Our First Five Years As Real Estate Investors
Wow, we made it. There were a few times (maybe more than a few) where I thought maybe we should give up. The great part is, that we did stick to our plan and although we faced mortgage rule changes, financial crunches, sleepless nights, adding an addition to our family, lots of negotiations (with tenants, realtors, property managers, contractors, each other etc…) we survived. It made us stronger as a family and we have formed some great business relationships with the team that helped make it all happen.
We are also what I would call a lot more Zen. I think when you find yourself way outside your comfort zone and on the edge, you need to start looking in the with in to keep your sanity. We would not change our experiences for anything. We were introduced to great movies like The Secret, and great motivators like Wayne Dyer, Bob Proctor, Tony Robbins, Will Smith, Oprah Whinfrey plus many more. We read great books like Think and grow rich, Stop Worrying and Start Living, Real Estate Investing in Canada, More Than Just Cash Flow, Rich Dad Poor Dad, The Strangest Secret just to name a few.
We also aligned ourselves with help from some local mentors like Richard Payne (Local real estate meet up group), Patrick Johnston (motivator, Investor), Stefanie MacDonald (Expanse Estates, Net Worker, sounding board) plus many others. We are so grateful for all the amazing people we have met that have helped us on our journey.
I remember the planning and the thought we put into our buy and hold game plan. Me, Shelly and our partner Mike Thibeau organized a plan to start a company to purchase buy and hold real estate. Shelly and I had done several renovation / flip projects up until that point, and Mike Thibeau had experience as a child working with his father. We incorporated The Fort Nova Group in May 2009. We faced our first obstacle when we approached a major bank and asked if we could finance an income property in a company name. The bank to our surprise said no. We ended up being referred to an amazing mortgage broker , he was able to help us meet our objectives.
The first property we bought was a side by side duplex. When we showed up to the viewing it had an undesirable tenant in one side. I was not fully trained on property management at the time, so we just negotiated a deal where the not so great tenant would be out before we closed on the property. I thought that was just a normal thing to do, when closing date came, the tenant was not moved out, the current owner ended up hiring a mover for the tenant and helped them move to a new location. We made a deal with the other tenant (which included a rent increase). We then renovated the apartment and placed an ad on Kijiji. I screened some tenants, however, we got really lucky. We were not set up to do credit checks or know what proper tenant screening meant. So we went with a “gut” feeling. We now use a tenant screening company (Tenantverification.com) The vacancy was filled, we rounded up a team of contractors, plumbers, electricians, painters, etc.. and completed the renovation.
We closed on property #2 an over under set of flats about two before the actual closing date of the side by side. This meant we had two properties to renovate at the same time. The buildings were both older, so we had to do some significant upgrades to each. That lead to some tense moments. We learned that renovations on strict time lines do not always go as planed.
The next property we bought was another over under set of flats. Then the mortgage rules changed for investment properties. The 5% rule disappeared. We now had to come up with 20%. That sent our plan off the rails quite a bit, so we revised and kept going. Since we had to put large amounts of money down, we figured we should go bigger. We ended up buying a six unit property and a two unit property next door. We figured it would be great to have 8 units side by side. The 6 plex turned out to be one of our most challenging properties (see My Favorite Eviction) but we learned a lot and we met a lot of great people while we owned it. For better or for worse, we ended up selling it. We went through a period where our business partner had a serious motorcycle accident, plus we had a new born baby, etc.., so it was a great opportunity to free up some cash. The other good reason was for the tax man. We had cash tied up as loss carry forward.
The next level for us, was to figure out how to keep going with out any down payment cash. One thing about being an entrepreneur, is that you can never give up. When an obstacle is placed in front of you, all you need to do is find another way around it. We talked to a lot of real estate gurus, read vigorously, and came up with a brand new plan.
