Thursday, June 30, 2016

Investing in Real Estate – Building The Right Team #5: Property Manager

One of the first concerns we hear about when talking to new real estate investors goes something like this: “I heard real estate investing is a pain because I’ll be getting calls about clogged toilets at two in the morning from my tenants.” Is this something that has made you hesitant about investing in real estate? Today we are going to alleviate some of these concerns by talking about the next member of your team – the property manager.

What Will A Property Manager Do?

The property manager will be the main contact for the landlord in the day to day dealings of the property. They will collect rent, hand out any necessary notices to tenants, market vacant units, handle any complaints, deal with minor repairs and maintenance, etc.

What Should I Look For In A Property Manager?

Ideally your property manager should have lots of experience in handling similar types of rental properties to yours. They should have knowledge of the local rental market and tenant profiles. They should also know how to legally deal with problem tenants, including serving proper notices, keeping records of correspondence, and taking the proper steps up to possible hearings with Landlord Tenant Board. This last part is very important as not handling evictions and other tenant issues properly can get very expensive for the landlord. Make sure to interview them the same way anyone you would hire and get references. Sometimes it is prudent to manage a building yourself at the beginning so you understand the property, the tenants, etc. to get your feet wet and be able to properly manage your property manager.

How Will My Property Manager Help Me As A Real Estate Investor?

As a specialist in property management, your property manager should have the skills to ensure your investment property runs smoothly. Lots of real estate investors do not have the time or the desire to learn the management side of the business, so this frees up time for the investor to work on acquiring more properties, spend more time focusing on other employment or to spend free time with family or friends. And you won’t be getting any late night tenant complaint phone calls, so you can sleep easier!

How Much Will My Property Manager Cost?

Property management fees can vary as with any other professional services. On larger multi-unit buildings, we see fees such as a 5-8% of gross rent, one month’s rent per year or a $/per door per month. There can also be additional fees for renting/leasing of vacant units and you should inquire about that as they can add up. Usually there are also à la carte items available such as evicting tenants, going to landlord tenant hearings, etc. that they can provide for one-time fees. Get multiple quotes to understand the market prices in your area but be sure not to only focus on costs, make sure to also understand the service that comes with each. Also make sure to budget the costs of management into the financials of any investment properties you are looking at going forward.  Having your property properly managed is too important to cheap out on!

Get a good property manager on your side…you’ll be glad you did. Readers, do you manage your own investment properties?

Wednesday, June 22, 2016

Investing in Real Estate – Building The Right Team #4: Accountant

As the saying goes, “The only two certainties in life are death and taxes.” Continuing on in your journey of investing in real estate and building your team, you’ll need a good accountant to figure out the latter. Today we are going to talk about why you need a good accountant on your team and how they can help you succeed.

Why Do I Need An Accountant?

The main function of your accountant in relation to your real estate investing is to help figure out the taxable rental income attributable to your rental properties. They will help with filing your tax return, and provide advice relative to your situation and any tax planning that is necessary. All this would also apply to your employment income (if your employed) as this would all go on the same tax return.

How Will My Accountant Help?

Outside of the filing of tax returns, your accountant will help with general tax advice and planning.  Decisions an accountant can help with include:
  • Can you expense or amortize a certain repair or renovation?
  • How much depreciation expense should you take?
  • When is a good time to sell based on tax consequences?

An accountant will also help should you ever get audited by CRA. Basically they will help you within existing tax laws to maximize your after tax rental income, which is really what investing is all about.

What Should I Look For In An Accountant?

As a real estate investor, it is a definite plus to deal with an accountant that has lots of experience with real estate investors. Ask for references from other investor colleagues. Having an accountant with a Chartered Accountant designation is also huge plus.

How Much Will My Accountant Cost?

This will vary depending on your tax situation and the accountant you use. Some charge a flat rate for a comprehensive tax return and some charge per hour. One way to lower your bill will be to have all your paperwork organized for tax time so your accountant isn’t drowning in paperwork. This can be done with bookkeeping software such as Simply Accounting or by hiring a bookkeeper to keep proper records of everything.

In the business of real estate investing, it’s not what you make, it’s what you keep. You also need to be aware of exactly how much your investment properties are making so you can make any necessary changes to ensure your success. Keep diligent records with the help of your accountant and your cheque book will be happy you did!

Monday, June 13, 2016

Investing In Real Estate – Building The Right Team #3: Mortgage Broker/Professional

As you continue your journey in real estate investing, unless you are buying a property with all cash (in that case can you lend us some ?), you’ll eventually need to get a mortgage. But how do you go about doing that? Today, we are going to talk about the next member in building your real estate team: the mortgage broker/professional.

Why do I need a Mortgage Broker/Professional?

The main function will be securing the mortgage for your property purchase. They will also run your credit and applications and move the mortgage along from the initial application phase to giving mortgage instructions to your lawyer for closing.

What will my Mortgage Broker/Professional Do For Me?

