Update, Web 2.0 meets Business Networking

Coulds and sunset

Like a breath of fresh air.  Well, it has been an interesting year for me.  The end of a major relationship caused a major upset in my life.  I'm just starting to get back into the swing of life again and now that fall has come around, am finding more time on my hands.  Thus, I'm starting to get back into writing and reading blogs.  Hopefully I'll have some useful stuff to post in the coming months, so stay tuned.

For now, I am buying a new primary residence and take possession November 2nd.  It is a small house in a good neighbourhood with lots of potential.  I've got a lot planned for the place and hopefully will find the time to share the results online.

Next, I'm hoping to get together with some new investors to see if I can get myself into a commercial deal (residential multi-plex, apartment, or retail).  Will keep you posted on that as I go.

LinkedIn

In order to build a network of investors, I'm trying to get people I know to start using a new service called LinkedIn.  LinkedIn has a very similar taste to Facebook, but with a twist.  LinkedIn is much more adept at managing contacts for business purposes than Facebook ever will be.  Some of the key features:

  • Find colleagues from past careers and educational institutions
  • Recommend your favourite service providers (e.g. lawyer, real estate agent, masseuse)
  • Apply to jobs posted by other LinkedIn users
  • Surf through your friends' "connections" (the term used to describe the people in your network)
  • Build your own reputation through recommendations and answering user questions
  • Network!

So, what are you waiting for?  Start building a network of professionals, friends, friends friends, friends friends friends!!!  And, if you're local to London, Ontario and are interested in joining forces, dropme a line.

Nick 

Tenants – Oi!

William from Ottawa asked me the following question today:

Great site and great info.

I have more of a question than a comment. I only have experience in
renting the whole house/condo to an individual, but never dividing a
house up and renting it by the room. Being someone who have never had a
room mate, I will like to find out from your experience how difficult
is it to find tenants, making sure then tenants get along, keeping the
unit clean and tidy, etc.

Any help or suggestion will be much appreciated.

Thanks from a fellow 20 something investor in the National Capital.

First off, thanks for the great question. I've been needing a bit of inspiration lately, so this is just the ticket to get me off my lazy arse and writing a post that I hope you'll find helpful.


1. Legalities

First, let me tread carefully here. There may be legalities in your municipality against student rental properties, or against having multiple people living in a single family zoning area. It would be a good idea to check into local by-laws before trying to rent to students. That being said, rules are often malleable, and in London it is highly common to have 5, 6, 7 and 8-bedroom student rental properties.  Overall, it is difficult for a city to stop student rental homes.  The zoning by-laws typically only prevent homes from being sub-divided.  That being said, I know that London is currently investigating methods of controlling student rental homes.


2. Finding Tenants

Finding tenants has not been difficult for me thus far. I think I can attribute this to the fact that I am easy-going, and I am not trying to squeeze every penny out of my properties that I possibly can. I make a healthy profit off of the properties, and thus, I keep my rents low and am able to offer tenants different things to keep them interested.  The arrangement is mutually beneficial with no party feeling sleighted.

Marketing is the key here. You need to find out what students really want. Guess what, its 2007 now… what do young people want? Super-blazing-fast highspeed internet. Offering free highspeed is a real draw. If you're not an expert in this arena, there are professionals who could wire up your home, or it is easy to get a wireless router and let the tenants worry about the rest.  Again, a caveat, sharing one internet connection is usually against your service contract.  Read it, understand it, and know that there is a chance you could be held liable for illegal actions carried out over a connection that you own.

Utilities included.  I always rent my units all-inclusive.  This can be billed as a benefit because tenants do not need to worry about varying utility costs or setup fees for switching utilities into their own name.  Less hassle.

Discounts in the summer.  Many students return home in the summer months and do not want to pay full price for a vacant bedroom.  You would be surprised how much even a $50 discount in the summer will make a tenant feel better about signing a 12-month lease.  Again, this is win win.  The cost is minimal to the landlord, but the good will instilled in the tenant is priceless.

Some other things to consider that will motivate student renters:  Dishwashers, In-house laundry, a security system, a signing bonus, etc. etc.


3. Policing Roomate Arguments

THIS IS NOT YOUR PROBLEM! Don't feel bad, this is the second time in the last month I've been asked this question. I just plain don't worry about it. Maybe I've just been lucky so-far and people have gotten along ok. I suppose you could have problems if you have one random person in the house who is there to cause trouble, but so far I've rented to decent, cooperative people. I guess it is always good advice to screen your prospective tenants for compatibility with you and the other tenants, and I have had to turn people down from time to time.

