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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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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It’s easy to understand how you can make money when you buy real estate. You find undervalued properties, motivated sellers, sweat equity or tenants from hell.

The real money, as well as the potential to lose it all, comes from what you do in the years after you buy. You can find 300%+ returns if you manage it right, or end up putting money in every month and selling for less than you bought it.

What you can get from a well managed hold is more than just good cash-flow. It’s a good looking property that’ll be on the leading edge of a market increase, first to benefit from an area in transition, will bring you more properties to buy and help attract new potential investors.

Like a VW Bungalow

I bought a 4-year old VW Golf TDI because it’s still better made, nicer looking and more reliable than the new North American cars (and VW is less likely to go bankrupt). When you buy a revenue property, you want the C-class building in a B-class neighborhood. Then you want to carefully bring it up to be one of the best B-class buildings around. You don’t want to make it shiny beyond reason (unless you have a very specific exit strategy), but you do want it to stand out in a good way.

I also invest in older townhouses. They’re simple, reliable, easy to fix and easy to fill up with tenants. They also have more exit possibilities than other types of investment real estate. There’s always a buyer: first time homeowners when prices are high (because they’re affordable) and investors when prices are low because they make sense. They’re easy to rent because they’re a natural step up from a walk-up apartment building; great for professional couples or new families. They’re never going to shine like a well renovated detached house, but they’ll be a reliable old Volkswagen.

Pay Now or Pay More Later

Every investor draws up a little budget before they buy a property. So much for mortgage payments, condo fees, utilities, property management, vacancy allowance, insurance and repairs.

Why do 80% investors fail to use their repair budget proactively? It’s good to know you have money to replace the hot water tank. But I’ve seen lots of investors go through a 5 year streak with no serious costs, and one day they discover that things are shabby looking and falling apart. Suddenly everything needs repair, renovation or replacement.

At least once a year, or hopefully once a quarter, you should do a quick walk-through and fix something little. This means painting before things peel, replacing fixtures before they completely stop working and spending money. However you’ll be shocked at how a new light fixture and painting a door every few months will silence the complaints over a $200 rent increase.

It’s also about managing cash-flow effectively. It might look good on a statement for the first two years if there aren’t any major expenses, but there’s likely to be twice as many repairs in the third and fourth years. That’s not good management. Putting a little effort in now will save a lot of headaches later.

How Much Does $18,000 Weigh?

Just over 300 pounds. That’s what two adult tenants weigh, and $18,000 is what they’ll pay in rent at $1,500 per month. Particularly if you’re a new investor, get to know your tenants. It’ll help you in the future as you develop a profile of what your preferred tenant is like. There’s a good reason well run multi-family apartment buildings have a live-in caretaker who helps lease suites. It’s because they get really good at telling which people will fit in and be good tenants.

I have a two week break between jobs and I’m spending it doing some consulting for a property management firm, helping to train resident managers. It’s such a great way to help improve a business and I know it’ll have a real impact on owners.

Managing well will bring much higher returns than buying $20,000 under market. Failing to manage well could cost you the $20k and a whole lot more. Take the time to be a good landlord, improve your property and find good tenants.

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Buying real estate in an up and coming area is one of the best ways to make money on your investment. Areas of renewal or gentrification will appreciate faster and higher than other more genteel areas.

C-Class Area + Renewal = B-Class Area

The one part of this equation that everyone fails to grasp is that you need to be in a C-Class or B-Class area. To quote a question I was asked a little while ago:

Do you find in Edmonton you can find properties that flow in nice areas (Duplex or single family)?

I should have said no because I think their definition of a ‘nice area’ and my definition are likely a little divergent, but let’s back up a minute.

There’s two ways of approaching this strategy.

First, undervalued properties. As Thomas Beyer likes to say, buy C-class buildings in B-class neighborhoods. Second, buy in a poor area, doing minimal renovations or improvements,  counting instead on the increased value of the comparables. Transportation improvements can count as a part of this strategy. But there’s always a little bit of the first strategy which comes naturally to those interested in real estate.

When I think of C-class (and I’m talking multi-family buildings here), I think of an exterior that needs significant paint, ~20% of fascia, all the evestroughing (but minimal structural damage), some of the windows, and most of the light fixtures. A great sign can be a damaged intercom and/or front entry. If it’s covered with shrubbery and dark looking, even better. 20% of the suites should need near total-refurbishments.

If you’re hearing all that and thinking “let’s get cracking”, we’re on the same page.

What’s the difference between B and C class neighborhoods?

B-class:

• No prostitutes. Some transients.
• Very few derelict cars.
• Mostly single family homes, intermixed with town-home developments.
• Typically built between 1960-1990

C-class:

• Transient prostitutes, but not plying their trade in the same area.
• Common transient (bottle-pickers, sometimes panhandlers).
• More dense multi-family area.
• You probably won’t feel safe walking here at night.

What’s a D-class neighborhood?

Is there something worse?
- Actual slums with shack housing
- Large tracks of abandoned residential or commercial properties

I hope I’m getting my point across. If you’re new to the industry, get to know a property manager and ask them to give you a tour of some of their buildings. The lower-class buildings in particular. Get outside your comfort zone.

What do you think defines each of these areas? Am I right in thinking new investors expect too much ‘nice’?

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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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