The Smart Real-Estate Investor

Real-Estate Investor

Investment Plan

Perhaps you are in the same situation as I find myself in. In the 90s and into the years past the millennium, I invested into the real-estate market. My income was sufficient to buy a rental home every few years. My investment plan as a smart real-estate investor worked out really well for me and I accumulated equity in each one of my homes over the years.

 

The PITA Factor 

Eventually I ran into the PITA Factor as David Chilton called it in his book “The Wealthy Barber” back in the 90s. Problem was that dealing with tenants can be time consuming. I found myself spending time with advertising for new tenants, interviewing the ones I thought would be good candidates, and home inspections every few months. Most of the ongoing repairs and maintenance I did myself to save a bit of money here and there. And finally disaster struck, when the “oh so perfect tenants” became very troublesome – police calls at night, a small fire on the roof (I guess everyone has their own idea of the perfect BBQ), tenants moving out without notice, and leaving the house in major disrepair. Two times I had to renovate a house form the bottom up. All this was followed by legal proceedings.

Not much fun.

And this is just the time commitment in dealing with a plethora of tenants and properties. In addition to spending my personal time while working a demanding job, my financial commitments did not seem to end, particularly at property tax time. Consider the property taxes, fire insurance, recurring mortgage payments, yearly financial maintenance or monthly strata fee, one time upgrades such as a new roof or fence, and the property renovation costs after a bad tenant has moved on.

Your monthly rental income seems to dwindle away rather quickly.

 

Investment Dilemma

Having a considerable income stream of surplus money, a few years ago I was fazed with the option to either park my money in GICs, some illusive investment architecture my financial advisor came up with, or simply put my money under my mattress.

Until it dawned on me that I could participate in the real-estate market without the substantial time spent to clean up after other people and the recurring financial strain on my wallet.

I began to look for opportunities to lend money to others, who found themselves in challenging financial situations. Instead of purchasing yet another piece of income property, I began to invest my money in someone else’s real-estate holding.

So far my investments are bringing in between 8.5% to 16.6% per year. My money is secured by first and second mortgages, not exceeding 85% of the appraised property value. The duration of mortgages are between six weeks and not any longer than 1 year. If things go bad, I still have the security of equity in the property itself.

The litmus test now is to figure out if you are gaining as much as an average of 12% in your real-estate investments. In some years for sure, in other years your property gain in value may be negative. If you are invested in real-estate, do test your year over year increase in property value for your real-estate holding.

I have found that as an investor in the real-estate market, I needed to distribute my risk and felt the need to diversify my investments.

The opportunities of finding solid mortgage investments are vast. The current debt-to-income ratio of Canadians is at an unprecedented peak, while interest rates are low. For each dollar a Canadian makes and before any income taxes are paid, the average Canadian owes about $1.59. Deduct taxes their income, food and transportation, general living expenses, and about 30% for housing, and you will realize how challenging it could become to pay off their debt. Assume the historic low interest rate levels are moving upward, and again, and then a bit more, and suddenly individuals will be in a crunch to meet their financial obligations, thus they may be looking towards private equity lenders.

 

The Smart Real-Estate Investor?

If you are tired of cleaning up after others and shelling out thousands every year on mortgage payments, home insurance and property taxes, but also do not want to keep your money under your mattress, then give me a call. I will share my personal strategy with you and show you, how I am making money with personal mortgages.