There’s few entry-level real estate investments that will cashflow better than a single family home with a basement suite. There’s also few better ways to learn how to be a landlord than owning a suited house.

I love owning single family homes. They’re decent cashflow, easy to sell (usually) and simple to finance. 10 years down the line if you need some cash you can just throw a couple of them on the market. If you’ve got a couple of apartment buildings that’s much tougher to do.

Just last month a client closed on a single family house in north Edmonton. The upstairs was brilliantly renovated (I’d say over renovated): granite, real 3/4″ hardwood, awesome tile work, fresh paint, doors, trim, full heigh solid wood kitchen cabinets and stainless steel appliances. It was a standard 1100 sq ft bungalow (3 bed, 1 bath upstairs) with a double detached garage. The basement however, was completely empty except for a new furnace, hot water tank and an older washer and dryer. Paul’s been kind enough to share this copy of his plans.

(Click to open up full size)

Helping Paul decide what to buy and what to build brought me to some important realizations about what I don’t like about basement suites – and how to fix it.

1. Bright, open, clean and secure entries. Both sides (up and down) want to feel like their home is really their own. The want to see the other people as little as possible.
2. Let there be light! There’s too many that feel like a cave. Make sure to put lots of lights in (recessed if possible), use big windows in bedrooms and common spaces (like the living room). Bilevels work well that way, as do bungalows with bigger windows. Also, don’t get freaked out about the potential cost of cutting the foundation to hold bigger windows.
3. Extra utility facilities aren’t a problem. Putting in a second furnace when required seems expensive but saves you in the long run. They make the house easier to sell, reduces the load on the furnaces so they last longer, and makes sure you’re providing clean, safe and comfortable housing.

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As promised last week, we have two winners for copies of Brian Persuad’s book on Condo Investing. The two winners are Shadi from Calgary (via Facebook) and G Young (via a couple great questions on the blog post).

I’m going to be trying to do more draws and such in the future so stay tuned!

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1. Win a Free Copy of Investing In Condominums from Brian Persaud A year ago Brian Persaud dropped me a line to...

A year ago Brian Persaud dropped me a line to ask if I could contribute some marketing insight for a new book he was writing on investing in condos. Brian has forgotten more about the Toronto condo market than I know, and I have very definite opinions on how stupid the idea of investing in pre-build condos can be.

That said, Brians’ a smart guy, a fantastic speaker and communicator and the perfect guy to write this book.

You’ll find my comments in the marketing section in the latter third of the book. Brian and Wiley generously sent me a copy and then another couple copies so I could give them away!

To be entered into the draw for a hardcover copy of Investing in Condominiums: Strategies, Tips and Expert Advice for the Canadian Real Estate Investor just comment on this post, like it on Facebook or blog about it and link to this post. I’ll do a draw on April 18th, 2012 and announce the winners right here.

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By popular request I’ve updated my spreadsheet with Edmonton Real Estate prices up to January 2012. The historical data goes all the way back to 1962 and the original post has been one of the most popular on my blog for three years running (2009, 2010 – 2011 is on the way).

Like always, you can access the entire raw data set I’ve used through a Google Docs spreadsheet. You’re welcome to use the data yourself but please be sure to credit both myself (link please) and the REALTORS’ Association of Edmonton (www.ereb.com).

I also created a new page with the charts you can find on the Google Spreadsheet. I’m a particular fan of the sliding time-series chart. The colour coded trailing averages make for an interesting way to gauge the depth and severity of past recessions.

Enjoy!

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1. Visit your properties

This is usually a no-brainer, but it’s easy to get into a groove where the cheques show up and you don’t get out to check on something that appears to be working fine. If nothing else, this is a great chance to drop off a Christmas card and gift (see #5 below). Make special note of what needs to be fixed, if you tenant needs extra supervision and try asking them if there’s anything they’d like renovated/fixed/replaced.

2. Get repairs done in the quiet time

This has been a mild winter, meaning trades are less likely to be running around dealing with cold-weather emergencies. This is also a good time get some work done since trades are less likely to be working on big jobs and may have time to slot you in. I’m a big fan of giving my trades as much latitude in terms of work/cost/time/material as possible, putting them in touch with my tenants to get time/access set up and trusting in their work. One of my mantras is that you get three options – fast, cheap or good – but you only get to choose two. The quiet parts of winter are the best time to get cheap and good, since you’ve got lots of time to give.

3. Decide how much money you want to make this year

Tax planning is a very large topic and generally beyond the scope of this blog. That said, you should have some idea of how you did in the past two years, how much money you’re likely to make this year, and then how much you’re planning to make in the next 2-3 years. For myself, I’ve started a new business this year which means I’m going to have a smaller taxable income this year than the next couple years (hopefully). If I can, I’m going to make sure that I keep as much income in this tax year as possible. The reverse applies as well – if I can push out expenses to next month (next tax year) then I’ll do so.

