5 Best Action Steps: How Real Estate Investors Can Thrive in Any Market

This post is written by Trusted Partner, REC Canada. To become a contributing editor, please contact our Real Estate Investor Solutions Specialist, David Maxwell at david@reincanada.com.

Real Estate Investors know all too well the importance of staying on top of both Macro and

Micro Market conditions. Understanding the fundamentals of any given market you are

investing in is the foundation of your success and ability to make smart decisions. The cost of

acquisition must be in line with the rental/revenue and the absorption of inventory must be

carefully looked at if you are looking for a stable long-term investment.

Since the first quarter of 2022, we have seen the central banks wage the war on inflation, the

direct result of our government issuing pandemic stimulus packages and benefits to ensure that

our system and people stay afloat. But printing all that money came with a price, and that is

what we are looking to solve for now by trying to restore buying power and bring inflation down

to an acceptable rate.

In the current climate, there are BIG opportunities. Opportunity for those who know what to look

for and for those who understand market principles. Time-tested strategies, solid principles and

tools to help you make great decisions are available to everyone.

As investors, our goals are to maximize profits/ROI, streamline systems and processes to favour

the growth and scale of our rental portfolios and always be in a position to see issues in our

market in advance, giving us the advantage of shifting in time or making changes that ensure

we always win.

So where do we go from here? How do we analyze the markets we have invested in and the

ones we are looking to invest in? What key metrics matter most? What should you be doing

RIGHT NOW, above and beyond the basics to ensure your success? Let’s dive in!

NETWORK LIKE A PRO

As a real estate investor, you are likely aware of the importance of connecting with other

investors who can fund your deals or become a project partner. You may have already

connected with local agents who can help you find investment opportunities. You may have

even participated in local networking events and groups.

Building relationships with local professionals in the real estate industry is an often-overlooked

aspect of networking for real estate investors. However, it is just as important as connecting with

other investors and agents.

For example, title companies and officers are essential in the closing process of any real estate

transaction. They are responsible for researching and ensuring that the title of a property is

clear of any liens or other issues that could affect the buyer’s ownership of the property.

Developing relationships with these professionals can help you streamline the closing process

and ensure that your deals go through smoothly.

Similarly, connecting with contractors is vital for investors who are interested in fix-and-flip

projects. Contractors are responsible for the renovation work on properties and finding the right

one can be the difference between a successful flip and a money pit. Building relationships with

contractors can help you find reliable and trustworthy partners to work with on your projects.

Loan officers are also an essential part of the real estate investment process. They can help you

secure financing for your deals and provide advice on the best loan products for your specific

needs. Developing relationships with loan officers can help you find favorable financing options

and ensure you get the best rates possible.

Networking with other professionals in the industry can also help you stay up-to-date with the

latest trends and changes in the market. By attending local events and joining industry groups,

you can connect with experts in your field and gain valuable insights into the industry.

In summary, building relationships with local professionals in the real estate industry is a critical

part of networking for real estate investors. By connecting with title companies and officers,

contractors, loan officers, and other professionals, you can streamline the buying and selling

process, find reliable partners for your projects, and stay up-to-date with the latest trends and

changes in the market.

FUNDAMENTALS OF DUE DILIGENCE – LET HISTORY BE YOUR TEACHER

When it comes to unpredictability, market volatility and creative ways to seize opportunities, the

last three years have taught us more than the last two decades combined. I personally did

hundreds of deals in the span of the last few years, and I definitely witnessed some crazy

things! The biggest mistake among investors I observed as a professional deal maker, was how

many investors were not factoring in vacancy rates, the expenses associated, or the process

and length of time it may take to go through. The concept of factoring vacancy rates into your

overhead is crucial in rental property management because it can have a significant impact on

your financial bottom line and is even more important on your operating cash flow. This is a

VITAL part of your due diligence. A vacancy is essentially a period during which you are not

receiving any rent for your property, therefore it is vital to prepare for vacancies and have funds

set aside in advance to handle them.