The first zero down real estate deal went really smooth, other than a low ball appraisal and finding a property that worked. Shelly and I ventured out to try it again with a much larger project (see you must have vision blog post). This one was a real test of the people we surrounded ourselves with, it stretched us financially and emotionally. One advantage in a strange way was we had a new born and I can remember putting him in a playpen to sleep while Shelly and I worked on the house, it was great to have her on maternity leave to help. We went way over budget and had to dismiss, re-evaluate and hire back our team of contractors. In the end it worked out really well and is in our top two for favorite properties we own. The next couple we did, we planned better, made sure we got accurate quotes, worked closer with our project manager and they worked out really well, other than one major low ball appraisal and a long discussion with a stubborn appraiser, that did not get me anywhere.
In the end, we exceeded our five year target, and are now well under way into our second 5 years. We have been starting to notice some great benefits to having real estate.
What we learned:
Work on yourself – personal development is key. Even if you start with the basics like watching The Secret – remove the negative people from your life.
Be willing to do extra – the real estate investing lifestyle is not for everyone. You need to provide exceptional value to your tenants and all those around you. It will require lots of extra hours over and above your day job. The extra effort in the first few years makes things easier as you move forward. You have to be willing to do what it takes 24/7 to make your vision a reality.
Have a plan – but be open to changing it. That could be a minor tweak, or tearing it up and starting over.
Do not take no for an answer – you may face “No’s” from banks, tenants, property owners, realtors, mortgage brokers. No, does not always mean no. It just means sometimes you need to find a new way. We have learned that the real estate investment business, is a business of problem solving.
Surround yourself with awesome positive people – this can mean your core team (realtors, contractors, property managers etc..) also family, friends, mentors, you must eliminate negative people from your life.
Sometimes it seems like appraisers are out to get you – you need to play a bit of politics with appraisers, if you disagree that is ok, the lender with often give you a chance for a second opinion (this has happened to us a couple of times in the past five years).
Work with a mortgage professional that is familiar with financing income properties – Often an investors deal can have several moving parts, it is also important to finance certain deals, with certain lenders. You need a portfolio architect.
The government can change the rules of the game – The federal government can change the mortgage rules, however, do not let it discourage you. You just need to change your thinking.
Tenants can seem demanding / turnover costs a lot of cash – We have learned that most tenants are awesome, the ones that are not so good, are really not good, fortunately due to tenant screening, I feel we have been blessed with a lot of fantastic tenants. We have also realized that a tenant can live in a place for a few years without any complaints, however, as soon as they move out and we spend cash fixing it up for the next tenant, as soon as the new tenant moves in, we usually get a couple of calls for repairs. It can be anything from a leaking tap, an appliance failure. We strive to provide exceptional customer service to all our tenants, it is important to keep your buildings well maintained and a step above your competitors. Also make sure to price for the market. Tenant turnovers cost money. The longer you can keep a tenant the better off you are. We usually spend an average of $900 to clean, paint, and do basic maintenance before a new tenant moves in. This does not include time, screening, and property management costs.
Work with a property manager – Shelly and I still manage a handful of properties ourselves, I am also a CAM (certified apartment manager), we feel it is important if we are going to consult on property management, that we need to be active in the property management business. We did manage it all, and I can remember a mentor of mine (Richard Payne) saying eventually you will get tired of managing your own properties. That day came when I realized I was building this portfolio to provide financial freedom to spend time with family and I was spending more and more time away from family. Property management is one of the hardest parts of building ownership. We have been through a few, but feel although we do not always agree on everything, we have a couple of great managers in place. Get a good one.
Screen tenants properly – we got lucky with our first tenant, but I would not place a tenant without a credit check today. It is not just to make sure they have good credit, the report generally tells a story about where they have lived, who they have been employed by, what debt they have etc.. It is good to cross reference the report with your application.
That covers most of what we learned, the end result is that Shelly and I are closer than ever and the positive people we have brought into our life are amazing. We are looking forward to working towards year number 10.
Michael P Currie & Shelly Currie