That said, there’s always an important consideration when it come to saving on tax. When you have a low taxable income, you also have low mortgage qualifying income. Brent and I spent an interesting hour with our accountant discussing a corporate structure that’ll save some tax when it counts, but also gives us the best possible income for mortgage qualifying.

4. Capital Gains and Losses

It’s almost tax time, so here’s some important year end tax stuff you should discuss with your accountant. Capital losses can only be applied to capital gains, so if you’re making a bunch and (for example) want to dump a stock you own but are losing money on, do it before the year end to get ‘er done. Also, when deciding what deductions to take and where/when to apply them, remember that home office expenses cannot be used to create a loss, but you can carry the deduction forward indefinitely.

5. Be Smarter than the calendar

While you’re doing things like checking the postal code of your property to send Christmas Cards, take a flip through your calendar and record important dates:

• Birthdays
• Lease renwal dates
• Last/next rent increase dates and the notice period (90 day notices should be in your calendar 105 days before the actual increase so you remember them)
• Anniversary dates or other important dates

6. Start shoe-boxing now!

And you’ve got the files out, so now is the perfect time to start compiling your paperwork for tax time! Sort by income, expense (categorized/dated) and tax information. You should have an ongoing tax file so you have a history of what you’ve claimed against the property. A perfect example of this is Capital Cost Allowance (CCA, aka depreciation).

7. Send out Christmas Cards and Gifts!

Love your tenants! Make sure you send out a card – even a simple one. Gifts are always a good idea – keep it simple with gift cards or try nicer gift baskets like the ones we buy from Little Helpers. Remember, even a tenant paying $800/month for a little basement suite is still paying you almost $10,000 a year!

8. Write two ads

Even if you don’t have any vacancies, sit down and write two ads right now. Make one appeal to a family with a new baby; make the other appeal to an older couple looking to downsize. It doesn’t matter what theme you’re using, write a couple so you have some prepared for when you eventually do have a vacancy and are feeling less than inspired

9. Take a week off

Give yourself a full week with no phone. The week between Christmas and New Years can work, even thou you’re likely to be busy. A week in February is even better – go skiing and give the phone to someone you trust. You’ve got to sharpen the saw sometime.

Photo Credit: Aforeo on Flickr

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This week Brent and I are spending three days at a course in Calgary learning about marketing.

Folks tend to think of me as a marketing expert, and I do have a pretty decent amount of experience in the field. There’s a couple people who were wondering why I’m taking three days away from work to learn about a topic I already know quite a lot about. I’ve given workshops, worked for agencies, contributed to books (and I’m looking forward to getting my copy of Investing in Condominiums by Bryan Persaud where I wrote a side-bar on marketing).

First, I’m here because Brent wanted to take a course on marketing and I think that Hobbs/Herder does a better job than most of covering the basics of real estate marketing. I came along to help Brent get the most out of the program and see how the marketing program I’ve created lines up with industry best practices and how we can translate that into our goal of being Edmonton’s premier Multi-Family REALTORS®.

Second, listing to people talk is a great way to trigger a brain dump on a topic. There’s dozens of ideas and projects I’ve had, explored and forgotten. Having someone go through a bunch of basics is a great way to get your mind moving. A trigger list was one of my favorite part of the Getting Things Done system.

Third, this triggers a lot of new ideas. Sitting through an end-to-end program on business marketing is a great way to make you think about your business model, business plan and exactly how you’re moving your business forwards. I always have my computer and my notebook handy because there’s always a stream of new ideas.

Fourth, I make sure there’s time for followup. I’ve blocked out some time when I get back to touch base with the people I’ve met, review and sort the ideas I’ve had and prioritize future projects.

The way to become an expert is to continually submerse yourself in the topic. Listen, read, learn, speak, discuss and teach.

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There’s been some news recently about the online advertising site Zoocasa releasing a Zillow-like online real estate value calculator for Canadian real estate. To accomplish this, Zoocasa went and bought access to Brookfield’s Centra system. They do a lot of appraisals, primarily in eastern Canada, and I’ve heard they gave Zoocasa access to 4-5 million records. That’s not a bad snapshot on first glance.

However, I’ve always said that appraisals are but one opinion of the value of a piece of real estate. Even within an appraisal they use 2-3 different ways of calculating values with differing results. I’ve also seen appraisals of the same property in the same condition differ by 10-15%.