The other thing to do is to rent to a group of friends. They are much less likely to have the sort of arguments that require mediation. I'm hoping that I can fill my 2 5-bedroom places with groups of 5 this-year. The best thing is the amount of time you save from showing the property less. These are the groups you need to bargain with as well. People are extremely suceptible to the thought that they are getting a good deal. Only 3 easy installments of $19.95… but you not only get one knife sharpener, we'll throw in a bonus sharpener that you can keep in the garage, or your tackle box…. etc.


4. Cleanliness and Damage 

Now… this can potentially be
an issue. So far, I've been lucky enough to rent mostly to women (who
are naturally more tidy), so I have not had any major issues. General housekeeping is the responsibility of the tenant. I try to go
into the house every couple of months just to address any major issues,
but it is impossible to control the situation entirely.

The
best thing you can do is hire a cleaning company to clean the house
when tenants change. The carpets may need steam cleaning, and the house
will likely require a top-to-bottom scrub.

This is also something
you can market to your prospective tenants along with some of the items
mentioned above. Even if you were already planning to paint a few
rooms in the house, you can use it as a bargaining chip to let the
tenants know that you care about their well-being, are willing to keep
the place in good order, and are giving them a fair deal. It is a show
of good faith.

Lastly, make sure you are using a comprehensive lease. There are inexpensive leases available online, at Staples, or through your local Property Management Association (e.g. London Property Management Association).  They often have clauses regarding cleanliness and damage.  It would also be a good idea to investigate adding a clause internet use.  Many leases prohibit using the home for illegal activities or for running a business, however it would be useful to extend these clauses to internet use also (always CYA).

Thanks for the great comment William, you've hit on some of the major difficulties involved with renting to students.  I hope I've touched on some potential solutions that you can employ to make renting to students a little easier, and a lot more profitable! 

Comments on REI

There was a lively and interesting discussion over at Canadian Capitalist in reference to a Re/Max press release about the appreciation of real estate over the last 25-years. I had the following comments, but thought it would be better to place them on my blog.

The gain in real estate value over time is really only important to the average Joe who only owns their primary residence, and even in this case, most people are unlikely to use the capital appreciation in the property for any real purpose because they will likely hold the property for a long time. Also, if they do sell, it will likely be reinvested into another property which has also appreciated the same amount over time.

Now, for someone who is investing in real estate, I also think that these numbers do not mean much. The real value of real estate transactions is that they are a business, they can generate income and cash. I think of it this way, I have one rental property that only cost me $10,000 investment. After all expenses are deducted from rents, my net income on the place is roughly $7,000 / year! Therefore the property is netting a 70% ROI.

These returns are not typical of all investments, but there are some good deals to be had, and some specific market segments where you can generate a tidy return.

The big players tend to invest in commercial properties, or large complexes. In these cases, again, the focus is on your net income, not on the appreciation of the assets.

Also, even for the average Joe, there are a lot of advantages to investing in real estate:
1) capital can be withdrawn if necessary, when renting your money is all lost
2) appreciation does beat inflation, so it is a relatively safe investment (historically). You aren’t likely to lose your shirt.
3) it is a kind of forced savings plan. Most people don’t think about how much equity is in their homes. If something catastrophic happens, the money is there and can be used for health care expenses, etc…. as long as the person is willing to sell the house or take on debt (bad idea).

Just my 2 cents. I generally don’t even think about the increase in property values… it just isn’t money that I can easily use.

Yes! 1/2 rented for next-season!

Well, last night I signed 5 students up to live in my first rental property!  Now with it fully rented, I can focus in on the second home (also with 5-bedrooms).  Unlike years past, this lease signing means I will not have to scramble to find renters for the summer.  Previously we’ve only been able to secure 8-month leases, but this is a 12-monther (with a slight discount over the summer months), so I’m free and clear!

The nice thing is that two of the tenants in the 1st property might be interested in switching over to the other one, so then I would only be looking to fill up 3 bedrooms!  Sweet!

I think the main benefit to tenants is that were are quite flexible.  We offer a summer discount, we include all utilities, and our rent is actually fairly low or near average.  Plus, these two houses have free laundry, which is a big plus.

