Rental Property Investing - Due Diligence on Yourself

Investing in rental properties can be a lucrative way to create wealth, by not only providing an income stream, but also by creating an opportunity for capital growth – AKA -- an increase in the property’s value during your period of ownership. Types of properties can include – residential (single unit & multi-family), retail/commercial buildings (single unit & strip centres), office buildings (single unit & multi-complex), mixed use (ground floor commercial & above ground residential), industrial buildings (single unit & multi tenant complexes), and even raw land that generates some level of income.

After assessing the various property categories, determine the type that best fits with your objectives and will best meet your criteria. It isn’t one-size-fits-all in considering rental property investments and you need to do some necessary due diligence on yourself before moving forward – due diligence on the properties/market will follow later. Markets throughout Canada are littered with investment property ventures ‘gone bad’ and the best advice here is to ‘walk before you run’.

Some key questions to ask yourself:

• Am I more interested in residential or commercial/industrial properties?
• What locations/neighbourhoods are of interest?
• Am I hands on, or will I require a property manager?
• What are my cash flow/return on investment objectives?
• What type of financing is required and what % downpayment can I put up?
• What sort of financial implications can I expect due to vacancies?
• What sort of maintenance & capital improvement costs am I willing to accept?
• Will I incorporate?  How can I best limit any liability?
• What sort of market am I comfortable buying in?
• Is liquidity an issue if I need to sell (quickly)?

Any investment comes with its share of risk and rental (investment) properties are no different. Good preliminary planning, starts with an honest self-assessment of YOU, your objectives, capabilities, comfort zone and so on. Once you’ve figured that out, it’s time to move on to the market in whatever direction best suits you.

Real Estate Insider: May 2019 News Report

Whether it’s your first time or your 30^th time buying a home, you should be striving to possess as many of these traits of successful home buyers as possible! Read about all 9 here.  >>

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If you own an older home and have been lucky enough to have never flooded, chances are you eventually will have to deal with that issue (hopefully on a small scale). But are you aware of what is covered under your current insurance? If not, you should be! Read this article to get started now and make sure you aren’t one of the many misinformed so it won’t cost you big later!  >>

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The classic "Rent vs Buy" debate continues! This couple kept track of every penny they spent on their home over a 3-year period up until they sold, and compared it to renting. Which do you think was more expensive overall? Read here to find out!  >>

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Younger generations are finding it harder and harder to break into the housing market. To help combat this, the growing trend seems to be “Friends with (housing) benefits!” Read here to learn some tips on buying a house with a friend!  >>

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Don’t believe everything you read on the internet! Read here why that mortgage rate you saw advertised online most likely won’t apply to you.  >>

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Just because a house or condo is new, doesn’t mean it is without risks! Make sure you take the phrase “Buyer Beware” just as seriously on new builds as you do on re-sale. Read here why!  >>

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If you had a $50,000 budget, would you rather renovate your current home or relocate? And no, you can’t use the money for vacation! Read here if your answer is similar to most other Canadians.  >>

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Should you aggressively pay off your mortgage? Everyone has probably thought about it, but no one seems to have a clear-cut answer. This may be because they aren’t looking close enough at the Yield curve. Read here why whether the curve is inverted or not should be a major deciding factor for you!  >>

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Selling your home can be very stressful, but it doesn’t have to be! Follow these 8 strategies to guarantee a positive experience next time you go to Sell your biggest investment.  >>

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Another great article on the Stock Market vs Real Estate debate!  >>

Commercial Leasing 101 by Josh Shepley

EVERYTHING YOU NEED TO KNOW BEFORE YOU LEASE YOUR FIRST SPACE

Windsor is known for being dependent on the automotive industry, but with the recent announcement from Chrysler about going back to two shifts, it is becoming more clear to everyone that diversification is essential to continue feeding the growth that Windsor- Essex has experienced in the last 3 years. One of the other major factors that drive this economy are small businesses.  