To help cut through some of the BS, I’m going to run some recent Edmonton sales through Zoocasa and share the results. First, Addy Saeed had a good interview with Don Campbell that’s worth watching.

Don has a great quote in there. Don’t fall in love with a number. That’s always good advice for sellers. The value of your property is what a buyer and seller can agree on.

On to the data!

To do this quick test I pulled the last 10 Edmonton single family home sales from the MLS®. Because of delays in various offices enterting the data the sold dates are between October 28, 2011 and November 2, 2011 (today). Prices varied between $200,000 and $435,000. I placed no limits on the data except for being a single family home, so there’s two duplexes in the mix as well. One property (#3) didn’t have a lot size available because tax asessment data wasn’t available yet. Zoocasa wants you to:

• enter the address
• select from a limited number of property types
• number of bedrooms
• number of bathrooms
• living area
• lot size
• year built

There’s no doubt it’s an interesting tool with limited data and it’s still only one tool. As a REALTOR® I’m still a little concerned that people will start focusing on a number that’s been created using faulty or limited data, making my job and the lives of buyer and seller alike much more stressful. That said, having another tool is a good thing for the future of the market.

If you want a more accurate value, give me a shout for a CMA.

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Last weekend Brent and I attended one of the Real Estate Investment Networks’ ACRES weekends. It’s always a good refresher weekend and the people I meet there always amaze and inspire me.

We often take out a booth to share our listings and our services as REALTORS®. However, since Brent joined me this July, we’ve been quite busy on the multi-family side of the business.  To help promote a few listings I did up 20″x30″ posters of a couple apartment buildings which are available. There’s always lots of discussion on what information goes into a proforma (financial summary) for a property and what investors can/should plug into REIN’s Property Analyzer for cash flow analysis. Here’s some assumptions you should consider, and some you should be aware of.

Inflation – Remember, the Bank of Canada aims to have inflation running between 2-2.2%, so for any costs that change, that’s my baseline.

Purchase Price – you should know your local market (or work with a buyers’ agent who does) well enough to know what the value of a property is before you look at the list (asking) price. Getting a discount with respect to list price does nothing but feed your ego. Know what properties have sold for, and be able to explain that to the sellers, personally, through your agent or in a cover letter. For some areas in Edmonton, I know the ballpark, so for quick analysis I just take 1-2% off the list price because for properly listed prices, that’s what things sell for. Again, there’s no substute for good data on sold properties and an agent who knows the area and the history.

Repairs and Renovations – I always assume at least $2,000 will be spend in the first few months. That’s both spent tidying up little things they sellers just did a quick fix for and also for normalizing the properties or making tenants happy. I usually get asked what I mean by ‘normalizing’. Ideally, all my properties have the same faucets, appliances, flooring, locks/door knobs, light fixtures, etc. That makes it faster, easier and cheaper to repair things when they break.

Current Rent – If you’re buying something that already has tenants in it, either single family or multi-family then this number comes from the vendor and should be confirmed before going unconditional and buying the property. If it’s vacant then you need to know what it’ll rent for today. Again, market knowledge is king and part of the reason I’m a fan of buying several units in a complex which you already know. To help make things easier for Edmonton investors, I’ve surveyed several property managers and investors to create a rental market survey that you can download for free.

Projected Rent – The projected rent comes in two flavours. First, this is how much you can rent it for or raise the rent to when you are next raising the rent or filling a vacancy. The second is where rents will go in the next few years. CMHC publishes some information and limited projections. For example, spring 2011 has the average 2-bedroom at $1030, with a projected 2012 price at $1060, or a 3% increase. If nothing else, I use a 2-2.2% increase, which is the Bank of Canada’s mandated range of inflation.

Vacancy – CMHC publishes lots of stats, but I also use my own historical vacancy because I have better than average property management. For apartments I use 4% and for single-family I use 5%.

Utilities – For all my single family properties I have the tenants pay the utilities. If I’m on the hook I look for actual historical amounts from the vendors, while for multi-family that’ll be included in the financial information provided during the due diligence period.

Property Management – As a rule I use 10% for single family through to 4-plexes. For multi family I use ~6% up to 8 doors, and 4-5% beyond that.

Financing – I use prime plus 1%. That’ll put us somewhere between the VRM and fixed costs. I also use a 30 year amortization, since that’s what I look for myself.

Multi-Family Specific Assumptions

Expenses – CMHC will use ~$3,600/suite/year in their projections unless you can prove that the real costs are lower than that. It’s still a good ballpark. Costs will be higher on older buildings, higher on concrete/steel construction that wood frame, and higher on poorly maintained buildings.

