the wall-mounted TV and built in Bose sound system in my listing in Brintnell)

So next time you’re shopping, ask for something out of the ordinary. Chances are you’ll get a deal. Next time you’re selling, throw something in or leave something nice behind!

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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!

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

We need to change the way we think about doing business in Real Estate.

I’ve met dozens of real estate agents and investors who make great money and appear to be very successful. There’s a lot of the same people who work 60 hour weeks, never see their (now ex-) spouses or children and are ultimately unhappy. It’s an industry which attracts money-hungry over-achiever types. This post and the ones that follow it are about looking at how I’m changing my business using ReWork to look at it piece by piece. If you don’t have a copy yet, go get one and read along.

Introduction

37 Signals is a small company that is intentionally staying small. There’s a lot to be learned from their experience in keeping your company simple and small. I’m the same way with my own business, both investing and in my work as a REALTOR®. I own relatively few investment properties and I have no desire to grow a giant Terry Paranych-type team.

They designed Basecamp when they didn’t like the industry-standard project management software. I decided to change how I run my business because I didn’t like what I see in the market. There’s a willingness to make decisions based on our own which I think Jason Fried and David Hansson share with me. I see lots of new agents base their business model on what they see other successful agents doing, copying the FSBO and MLS® Mere Posting discount-companies. It’s time to stop copying everyone else in a race to the bottom. I refuse to work at the WalMart of real estate companies, where clients just pick me off the rack next to thousands of other agents who do exactly the same things for $495.

It’s time to expect more from your REALTOR®. And it’s also time for REALTORS® to do more, be more transparent with their clients and adapt to the changing reality of the market in a way which brings more value than just cutting costs.

Small, Frugal and Profitable

You don’t need a big fancy car, suspenders and french cuffs or an army of suit-wearing and crackberry carrying flunkies. You don’t need a gigantic advertising budget and full-page colour print ads. You don’t need bus benches and billboards. You need to gut your business down to the studs and examine what the real core of the real estate business is. I already think I know what that is for me, but we’ll explore it together while we go through ReWork.

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The RE/MAX 2011 Housing Outlook is just out, and there’s some interesting ideas in there. Not everyone agrees (including the Edmonton Real Estate Board, whose 2011 Forecast comes out next month, watch for the live blog).

Rather than just write a bunch of blog posts, I’m creating a resources section. There’s already a page there for the RE/MAX 2011 forecast, and others will follow as I get them. Now, just cause everyone loves a good graph or two, here are a couple of them.

You can see the data for all 26 Canadian Cities here.

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Inspired by this weeks’s entertainment, I got thinking about the commonalities of real estate, economics and investment blogs, whatever their slant.

I think there’s a lot we can agree on.

Your house is not a damn ATM

If you put a HELOC (home equity line of credit) on your home, be damn careful what you use it for. Spending it on consumer goods, excessive renovations and entertainment are right out (forget about the 52″ plasma). Reasonable renovations and smart, careful investments can count, but you need to be cautious and a HELOC should never be your sole source of investment funds (see the next point).

Canadians need to save more

Our national savings rate went from better than 10% of after tax income in the early 90′s to only a few percent. We’re not as bad as our friends down south, but this is going to be a potential long term problem for many Canadians as we get older.

Live within your means

This shouldn’t surprise anyone, but it’s not quotes often enough. David Chilton, author of the Wealthy Barber, probably the best book on financial planning for retirement ever written, lives in a house of less than 1,000 sq ft (see the great interview on CBC’s The Hour here). I drive a used VW, live in an older townhouse and don’t really carry any consumer debt. I don’t really see that changing too much, except sizing up as my family grows.

Give money away

No one ever went broke by donating money to charity and it’s an important habit to get into particularly when you don’t have any money. 10% is a great goal, and you should also donate your time. If you want to make sure you’re hitting your 10% goal, try adding up your volunteer time at minimum wage or $10/hr and see what that does. Giving your time and talents to those who need your help when you barely have anything to give teaches us about what’s possible (and trust in God, but that’s another post).

Diversification can be a good safety net

There’s no doubt that your asset mix should reflect your goals and the time in your life. When you’re young (like me) and have few obligations, but high earning potential, you can handle more risk. When you’re getting to be 50-60 you should be looking for some more stable, fixed income assets with a lower risk profile. You should use the advice of a good financial planner. One big caveat on diversification though – as Warren Buffett says, “Wide diversification is only required when investors do not understand what they are doing.” Invest in what you know, and if you’re really serious about investing and building a business, keep to what you know. This leads us to:

Diversification is for the weak

Warren Buffett doesn’t buy tech companies because he doesn’t understand them. I avoid complex market plays (shorts, etc) because I’m not as familiar with them. I buy stocks I know and trust like Coca Cola, Cogent (makes some great fingerprinting hardware) but the majority of my active investing goes into real estate. I gained a lot of knowledge by osmosis, working on a team managing other people’s properties and because I made a point of learning as much as I could. The 3 years since I bought my first property have also been full of some great lessons.
If you really understand tech stocks, or mining, or real estate, put your money there. The nice thing about real estate is everyone has at least a little familiarity with it and we’re all capable of learning. What each person needs to decide (with some help) is what mix of diversification vs. single minded focus is right for them.

Look Behind the Curtain

There’s a lot of sources for information and opinion. You should do a lot of research on your own, and also pay for other people’s analysis. I trust REIN’s analysis more because they don’t sell real estate. Same deal with the IMF; they couldn’t care less if you or I buy another piece of real estate. I also listen to sources like RBC for their housing affordability index. Sure, they sell mortgages, and more activity in the housing sector is good for them. I think Garth Turner buries his good points in a lot of rhetoric intended to sell more books. Does it make their opinion worthless? No, you just take it with a grain of salt.