We personally get calls everyday from entrepreneurs who have a great idea and a plan to execute, however need help with one of the most important aspects of starting/growing a business; a place to actually run their business! This is why we have put together this step-by-step guide to commercial leasing to make it easier for entrepreneurs to get everything they need to bring their idea to life!

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STEP 1: LOCATION

Everybody knows location is everything in business, and to be in the right location for YOUR business can make or break new businesses, especially in their first few years. Are you a destination or a walk-in based business? Do you have to be on the 1^st floor? What demographics are you trying to target? Do you need to be on a public transportation route? Do you have a complementary business that you would like to be close to?  These are just a few of the questions that we ask when finding you that perfect location.

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STEP 2: ZONING

Every property has a zoning that has a list of specific permitted uses.  Before you spend too much time on a location, make sure the zoning permits your business to operate in the space

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STEP 3: NET LEASE VS GROSS LEASE

 

NET LEASE

A Net Lease is typically what we see in commercial real estate; this lease is broken down into net rent, additional rent (operating costs), and utilities. The net rent is basically how much the Landlord’s charging you to use their space, this is the only rate that can be negotiated when leasing. Operating costs are how much it costs the landlord to run the building even if it was empty, this typically includes property taxes, building insurance, common area maintenance, garbage and snow removal, building repairs and maintenance, etc. All of these yearly costs are added up and divided by the total leasable square footage of the building, and the Tenant is responsible for their proportionate share. Typically when you see this type of lease, each unit is responsible for putting utilities in their own name and pay based on usage.

The lease rates you see are usually per square foot in the unit, per year. To get your total monthly cost, you must add the net rent and additional rent together, multiply it by the total square footage of the space, and divide that by 12. Utilities are use dependent, but as an example, we typically advise office users to budget $2.50 per square foot per year on utilities. If the lease is “Triple Net” then the Tenant is also responsible for any repairs to major capital items (Plumbing, HVAC, etc) that may be required during the term of the lease. If you are getting into a Triple Net Lease, be sure to have all these items inspected.

GROSS LEASE

This is typically seen in older buildings and buildings where utilities aren’t separated. This means that the price advertised is your “all in” monthly rent and you have no other costs for leasing the building. However some landlords will still require you to pay for utilities on top of this amount, make sure this is clearly understood before signing the lease.

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STEP 4: TENANT IMPROVEMENTS

Chances are the space you lease is going to need some renovations to make it suitable for your business, if it doesn’t; this is what we call “Turn Key”. There are many ways to go about Tenant improvements, and it largely depends on the specific situation and preference of the Tenant and the Landlord, and is negotiated before signing.  Some of these methods include:

Rent Free Time – the first few months in your new space is rent free so you can spend that money on improvements and you are open for business and making money when your first rent cheque is due.

Tenant Improvement Allowance: - If the lease space is in rough shape or needs lots of renovations, sometimes the Landlord will give an improvement allowance so the Tenant can build out the space to their requirements and in exchange will sign a long term lease. The Landlord will reimburse the Tenant the agreed upon amount once renovations are complete and receipts are provided to prove the money has been spent in the unit and all proper permits pulled.

Landlord Build Out – This is where the Landlord will build out the space to the Tenants requirements, and typically in this situation we see Tenants paying higher rental rates so the Landlord can amortize the cost of the improvements over the Term of the lease.

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Overall, these are just a few of the things to consider when Leasing a commercial space.  Be an informed tenant and your lease transaction should go smoothly.  Also consider working with a qualified commercial leasing expert to make sure your interests are protected!

Real Estate Insider: April 2019 News Report

Happy Easter Weekend! Before you put all of your eggs in one basket, read some of these reports we found useful for making real estate decisions.