CAP Rate - Capitalization rates are always tough to figure out and one of the reasons we pay for private sources of sold commercial data. Today (Fall 2011) in Edmonton sellers are asking 4.5-6%, while CMHC is financing a maximum of ~7%.

Ownership and Tax - For multi-family buildings in Edmonton I always assume that the property is held in a company and will be subject to the top tax rate, which in Alberta is 17%. I also assume that the goal of the investor is long term buy and hold unless we’ve discussed otherwise. That way we have a base to determine how to handle slightly more complex items like maximizing the use of terminal losses if you decide to tear the building down and rebuild after several years.

There’s a projection for everything, but be sure to use realistic numbers. Also, it’s always a good idea to do a 5-year cash-flow model to get an idea of the impact of time on your investment.

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One of my favorite time-wasting ‘relax’ websites is a video aggregator blog called Devour. I take no responsibility for the ensuing addiction if you click that link.

Today they posted one of three short films I had to share with you. They’ve done a Man’s version of the popular book Eat, Pray, Love. My wife and I have been fortunate to travel quite a bit in our lives, living in four different countries since we met, visiting many more and doing some amazing things. Some of my favorites include taking ballroom dance classes in a small Irish community college, watching the World Pipe Band Championships in Scotland, eating at every McDonald’s in northern France and attending Mass in Italian in St. Peters’ Basilica.

Travel is important to us both, as is trying new things and new food. Learning (and reading) is a passion we both share, and these shorts expmplify what we’ve done, how we live now with our son and what life holds for us in the future.

Watch, be inspired and go do something new.

EAT from Rick Mereki on Vimeo.

LEARN from Rick Mereki on Vimeo.

MOVE from Rick Mereki on Vimeo.

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I’ve been in several multiple offer situations this year and learned of several interesting situations that other REALTORS® have experienced.

First, someone had a great question on myREINspace about how you know if there’s another offer on the table. As an agent we’re required to disclose when there’s another offer. That said, an offer isn’t really an offer until you have it in writing with a deposit cheque. The vast majority of us, as listing agents, will call and tell another interested party if there’s an offer coming in.

There’s a specific protocol to be used for multiple offers and my esteemed colleague Brett Turner, a REALTOR® in Calgary, laid it out very simply:

When a listing REALTOR® receives a second offer they are required to follow protocol set forth by their local real estate board and also overseen by their governing body (the Real Estate Council of Alberta in AB, or the Real Estate Council of Ontario in ON)

Basically it works like this:

1. You put your offer in and you are the only offer currently on the table.
2. Buyer 2 comes along and submits their offer.  They always know there is an offer already in play.
3. Listing realtor is required to notify your agent that there has been another offer submitted after you submitted yours. The brokerage representing them and the agent working for buyer 2 is required to be disclosed.
4. If you choose to change your offer then buyer 2 is notified that buyer 1 has amended their offer.
5. If a third offer comes in then the listing realtor must notify both other agents and tell them that there is a third offer submitted.  Again, brokerage and agent info is required to be disclosed.
6. If you or buyer 2 amend their offers then everyone (buyer 1, 2 and 3) are notified that a party has amended their offer.

This is of course assuming that the listing agent is a pro and is doing their job properly.
So long story short the brokerage and agents representing each buyer are made known to the other parties.  They can be contacted to verify this if you want.

The advise for you as the buyer (or the Buyers’ Agent) is to confirm the status of the other offer. Do they have a purchase contract and at least a copy of a deposit cheque? If not, don’t even think about amending your offer to do something stupid. If they do, then you know you’re actually up against another legit offer that the other Agent has seen and didn’t reject out of hand.

Secondly, be cautious about what you do in the heat of the moment. A friend of mine who is a REALTOR® in St. Albert told the story of a multiple offer situation during the boom where his clients’ offer (one of three) was the only one which had a condition on it, which was a home inspection. The property in question was a $500,000 detached home. The listing agent started laughing at them across the table. Craigs’ a pretty tough guy to shake and one the other agent stopped laughing he said “mind telling us what’s so funny?” The listing agent said “Don’t you know that only a fool writes a conditional offer when there’s multiples?” Craig didn’t miss a beat, saying “Don’t you know only a fool takes a half-million dollar risk with no backup?” His buyers ended up winning the multiple situation in part because the sellers agreed with Craig and his clients!

I’ve written unconditional offers myself before, but that’s never something I recommend to a client unless they have extensive experience buying and selling real estate, doing renovations/construction, property management and VERY deep pockets. Craig’s right – you could be putting $500K on one spin of the wheel and lose it all and more! An unconditional offer can be a great tool, but it can be just as dangerous. Don’t feel pressured to write unconditional offers, but don’t be surprised when you lose out on them.

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