One of the biggest challenges landlords face when dealing with vacancies is the time it takes to

find a new tenant. During this period, the landlord is responsible for paying for the property’s

ongoing expenses, such as mortgage payments, property taxes, insurance, and utilities. These

expenses can add up quickly, and if landlords are not prepared to cover them, they can quickly

find themselves in financial trouble.

Another benefit of factoring vacancy rates into your overhead is that it can help you make more

informed decisions about your rental properties. By understanding your cash flow needs and

having a clear understanding of your expenses, you can make better decisions about whether to

invest in a property, sell the property if underperforming, raise rents, or lower your expenses.

While some landlords may choose not to set aside funds and instead use a line of credit (LOC)

to handle unforeseen expenses, this approach can be risky and lead to additional debt if not

handled correctly. Using LOCs judiciously is critical to avoid overextending yourself financially. It

is always best to have funds set aside to cover potential vacancies, but if you do need to use a

LOC, it is important to have a plan in place to pay it back promptly to avoid accruing interest and

additional debt.

Typically, landlords set aside 5-15% of their gross monthly rent, with the conventional wisdom

being 10%. However, the ideal percentage can vary depending on several factors, such as the

rental market and the type of properties you are renting. For example, if you have properties in

an area with a higher vacancy rate, you may want to set aside a higher percentage to account

for longer periods of vacancy. On the other hand, if you have a property in a highly desirable

area with low vacancy rates, you may be able to set aside a lower percentage.

PROPERTY MANAGEMENT VS. MANAGING RE ON YOUR OWN

Property management involves hiring a professional management company to handle the

day-to-day operations of your real estate investment property. This typically includes finding and

screening tenants, handling repairs and maintenance, collecting rent payments, and addressing

tenant concerns and complaints.

Managing real estate on your own means that you take on all of these responsibilities yourself.

This can save you money on management fees, but it also requires an important and

sometimes significant investment of time and effort.

There are pros and cons to both approaches, and the best option depends on your individual

situation and preferences. Here are some factors to consider:

1. Time and availability: Managing a property on your own requires a significant time

commitment. If you have a busy schedule or live far away from your property, hiring a

property management company may be a better option.

2. Experience and expertise: If you have experience managing rental properties and feel

confident in your ability to handle all aspects of property management, you may be able

to save money by doing it yourself. However, if you’re new to real estate investing or

don’t have much experience in property management, it may be best to hire a

professional.

3. Size of the property: Larger properties with more units can be more challenging to

manage on your own. If you own a small property with just a few units, it may be feasible

to manage it yourself. However, if you have a larger property, it may be more efficient to

hire a property management company.

4. Cost: Hiring a property management company comes with fees, typically a percentage of

the monthly rent collected. If you’re looking to save money, managing the property

yourself may be a better option. However, you’ll need to factor in the time and effort

required to manage the property on your own.

In our incredible and fast-moving digital age, there are dozens of extremely efficient and “full

suite” property management software that help and empower the investor to make the

management of their portfolio easy and streamlined. Definitely do your research and speak with

other like-minded and experienced real estate investors to see how they are managing and get

their feedback. Ultimately, the decision of whether to hire a property management company or

manage your real estate investment on your own comes down to your personal situation and

preferences. It’s important to carefully consider the pros and cons of each approach and choose

the option that best fits your needs.

SCREEN YOUR TENANTS CAREFULLY – OR SUFFER THE CONSEQUENCES

Screening tenants is an essential part of being a landlord or property manager. While it can be

tempting to quickly approve an applicant to fill a vacancy, failing to conduct proper screening

can lead to a host of problems down the line. As an investor, your goals are to:

1. Protect your property: By thoroughly screening tenants, you can minimize the risk of

renting to someone who may damage your property or cause problems for other tenants.

2. Ensure reliable rental income: When you rent to someone who has a history of paying

rent on time and has stable employment and income, you can have more confidence in

receiving consistent rental income.

3. Minimize legal issues: By thoroughly screening tenants, you can avoid renting to

someone with a history of legal problems or evictions, which can save you time, money,

and legal headaches in the long run.