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In my next post, I’ll show you my plan for using word of mouth to attract tenants faster, and how I hope to encourage present tenants to stick around another year.

iiProperty Site Goes Live

I finally went live with an iiProperty website for my rental properties.  I liked the interface, and the ease of adding properties to the “web flyer” as they call it.  It takes a matter of about 5 minutes per property to add photos, descriptions, basic information and your contact info.  The output is somewhat basic by some web standards, but given the time investment, I think the look is adequate.  It doesn’t look out-dated, the main downside is that you can’t customize the placement of information on the page.

In my review of rental tracking software, I mentioned that iiProperty enabled direct posting to CraigsList.  I was unable to verify this feature because iiProperty does not have the ability to accept Canadian addresses in its CraigsList advertisement form.  To me this isn’t a deal breaker, but it sure would have been a nice feature.

Have a look a the site if you get a chance.

The Road Ahead: Marketing

MoneyMarketing for student rentals. What a challenge.

In years past we have used the local university off-campus housing service to list our properties, and we have also put a few ads in the newspaper.

Medium:
For 2007, we plan to up the ante because we’ve had vacancies over the summer months that aren’t acceptable. We will advertise in three mediums, the off-campus housing site, the campus newspaper, and online through iiProperty and any rental listing sites I come across. We will also expand our listings to the local college which is a 20-minute bus-ride away, but at least it is a direct route.

Differentiation:
How can we differentiate ourselves from the thousands of per-bedroom vacancies in London? Number one, we include all utilities and wired/wireless highspeed internet in our homes. Second, our properties are fairly well-kept (upper-middle of the pack) and are thus well-priced. Third, we offer free laundry in our 5-bedroom houses.

Word of Mouth:
This-year we want to expand on the power of word of mouth advertising by offering incentives to our tenants.
1) We will offer 1-month free rent to current tenants who sign a 12-month lease.
2) We will pay $150 for each referral (obviously only ones who sign leases).

Property Managers:
Because we lost a lot of revenue due to having 6 vacant bedrooms last summer ($9600), we’re going to be in touch with one or two property managers this-year. Last year we had one, but we started using her too late in the game, and she couldn’t find any tenants for us. If we start earlier this-year, we should be in luck. Last-year she only charged 1/2-month of rent for the property, which works out to only $1000… a small price to pay!

Wish us luck!

This post is part of the writing project over at BiggerPockets.

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The Road Ahead: Organization

Organization, what organization?

Now that I have three properties to take care of and my Masters is out of the way, it is time to get serious about organizing my tasks and time. Up until now, I have done as little maintenance as possible to the properties because my schedule and budget didn’t afford much of an investment. However, this-year, I need to get serious about scheduling various activities.

First comes our marketing campaign. The worst thing about renting to students is that they tend not to be repeat tenants. Once their 12-months are up, its on to bigger and better things, and that brings the potential of vacancies. To counteract this trend in 2007, we will begin an integrated marketing plan starting in the first week of January. In past years, we have left the advertising too late into the spring, and I feel we lost many prospective tenants. More on the marketing plan tomorrow.

Furthermore, two of our properties are in need of some capital investment for repairs and upgrades. Property 1 needs a fresh coat of paint inside, some new carpeting, some drywall patching, a new screen door and a new railing. The railing and door are already purchased, so the only remaining task is to schedule their installation. The problem being that I don’t know whether I can find someone willing to do it in the winter. I may just leave the drywall and painting until later in the year because they are not pressing. Plus, we can always use a new paint job as a carrot for potential renters who are sitting on the fence. I don’t think carpeting is in the budget for this-year, so it will have to wait.

Property 2 is in fairly good shape, however, I was there yesterday and am quite concerned about the 2nd floor washroom. Some water has leaked around the tub, and has rotted the sub-floor slightly. I caulked up around the shower doors, which should stop the leak, but to repair the floor will require nearly a complete bathroom reno. In the spring I’ll need to get some estimates, right now I have no clue how much it could cost. Otherwise, property 2 is in good shape, but could use a bit of paint if there is money.

So, how will I get organized? I posted previously about using Monkey GTD, which is a variation on TiddlyWiki using the GTD principles to keep track of upcoming tasks, appointments, reminders, etc. It is really a great system. You can host one on the web over at TiddlySpot making it accessible from anywhere you can find an internet connection. There is built-in security for protecting your information, and if-required, multiple people can edit the same wiki. Here’s a screenshot of my Rental project:

My Monkey GTD Rental Project

Lastly, I plan to use Quicken to better keep track of my rental expenses in 2007. I think this will help me visualize where money is going, and how I can reduce expenses and increase profits. To keep track of tenants I intend to start using iiProperty. It is free, and should help me take better care of tenant information.

