Yes, You Can Now Build Brand New And Get Cash Flow
Creativity surrounds us in the expected in such things as art, music, clothing, and nature. It also surrounds us in the more unexpected through technology, scientific study, and business. Like so many things in life, creativity can be the greatest strength of a business owner, but it can also be our downfall. Creativity that draws us towards our goals and brings stability is imperative. The great news is that you don’t have to pursue one over the other, nor should you. We like to think that our ability to think creatively is something that helps us run a good business and also sets us apart from a business that uniquely reflects us.
As creativity relates to us, our approach started as we considered where we wanted real estate to take us (our individual personal Belizes). As we brainstormed the opportunities that were available to us we thought that beginning to actually build our own rental properties (from raw land to a finished house) was the most logical step we needed to take. At the time, both of us had started portfolios in Alberta but we felt strongly that the opportunities available to us in Chilliwack would give us the best chance to achieve our goals and give us the most flexibility to be in control of our futures. Building our own rentals was a new thought to us and was not something we had personally heard of anyone doing within REIN.
In Chilliwack we saw the opportunity to get paid to construct the house, to manage the properties so that they would be done so impeccably, create equity for us and our investors through the construction process and to begin to redevelop land so we could achieve our longer term goals. In our thinking, the more times and the more ways we could touch a property, the more money we could make. We felt we needed to start by building single-family homes to develop our credibility as builders (credibility for both our investors and the trades we work with) and from there, our ultimate goal would be to build a multi-family building. Going through construction processes like this can get easier over time as you start to see which contractors are better, which services are required, and how to save money as you build (for example, there are several reasons to rent construction equipments which might lead you to save some money). The construction process might be extensive and detailed, but once you know what to do, you can breeze through it with ease. However, there is a lot to take into consideration and so many of it has to be scrutinized, right down to seeing if the B-6697 tp dispenser is the best for bathrooms, or if a glass partition would give a home the edge.
One aspect that we love about building our own rentals is that we have beautiful new homes to rent that we can customize from the foundation to the ceiling. This means that we make choices during construction to custom build the house as a rental house for durability (e.g. flooring) and eventual resale (e.g. size and layout). It could be the construction of a basement for car parking or a workplace with the assistance of companies such as GBC Excavating to excavate the ground. Or else, it could be the construction of a new bathroom or kitchen; everything in our homes requires effort and some degree of customization. Additionally, because the Fraser Valley (near Vancouver) is tighter for cash flow, the equity that we are able to create through building lowers the amount of money that is needed as a down payment for the property to cash flow. This has a two-fold effect on the ROI for us or an investor as lower money down pushes the eventual ROI higher while the investor is also making money on the equity created by building the house. It is important that we vet everyone who helps us with construction, for instance, any contractor we use, we need to make sure that they have insurance (see more info here) so everyone is covered and we can deal with all bumps in the road if they should appear.
Toughest Challenge with the Build It Approach
We are currently facing the same challenges as most other investors the most significant of which is financing. This has definitely been the largest stressor for us along the whole journey and we have found that we needed to be creative to solve it. The challenge for us is that the financing sandbox for construction is even smaller, as many lenders are not interested in construction financing, or they will only lend based on construction costs (not on actual finished market value). Although this has been a challenge, it has also been one of our greatest opportunities and has helped our business move forward!
To overcome this obstacle we have worked with a couple of cash investors who have financed our construction until we could apply a traditional mortgage. Also, through this challenge, we have started to use registered funds – at this point primarily as second mortgages on the two houses we have built. We have also begun researching more sophisticated ways of using registered funds so we can pool multiple investors’ registered funds together for larger-scale projects.
We are very excited about the creative and unique approach we are using to be involved in real estate. We believe that it reflects who we are and is also creating a pathway that will allow us to achieve our goals.
Scott Street has found a perfect outlet for his creativity, passion, analysis and work ethic in real estate. Scott has been a REIN member and has personally invested in real estate since 2008. In 2010 he and his business partner founded Summit Pacific Properties which builds and holds rental properties in Chilliwack, BC. Primarily working with investors they, have raised over $1 million in the past two years and they are currently managing their portfolio of 14 doors.