Aside from the actual securing of the mortgage, they will shop around to get you best rates, advise you on the best products for your needs and make you aware of any potential pitfalls of a certain type of mortgage. They basically work with you to ensure your interests are taken care of in securing the mortgage.

How Is Financing My Investment Real Estate Different From My Personal Residence?

Financing a personal residence is typically much easier than investment properties. On a personal residence the lender will look at your income and based on that decide how much you can qualify for based on certain ratios. Investment properties are different as they incorporate rental income and so weight is given to income and expenses of the property. There are also different rules ie. you can put as low as a 5% down payment on a principle residence(with mortgage insurance), with investment properties that is usually 20-25% down.

What Else Should I know And Will My Mortgage Broker Be Aware Of?

It is important that your mortgage broker/professional be aware of your goals as an investor. The planning for the future can be much different if you plan on only owning 1 or 2 properties as opposed to 10 or 20. Sometimes it is better to choose lenders with higher rates or less attractive terms, if it helps you down the road qualifying for more mortgages as your portfolio grows. They should help immensely in this regard. Therefore it is a real bonus to work with a mortgage broker/professional that has plenty of experience working with investors.

How Much Will My Mortgage Broker Cost?

Typically the mortgage broker/professional is compensated by the lender with a built in commission into the interest rate. So essentially they are working for you, at no direct cost to you as a buyer!  Check with them on this though as your situation may be unique and may require different services. Note: You will typically have to pay an appraisal fee once you have a property under contract and a mortgage commitment has been given. This will range between $200-500 for a residential property. Sometimes the lender or mortgage professional/broker will take care of this fee.

So there you have it readers. You now know about how important financing is to your real estate investment future. Choose your team member wisely and you’ll be thankful later!

Friday, June 10, 2016

PERSONAL GUARANTEE – Landlord’s Perspective

We touched on the subject of a “PERSONAL GUARANTEE” (PG) in an earlier blog, so let’s expand on the subject further from the Landlord’s perspective. This can often be a controversial part of any lease negotiation, so here's a practical strategy and approach to work with.

First, a PG is simply an assurance that the Tenant (likely the principal of the company) will be personally liable financially for the lease agreement and its terms. It can be structured in many ways, for example, time limited, subject to a maximum amount ($ figure), or tied to the Landlord investment towards tenant improvements. It most often becomes enforceable when the company or entity which has signed the lease fails to meet its terms.

As Landlord, you are effectively a creditor and in some situations you may have more financial exposure than just the loss of the rental payments due. Understanding this, it’s good business to construct a PG structure that fits the particular deal you are considering. Think in terms of your risk & exposure in the event of a tenant failure, with a clear assessment of the downside potential. The best practice is to think like a banker and secure the deal accordingly.

In terms of the Tenant expectations and their willingness to accept a PG, none of it should come as a surprise. The informed ones will understand why it is required, the rationale behind it and should negotiate the best terms of a PG accordingly based on their interests. Tenants unwilling to accept a PG are limited in the market options they can consider and are in effect asking you to accept a higher risk by taking them on.

Just a final thought on a PERSONAL GUARANTEE – they never matter much the day that the lease is signed, but they do when the business fails and the lease goes into default!

CALLING ALL LANDLORDS! We would love to hear any great stories on the subject from your experience(s). As always we're just a click or call away from discussing the investment opportunities here in Windsor-Essex!

Friday, June 3, 2016

Investing In Real Estate – Building The Right Team #2: Lawyer

Moving along in our series of building the right team as a real estate investor, after you’ve selected your realtor, it is time to consider legal representation. Today we are going to talk about what to look for and why you need the right lawyer on your team.

Why do I need a Lawyer?

The most basic task you need your lawyer for is to close the real estate transaction, transferring title to you. They will also provide legal advice for your investment business to protect your interests.

What will my Lawyer do for me as a Real Estate Investor?

Aside from the closing transactions, they will run title searches, register mortgages on the property, give legal advice or opinions on properties or related issues, review or even prepare real estate documents and even advise on ownership structures of your real estate.

What should I look for in a Lawyer

You’ll want to look for a lawyer who does a lot of real estate transactions and has the requisite experience. They should be able to provide relevant advice for your situation as a real estate investor and how to protect your interests. Having a lawyer that is an investor in real estate or has some sort of background in the business is a bonus.

How much will my Lawyer cost?

As in anything else, the costs will vary depending on the lawyer and the amount of work needed. On real estate transaction, some lawyers charge a flat rate plus disbursements (out of pocket costs the lawyer incurs on your behalf) and an hourly fee. Make sure you understand the costs beforehand and maybe compare prices in your market. Although the decision of cost alone shouldn’t determine which lawyer you choose, the decision is very important!

As we aren’t lawyers, we leave the legal advice to the legal experts. This is far from an exhaustive list regarding legal professionals but an intro to get your started with adding to your team. Now get to work!