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Part of the writing project over at BiggerPockets.

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The Road Ahead: Investment Goals

For the next part in this series, I would like to discuss my investment strategies over the coming 12 months. First outlining investments over the past 2 years, followed by my aspirations for 2007.

In 2005 we purchased our first rental property for $143,000 CDN. The property rents 5 bedrooms at $400/month for a cap rate of 16.8%. This, I figure, is a pretty good investment. Unfortunately, it has been a struggle to find student renters for 12-month leases and thus, the property has under-performed over the summer months. However, we have consistently made money off of it to the tune of approximately $5-6000/year.

In August of 2005, we purchased a new primary residence which included a 3-bedroom basement apartment. The rooms are again rented for $400/month. The cap rate of 4.36% on this home is not as nice, but we have the added benefit of living in a nice house, in a very desirable neighbourhood.

Then in May of this-year, we purchased a second rental home. This time it was a 5-bedroom, 2.5 bathroom condominium for $145,000. Leases were already signed from May 2006 – May 2007 for $395/month. Thus, the cap rate is 16.3%. Overall, the property nets about $600/month plus the principal payments which is about $10,000/year.

So… 2007. Since I invest with my wife, it is a bit more difficult to plan perfectly, however I’ll take a stab. We should be able to save $30,000 this-year and I would like to pour that into one more investment property, a new Etrade account, and our 5% savings account. I’ve seen a few ads around for hard-money at 0% down, so I might investigate this, which would enable us to get another property with only 5%. Why 5%? I like to own a bit of the property off the bat just in case the market tanks, I don’t want to be stuck owing more money in uncertain times if I need to sell the property in a hurry. So, investigating my funding options is a primary task.

I also want to investigate starting a small REIT, or even a LLC selling shares to small-time investors. This way I can use OPM to really start getting into bigger, more diversified real estate holdings. I’d like to investigate commercial property opportunities.

My take on the impending housing burst, is I think that property values will not crash, but will correct. I hope that they will drop no more than 10-15%, and I hope this process will take a few years to pan out. If I’m lucky (i.e. correct), we will be able to weather the storm, and ideally will still be pulling in positive cash-flow throughout.

In my Etrade account, I’d like to get into some blue-chips, as well as some iShares index funds from Barclays. Hopefully the portfolio will do well, and it will balance my bond investments through my ESPP, and all of my real estate investments. There is a REIT iShare that I am very interested in as well.

I hope that my diversification strategy pans out, and most importantly, that the real estate market in London remains strong through 2007. The forecast looks good, but it really depends what happens south of the border.


Tomorrow: Organization… How can I conquer my natural tendency towards distraction?

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Part of the writing project over at BiggerPockets.

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The Road Ahead: 2007 Installment

 I have some time off coming to me next-week, so I thought it would be interesting to write a bit about my goals for the coming year.

Now that my Masters degree is out of the way (since August), I’m finding I have a lot more time on my hands than when I had a full-time job and a thesis to write. So-far I’ve been using it to write this blog and read other blogs for interesting ideas on investing, personal finance, and real estate. However, next-year, I’d like to accelerate my hobby/side-business. The purpose of these posts is to help me get a sense of what is possible in the next 12-months.

I hope you’ll joing me for this 6-part series, which I think will have some interesting thoughts on investing, real estate, blogging and personal finance. Here’s an outline of what to expect:

1. Net Worth (Dec. 26, 2006):
The first post in my first blog series will deal with my net worth results from 2006, and detail my net worth goal for the end of 2007, as well as how I think I can get there.
– 2006 results
– Goal for 2007

2. Investment (Dec. 27, 2006):
– First I’ll summarize the property investments I have made thus-far
– Next, I’ll talk about capital improvements made in 2006
– Finally, what is planned for 2007 (improvements and investments)

3. Organization (Dec. 28, 2006):
– Financial steps to keep track of my income and expenses
– Tracking tenants
– Leases, using Web2.0 to get organized, etc.

4. Marketing (Dec. 29, 2006):
– New outlets and the general plan for 2007

5. Blogging (Dec. 30, 2006):
– Where is this blog going?
– What are my goals?

6. The Famous Corporation (Dec. 31, 2006):
– What’s the general idea?
– What is required?
– Structure, and outline of the potential steps in 2007.

Part of the writing project over at BiggerPockets.

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