If you aren’t debt free going into retirement, you may have considered using your investments to pay off your mortgage. But is that the best retirement strategy? This isn’t simply a “Yes or No” question, there may be more things to consider than you thought. This article is a good place to start if you’ve been contemplating which route to take to retirement. >>

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Solar is the energy of the future without question, yet is buying a house with solar panels worth it today? It all depends on the company and the contract they have! Read here how solar panels on the roof ended up costing this couple more! Would helping the environment be worth a few extra dollars each month? We will let you decide! >>

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Ever heard of smart wood? This BC company is tired of the damage concrete is doing to our environment, and has developed wood that is stronger, lighter, and more soundproof than concrete. Read here more of the benefits of this timber over concrete.  >>

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Living mortgage free is a dream most have, but is pre-paying on your mortgage payments a good way to accomplish this? This article breaks down why pre-paying may not be all it’s cracked up to be! >>

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Buying your dream home might not be the best idea if you want to live your dream life! Don’t just take our word for it, read here why if this couple could go back in time, their “Dream Home” might have been crossed off their list of priorities. >>

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If you are selling your house and you want top dollar, the first thing you should do is call Team Lalovich! The second thing you should do is read this article for 5 tips on staging your home to attract the most buyers! >>

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Housing shortages is a major problem that Ontario is facing; this group has an easy solution! Your move Doug Ford. >>

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What was your reason for your last move? Do you fit in with the majority? The answer might surprise you, find out here! >>

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“2 Years of Home Ownership – The Good, The Bad, and The Ugly” >>

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If you’re contemplating ways to make passive income, this article is for you! Especially if AIRBNB is one of those contemplated ways. >>

Why Are Housing Starts Down So Much In Windsor - Essex in 2019?

A lot of economists see statistics such as new housing starts (basically building permits to construct new residential housing) as a leading indicator for the economy. CMHC reported in their March 2019 Housing Start Data, that the Windsor-Essex region’s housing starts had fallen 23% year over year. Is that cause for concern?  Today, we are going to discuss some of the factors we think that are leading to this slowdown and what else you need to know.

Reason 1 - Shortage of Building Lots

I know this seems very obvious but this really is an issue. I personally know people who would love to build but can’t find a building lot for sale. A lot of subdivisions are nearing completion and the pipeline to replace them is pretty slim. Basically, not as much supply of building lots compared to last year.

Reason 2 - Bringing on Additional Supply of Building Lots is Difficult

We have so much land in Windsor they say, why don’t you just develop it? While Windsor isn’t the most dense city, getting a piece of land to a serviced, shovel ready project isn’t an easy task.  If you have to go through the municipal rezoning process that can take 6 months easily and can cost tens of thousands of dollars in some cases. There are also significant area of red tape to battle through including: biology studies, archeological studies, utility servicing studies, traffic studies, noise studies, etc. This can take years and lots of capital, with no guarantee of success, or can make a project uneconomical. This all leads to decreased supply long term and is a major issue for municipalities all over the province with Windsor being no exception.

Reason 3 - New Home Prices are Getting Unaffordable

Some of these construction costs are driving the pricing of new homes to price points that are no longer affordable for the average person. It's commonplace to see $700-800k price tags on the average new build. The market has been doing extremely well locally but sticker shock  has to have some effect on demand eventually.

Reason 4 - Labour Shortage Affecting Trades Pricing

Tying into point 3, part of the reason for the large price tags on some of these new builds are the escalating pricing from the trades.  Electricians, plumbers, bricklayers, etc are in high demand and able to command premium pricing in today’s market. This trickles down to the end buyer.  Hard to see this changing anytime soon.

Reason 5 - Its Taking Longer to Build Homes

Essentially the labour shortage also means slower build times.  Back 5 years ago it wasn’t uncommon to build a house in 90 days. Now it's not uncommon to see 180+ days. This statistically is taking units out of the data.

Bonus Point - What Does All This Mean for the Resale Market?

This decrease in new home sales activity is adding demand to the resale market. Taking some of the buyers out of the new home market for the above reasons is directing them to the resale market. And the resale market already has a supply-demand imbalance. This increased demand could explain some of the crazy resale statistics to start 2019.