4. Maintain a positive relationship with neighbours: Renting to someone who is a bad fit for

the property or the neighbourhood can create tension with neighbours, leading to

complaints or even legal issues.

5. Avoid costly turnover: Turning over a rental unit can be expensive and time-consuming.

By renting to someone who is likely to stay for a longer period of time, you can avoid the

costs associated with frequent turnover.

By thoroughly screening potential tenants, you can identify any red flags that may indicate that

they are not a good fit for your property. This includes running credit and criminal background

checks, verifying employment and income, and contacting references.

If an applicant does not meet your criteria or raises concerns during the screening process, it’s

important to be willing to turn them down. While it can be difficult to say no to someone, it’s

ultimately better to protect your property and your other tenants by only renting to responsible

and reliable individuals. When turning down a tenant, it’s important to do so respectfully,

tactfully and professionally. Be clear about the reasons for your decision, and provide the

applicant with any relevant information they may need to improve their chances of finding a

suitable rental in the future. This can include suggestions for improving their credit or finding a

co-signer.

Bottom line; thorough tenant screening and a willingness to turn down applicants who do not

meet your criteria are essential to being a successful landlord and investor. By taking the time to

find the right tenants, you can minimize problems and ensure a positive rental experience for

everyone involved.

ACQUIRE WHILE PRICES ARE LOW TO WIN BIG

We have all seen, in the last year, the pain associated with the increased interest rates on our

mortgages and loans, and as such, has created an environment that savvy investors use to

create HUGE profits and gains.

As interest rates on mortgages rise; prices for homes have and will continue to come down in

order to balance with the buyer’s affordability in any given market. We have seen an average of

20% decrease in home values across North America since February 2022, with some cities

citing bigger decreases and others less.

The sellers in all these markets, as always, want to maximize their selling price, and buyers

want to buy for the least possible. With that said, experienced Investment Focused Brokers can

create wins for both buyers and sellers. If the seller’s property is paid off or has a small

mortgage, they can take a position, just like a bank would. They can provide what is known as

a “Seller Take Back Mortgage”. The buyer/investor can now acquire a property, without having

to qualify for a traditional mortgage, for a price closer to what the seller wants, given the

flexibility of getting a mortgage from the seller directly at an interest rate that makes the math

work for the acquisition.

Seller financing, also known as a seller takeback, is a method of acquiring real estate in which

the seller provides financing to the buyer. Here are some advantages of a seller takeback:

1. Access to Financing: A seller takeback can be a useful financing option for buyers who

may not qualify for a traditional mortgage loan. By offering seller financing, the seller is

effectively becoming the lender, making it easier for the buyer to acquire the property.

2. Negotiation: Seller financing allows for more flexibility in terms of negotiating the terms of

the deal. Both parties can negotiate the interest rate, repayment schedule, and other

terms to arrive at an agreement that works for both parties.

3. Speed of Closing: Traditional mortgage loans can take a long time to close due to the

extensive underwriting process involved. A “seller take back” can close much faster as it

does not require the same level of scrutiny as a traditional mortgage loan.

4. Lower Closing Costs: Seller financing can also save on closing costs as there may be no

need for an appraisal, title search, or other fees associated with traditional mortgage

loans.

5. Income Stream: The seller can earn a steady income stream from the interest payments

made by the buyer, potentially yielding a higher rate of return than other investment

options.

6. Potential for Higher Sale Price: By offering seller financing, the seller can potentially

attract more buyers, which may lead to a higher sale price for the property.

Overall, a seller take-back can be a beneficial option for both buyers and sellers, allowing for

more flexibility in terms of financing, negotiation, and closing, potentially leading to a higher sale

price and steady income stream for the seller.

CONCLUSION

As a leading real estate broker and a mentor to the industry, I believe the best deals are the

ones we actually create. Using sound principles and exercising full due diligence will always

pay dividends. If you truly practice the methods and techniques I have described will help you

WIN consistently. Remember, real estate is NOT a get-rich-quick scheme. Real estate is a “Get

Rich Slow”, it is a safe and stable way to grow and become truly financially insulated for

generations to come.

For more information on working with REC Canada, please visit reccanada.com/rein