Written by Leslie Quinsay, Director, Coridian Capital Inc.
Over the years, I’ve had many new investors come to me with a sparkle in their eye excited about the prospect of creating wealth and becoming real estate investors. They want to hear about how I got started, what types of properties I bought, where I found the capital to get started, what’s my net worth, am I rich, what car do I drive, where do I live, and how long will it take before they too can become full-time real estate investors. With all sorts of media and television shows on making money with real estate, I’m finding that many people are coming to the table without a full understanding of what it really means to be a real estate investor. And not just any real estate investor, but a successful one.
On the surface real estate investing may seem easy. However, just like anything else, it’s important to build your foundation before jumping into it. Trust me, I’m all about taking action and moving forward but would you jump into the middle of the ocean without learning how to swim? Probably not. So, why would you jump into a new type of investing, using your hard earned capital without taking the time to learn more about what it really involves. I’m talking about asking the hard questions, purposely seeking out the horror stories, finding out what has worked and what hasn’t, and building relationships with others that are currently doing what you want to do. Also, digging within yourself to figure out what you hope to accomplish through real estate investing.
My personal experiences over the last 15 years with both residential and commercial real estate have taught me many valuable lessons. Things that you don’t just learn from a book, but only through doing. A book or course can capture some of the basic fundamentals, but real experiences and case studies give you a more thorough perspective of what it really entails. For me, some experiences were fantastic while others were challenging and painful. With each experience came lessons that I now share with others. Why? Because the value of our lives can often be measured by the difference we make in other people’s lives. And so, by sharing my private and personal experiences I hope that others can enjoy the same benefits that real estate investing has provided for me and my family. It’s difficult to cover the myriad of things that need to be considered in a short blog but if you’re serious about becoming a real estate investor here are 10 tips that will help you get started along the right path.
1. Take stock of where you stand today and clean up any outstanding financial issues.
I’m not saying that your life has to be perfect before you start investing, but too often people turn to real estate investing to solve current financial problems. The harsh reality is that to get started you need capital, the ability to get financing, and the financial resources to carry yourself through difficult times. Many folks may try to tell you that you can get in with no-money down, that your credit doesn’t matter, all you have to do is use other people’s money or credit by finding partners. BUT, do you really think if you’re just getting started, have no experience or existing investments, that finding someone to come to the table will be an easy task? It’s not impossible but being a real estate expert implies that you have some expertise in the area. And if you don’t, then that might be a difficult sell. So, review your current financial situation, assess how much capital you have access to, and clean up any outstanding issues so that when you do start investing you’ll have a solid base to support you.
2. Invest in yourself with education and resources.
Investing in knowledge is the only asset that no one can take away from you. It is the one thing that will allow you to bounce back from every challenge. Truly successful investors are able to build and amass great wealth. Even if they experience significant loss, many of them bounce back and re-build their wealth because although they may have lost physical assets, the “know-how” is still within them. Education comes in many forms so pick whichever works best for you and take the time to experience a few different methods of learning. Read books, go to workshops, seminars, networking events. Build relationships with those who are already in the game as they will often be open to sharing tips, strategies and resources. Find a coach or a mentor who can help take you to the next level and who will push you to break past whatever barriers you face. These are the things you should do to strengthen your foundation. Sure, it may come at a cost, but rather than focusing on the cost, focus on the return you will get from investing in your knowledge base.
3. Take action.
Start moving towards your goal. I’ve heard every excuse in the book for why people aren’t moving forwards with real estate investing. For some, it’s because they haven’t come to terms with the fact that real estate investing isn’t really for them. And that’s ok too, it’s not for everybody so the sooner you decide whether it’s what you really want, the better off you are. For others, it’s their spouse, or children, or lack of time or some other external factor holding them back. Action doesn’t mean you have to go out and buy an investment property tomorrow, but you do need to start taking steps towards it. When I refer to action, I mean go out and start building a team of experts (realtors, lawyers, accountants, property managers, etc.). I mean go out and look at properties, analyze the numbers, talk to your bank or mortgage broker to see what you need to do to be able to begin investing. I’m often surprised that many people don’t even take the first steps in finding out what they need to do to be in a position to begin investing.
4. Begin with then end in mind.
Ask yourself what you expect to accomplish with real estate investing. The answer to this question will determine what types of properties to buy or projects to participate in. It will also identify your timelines and your risk tolerance. For example are you planning to invest in real estate because you want to quit your job and live off your investments? If so, you will need a very specific approach and detailed plan to accomplish this. Are you buying real estate as a nest egg so that you can enjoy particular things when you retire. Are you building a foundation for your children? Often new investors haven’t really though this out very thoroughly so don’t have an answer. Although you can start a journey without a destination in mind, it will be a very jumbled trip until you determine where it is you are going.