There’s a lot we can agree on, and a lot more that bloggers, professionals and friends can be doing to help people out.

Photo credit: Stuseeger

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I’m starting my hunt for the right brokerage for me to work with. Picking a real estate brokerage is even more complex than picking a realtor when you’re going out to buy a property because I’ll likely be tied to them for at least a year or two. Some brokerages take as much as half of your commissions, and while I’m ok with that if I get the right support, I’m not interested in making my broker rich off my fees. Here’s some of my thought process.

What I bring to the table

• ~15 years at a property management firm doing everything from sweeping parking lots and painting fences through reno projects, leasing and doing high-stress and high-value evictions.
• 3 years as a professional internet marketer, focusing on SEO, web analytics and social media.
• 4 years personally investing in Edmonton real estate, learning the REIN system inside and out, and networking with Edmonton area investors.

What I want from a brokerage

• Someone who doesn’t eat their young. I’m not an uber competitive sort of guy, and I don’t want other agents going through my recycling to steal leads.
• Training, mentoring and a chance to work with some very experienced agents
• Proven technology solutions. I don’t really want to have to figure out the best options for tablet PC’s, paperless offices, lead management/CRM, etc. I have my own ideas, but I want to work with an existing system, without becoming the de facto IT guy.
• Advertising flexibility. I want to try weird custom signs, interesting online stuff and generally be outside the box. Particularly if they’re not full fluent in internet, I want to be able to run with it and not have a broker harassing me. Also, don’t make me use your sign supplier, or at least don’t mark the cost up.
• Fluent about or accepting of Joint Ventures. There are brokers who get freaked out by the idea that I might do some JV investments with clients.
• Flexible commission structures and desk fees. I want a broker who does more than just sell desks.

Who I’ve talked to and who I’m talking to:

• Sara and Sheldon at Coldwell Banker Johnson
• Art Valerio at Royal LePage ARTeam
• Bill T. at Realty Executives Polaris
• Jody at Schmidt Realty
• Bill Briggs at ReMax Edmonton Central

There’s more, but my questions are:

Who else should I talk to?

What else should I be looking for?

What do your favorite Realtors do that you love? What drives you crazy?

Photo Credit: neubie on Flickr

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It’s been a common question at my workshops and when I run into people at events like REIN meetings. People love the simplicity and flexibility of WordPress, but want to list their current properties on their site. There’s a couple ways to do it, and I’ll cover some of them here.

Categorized or Tagged Posts

This is the simplest way to get your listings published. It’s how Brent publishes his current listings right now while we decide on a new theme.

• Do a new post for each listing
• Categorize them as ‘listings’ or ‘property listings’
• Tag them with appropriate attributes like price ranges, number of bedrooms or bathrooms, square foot ranges or construction type

Pros:

• Simple and easy – if you don’t know how to write a post, just give up and hire someone to do all this.
• Guaranteed to work with your theme and current plugins.
• Won’t break when you upgrade WordPress.

Cons:

• Can’t bulk-upload listings
• No templated fields for area, bath/bedroom and other attributes
• You’ll have to add pictures manually (or semi-manually), although Flickr slideshows are fantastic.

Here’s what a simple listing looks like on Brent’s site.

Real Estate WordPress Plugins

There’s some great plugins out there that are simple and free. Each one requires a little bit of work to install and configure, but they’re pretty easy to use. One good example is WP-Property. These plugins give you more flexibility and style than regular posts, but will work within your existing theme.

Pros:

• Still simple and easy. In the current versions of WordPress you’ll be able to do one-click installation of most plug-ins and they’re easy to configure.
• Usually they’ll work with your theme and other plugins. From time to time, you’ll get a conflict. If you use lots of plugins it’s more likely. If it’s a formatting thing, diagnosing a CSS conflict can be difficult.
• Lots of flexibility, functionality and style. There’s some truly great plugins out there, like lightbox for displaying photos in full size.

Cons:

• Limited bulk-upload of listings
• Mapping or MLS functionality is usually US based, and things like Trulia don’t work here.
• Can lead to technical problems, and if you’re already running a real estate WordPress theme you may run into conflicts.

Most plugins have screencasts to show you how to get started or explain how things work. Here’s one for WP-Property.

WP-Property – Tutorial 1: Adding Buildings from Andy Potanin on Vimeo.

WordPress Real Estate Themes

There’s a million of them. Themes are the skins which go over the chassis of your website and make it look and behave how you want. Here’s some Pros/Cons and then I’ll go over a couple of my favorites.

Pros:

• The best looking, most flexible and often easiest to use option.
• Bulk upload or automated feeds possible.
• Excellent ability to use multiple conversion points.
• Almost infinitely configurable and many premium themes (the ones you pay for) offer some level of support.

Cons:

• Some cost to the better themes out there.
• Configuring a theme to do the real estate things you require, and adjusting the design to fit your brand can be complex, or can be restricted by the license you purchase.
• Most good themes are US-biased, meaning MLS listings and such don’t always work the way they’re advertised.

Some Real Estate WordPress Themes I Like

ElegantEstate by Elegant Themes

AgentPress by Studio Press

Estate by Woo Themes

There’s a lot of ways to skin this particular cat, and it’s always changing and improving. Leave a comment and let us know if there’s a particular solution that works well for you.

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