Thats how we are seeing the new home starts data. What are you seeing out there?

Real Estate Insider: March 2019 News Report

Spring is here! This month we've got loads of tips & tricks as the Real Estate season begins to heat up!


If you’re looking to invest in a vacation rental, make sure you buy where the people are going! Read this list of 2018’s most booked Canadian destinations. >>

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ROI isn’t just a formula to use when purchasing a property; it should be used for day-to-day decision making in all of your real estate investments! Read here how ROI can be used in anything from purchasing a home to separately metering the water in a duplex! >>

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Read here this Doctors testimonial in favour of real estate investing, and how he came to this conclusion only after trying many other methods of creating financial independence and long term wealth. >>

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Buying or Selling a home can take up a lot of time, so why waste your most precious resource reading through long descriptions of tons of pictures when only a few works better? Read here why “short and sweet” is the way to go when listing a home. >>

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Here are 10 questions you probably have or have had if you are thinking about buying your first home. These might lead to a number of follow-up questions, but luckily we are always available to help you answer them! >>

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If you’re lucky enough to have your grandparents around, be sure to listen to all their stories! They might have advice that could change your life! Read here how this man’s grandmother defied the odds and became wealthy through house hacking, and sparked a passion in him that is responsible for his success today! >>

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The debate of Buying vs Renting continues! This time, it is explained in a different way that most people don’t think of! >>

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If you’re young and thinking about retirement (which you should be), you are probably thinking whether RRSP’s or buying a home should be your first step to a comfortable retirement. This article can shed some light on that question. >>

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When applying for a mortgage, would you rather speak with an expert or go completely digital? Seems Canada is lagging behind other countries in the automation of mortgage applications department. Call me old fashioned, but I don’t think that’s a bad thing! >>

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Should you re-new your mortgage early? Not saying drop everything and run to the bank, but here are a few things to consider! >>

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Thank you for reading & keep an eye out for more to come from your Lalovich Real Estate team!

Russel's Review:  Legal, Tax & Accounting Strategies for the Canadian Real Estate Investor

Hope all is well readers and you are looking forward to spring & a busy real estate season! Continuing on in my series from last year, reviewing real estate related books, I am going to be discussing a book I’ve recently read.

What is the Book?

Legal, Tax & Accounting Strategies for the Canadian Real Estate Investor by Steve Cohen & George Dube.

Who Are the Authors?

Steve Cohen is a Toronto Area lawyer and active real estate investor. George Dube is a Waterloo area accountant and also an active real estate investor.  

What Will I Learn?

The book starts off by talking about the advantages of investing in real estate. How to get started with building a successful team (ie, realtor, lawyer, accountant, lender, insurance broker, etc).

It then delves into more complex topics of legal and tax considerations on purchases. The structure of how you buy a property is almost as important as what you buy. Other topics in this section include: active vs inactive income, partnerships, joint ventures, trusts, financing considerations, etc.

The book continues on to the time period of owning a property and covers issues such as: property management from legal and tax perspective, repairs, renovations and deducting expenses such as auto and travel. It starts to conclude with a section on selling properties. It discussed how to successfully sell a property for top dollar. Tax considerations for the savvy investor to minimize taxes and also some estate planning.

Lastly, the book finishes up with a section on bookkeeping and how important it is to have solid bookkeeping and accounting as a real estate investor, and then reviews some examples of financial statements.

Why I Recommend it?

Investing in real estate is a learning experience. You’ll always make some mistakes but hopefully you can minimize them through reading resources such as this one. Also it comes from a strictly Canadian perspective which is nice and applicable to most Canadians.

My Critique?

It is a little bit dry. Not an overly fun read for the casual investor. More targeted at the more sophisticated investor with larger ambitions.

So there you have it folks. Then next book review in our series. Have any of you read this book?  What were your thoughts?

You can order a copy of the book on Amazon or Indigo. Happy reading!