5. Location matters and will be a significant factor in your success.
Where do you plan to invest? Make sure you’re investing in an area that is growing and not stagnant. Don’t just focus on the region or town/city, but also the neighbourhood. Different neighbourhoods attract different tenant profiles. I personally prefer to pay a little more and buy good properties in middle income neighbourhoods. From there I make sure to manage my properties well and keep them in good condition so that they attract worthy tenants. You want to attract tenants who treat your property as if it was their own and who will be responsible when it comes to paying their rent on time. I’m not saying that low income neighbourhoods only attract bad tenants, but the reality is that low income properties often have more wear and tear due to having rougher tenants. These tenants sometimes already have financial issues and may not have the financial stability needed to always be able to make their rent payments. This only comes from my personal experiences with the multi-unit properties I have purchased in lower income neighbourhoods. On paper the potential cashflow looked fantastic but the chest pain and heartache that I’ve had to deal cancelled out that positive. Be mindful of where you invest and what you buy because it’s not just about money but also about the ease of handling your portfolio.
6. Hire a professional management company.
Many ask if this is really necessary as you can save a bit of money by managing your properties on your own. Again, from my own personal experience, I have been much more efficient by delegating this task to a reputable and professional company who is focused on property management. As a business owner and investor I have come to realize that learning to delegate and work with others is integral to success. My family started investing in real estate in the 1980’s and initially we managed our own properties. With only one or two this was not too difficult but as our portfolio grew and we began purchasing properties outside of our own backyard we realized we needed to hire professionals to manage these properties for us. Dealing with tenants showing up at your doorstep begging for a second chance after you’ve evicted them is not easy to deal with on an emotional level so why set yourself up for scenarios like that. A professional manager will work diligently to place good tenants, ensure that rent collection is timely and will go through due process when difficulties arise. This frees up your time to continue building your strength as an investor rather than focusing on the day to day of managing property. But at the end of the day don’t become complacent. Even with a good property manager you have to remember the property belongs to you and is your responsibility so be clear about your expectations with your property manager, stay in touch and have periodic review meetings and make sure things are being handled the way you want them to be.
7. Prune your investments regularly and cut out the underperformers so they don’t drag you down.
I have been guilty of hanging on to underperformers with the hope that one day I would be able to turn them around. In some instances this type of perseverance works. Real estate investing isn’t perfect and you will hit hurdles along the way. But when you have an investment that is sucking you dry and is causing you more heartache then happiness then sometimes you have to be okay with just letting it go. I met with a fellow investor a few months ago and we had this very discussion. I was sharing a story about a 4-plex that I used to own which caused me many problems and a lot of money along the way. I held on to it for years hoping to turn it into something great, but to no avail. The investor I met with had a similar property and was struggling with what to do with it. She had already invested time and money into turning it around and was not having any luck with improving it’s income producing capacity or attracting a better tenant profile due to it’s location and demographic. Although sometimes our ego and pride will get in the way, you will move forward much faster when you can learn to recognize which properties are taking you closer to your goals and which are dragging you down. Cut your losses, get rid of the drag and learn to move forward.
8. Remember to replenish your reserve fund and keep an updated maintenance and repair budget.
Most investors know that you should have a reserve fund in place for unexpected situations such as prolonged vacancy, major repairs and/or renovations. But sometimes when you tap into your reserve fund you may forget to replenish it. Take the time each year to review how your property is doing, what potential repairs or vacancy may be upcoming and re-fill your reserve fund so that you aren’t struggling to pay for things when you’re hit with a difficult situation. This way you will always be covered and in a strong position to deal with any challenges.
9. Do an annual review of your portfolio and your support team.
Be diligent with your paperwork and take the time each year to go through how your portfolio is performing. Are your properties meeting your expectations financially? Is your team supporting you and providing the services needed to continue to grow a profitable portfolio. Are there any areas you need to improve? Be sure to nip any problem areas in the bud so that they don’t grow into unmanageable problems. It’s easy to get lazy with paperwork especially when we’re busy with our day to day lives. But your portfolio is a large part of your wealth and legacy so take the time to review it regularly and make sure it is still bringing you closer to your goals. Understanding how your base is performing will be the starting point for setting new investing goals year after year. With my own investing, I started 15 years ago and at that time my big goal was to buy one single family home every year until I retired. It didn’t take me long to realize that I could move along faster and as I grew I also delved into different types of investment property. I know have a portfolio consisting of single family home, multi-family homes and an office building. But if it wasn’t for regular review and pruning I may not be where I am today.
10. Document your journey.
Along the way you may want to grow your portfolio by finding joint venture partners or partnering with other investors. Having a solid track record gives you more credibility so take the time to document what you’ve done, what your results look like and what you’ve learned. This can be a valuable resource when seeking additional capital. In addition, it creates a legacy of lessons that you can also share with other investors.
Leslie Quinsay was awarded the 2014 Investor of the Year Award presented at the Toronto Investor Forum. She is a successful entrepreneur, real estate investor, and author. She has grown her real estate portfolio over the last 15 years by following a path and strategy that best fit her long-term goals. Today her portfolio is comprised of both residential and commercial property. She continues to invest and educate other investors through Coridian Capital and it’s online educational site www.pushpast.ca.