In this article we continue to examine the fourth step you MUST take in order to buy your first rental property.

You can review the first half of Part Four here.

After we ask the Property Specific Questions outlined in the first half of Step Four, we now have to examine the economic influences of the location that you have chosen to invest.

Area’s Economic Influences

There are 13 questions that you have to ask yourself about the Economic Fundamentals of your chosen area. The answers to these questions will be ‘yes’ or ‘no’. When answering these questions, pay close attention to how often the answer is ‘yes’. The more ‘yes’ answers you get, the better.

1) Is there an overall increase in demand in the area?

Do people want to move into this area, or are people moving our of this area? A simple question, that you must ask yourself.

2) Are there currently sales over list price in the area?

If there are sales over list price in the area, this is a very good sign that people want to actually live in this area. Not only that, it demonstrates that there is a demand for housing, and people with good incomes are moving into the area, because they are able to afford prices that are over list price.

3) Is there a noted increase in labour and materials cost in the area?

If there is an increase in labour and material cost in the area, this will have a direct impact on the prices of new homes. If the prices of new homes are rising in value, more often than not, the existing housing stock will be influenced upwards as well.

4) Is there a lot of speculative investment in the area?

Speculators often invest in areas where they feel that there is a future. They will never invest their money in a City or Town that is not performing well economically. Speculators try to make their money on huge upswing in markets. As a result, when there is a lot of speculative investment in an area, you know that there is a strong belief that there is going to be an upswing in the market in the not too distant future.

5) Is it an area in transition?

Is the area going from bad to good? In areas of transition, you often see significant increases in housing prices. What was once a decrepit neighbourhood riddled with prostitution and crime, on occasion can become a trendy, up and coming neighourhood full of higher income earners.

6) Is there a major transportation improvement occurring nearby?

Transportation improvements have a significant impact on real estate values. Whenever you have a new highway/freeway built, a new train station, or other form of transportation built, real estate values surrounding the transportation improvement increase. This is because the demand increases for housing in these areas. People want to live close by to major transportation channels. Living close by to transportation channels makes life easier for people, as they can use  these transportation channels to commute to and from work.

7) Is it an area that is going to benefit from the ripple effect?

Throw a stone into a pond and watch the ripples form around where the stone splashed.
If where the stone splashed represents where the transportation improvement occurred, the highest increases in real estate values will occur there.

As the ripples go out in the water, we can see the impact it has as the water is displaced. The ripple effect with real estate occurs in the same way. Housing values increase in a positive manner in surrounding areas, outside of the centre of the transportation improvement. These surrounding areas feel the ‘ripple’.

8 ) Is the property’s area in Real Estate Spring or Summer?

The Four Seasons of Real Estate are:

The Autumn – a time to harvest profits
Winter – a time to plan, study, and research
Spring – a time to buy
Summer – a time to manage.

9) Has the political leadership created a growth atmosphere?

The political leadership can really make or break a City or Town. If the leadership is forward thinking, they will do everything in their power in order to promote growth, and make the area attractive for investment.

10) Is the area’s average income increasing faster than the provincial average? (Canada)

If this is the case, this is a very good thing. This means that people with above average incomes are moving into this area. People with above average incomes are able to afford things, such as houses.

11) Is it an area that is attractive to baby boomers?

Baby Boomers have money to spend. If money is being spent in a local economy. The economy will continue to perform consistently, all things being equal.

12) Is the area growing faster than the provincial average? (Canada)

Again, this is a good thing because it shows that people want to live here. If the area was decreasing in population year over year, this would be a sign that people do not want to live there.

13) Are interest rates at historical lows and/or moving downwards?

Low interest rates can often times promote confidence with consumers. Low interest rates are also helpful for real estate investors looking to purchase more rental properties. With low rates, cash flow on rental properties has potential to be more robust, versus when interest rates are at a higher level.

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Article Reference: Don R. Campbell‘s Property Goldmine Score Card.

How to buy your first rental property – Step Three
How to buy your first rental property – Step Four (Part I)
Step Five – How to buy your first rental property

So far in this article series, we have discussed the first three steps that you must take in order to buy your first rental property.

In Step One, we discussed the importance of determining WHY you are buying your first rental property.

In Step Two, we described on how to finance the rental property.

In Step Three, we talked about methods that you can use in order to determine what location you will invest in.

In step number four, we examine the economic influences of the location that you have chosen to invest in.

This is a crucial step because if the economic fundamentals are not strong in your chosen area, you have picked the wrong area.  If you have picked the wrong area you need to go back to the drawing board, and pick a different area.

Step four is essentially a check and balance in place in order to make sure that you are on the right track, and that you have chosen a location to invest in that has has a future.

I have derived the majority of the information for step four from Don R. Campbell’s Property Goldmine Scorecard.  Don R. Campbell is the President of the Real Estate Investment Network, REIN.  I have used the information contained in the Property Goldmine Scorecard in order to assist me in purchasing rental properties.

Many other successful real estate investors and REIN members have also used the Property Goldmine Scorecard to varying degrees, in order to help them with the purchase of rental properties. REIN members that have a very good working knowledge of the Property Goldmine Scorecard are members such as Wade Graham of Higher Ground Real Estate Investment Inc., and one of the guys I know behind the scenes at The Rentables.com

With step four, we begin our examination of the location that you have chosen by asking property specific questions.

Property Specific Questions

1) Can you change the use of the property?

This is an important question to ask.  If you can change the use of the property, you can potentially increase the income you are generating from the property.  For instance, if you are dealing with a single family home, are you able to easily convert it into a legal duplex?  If that is the case, you may be able to dramatically increase the income potential from this property.

2) Can you buy it substantially below retail market value?

Many real estate investors live by the rule that you can only make money when you buy a property.  They put emphasis on always buying below market value.  Whenever you can buy below market value, definitely do so.  However, buying below market value is not the only way you can make money investing in real estate.

3)  Can you substantially increase current rents?

You would be surprised how many landlords have rental properties, and on their properties they are charging the wrong rental amount. Many landlords are too lazy to increase their rents with their tenants on a yearly basis. As such, a landlord could own a rental property for many years, and never once increase the rents on the property. If this landlord ends up selling their property, and you buy it with the existing tenant still occupying the property, the rent that the tenant is paying will be well below what the market rent should be.  If this is the case, you now have the opportunity to increase the rents substantially.

4) Can you do small renovations to substantially increase the value?

It is amazing how little effort is required in order to dramatically increase the value of a property. To increase the value, you have to focus on all of the right things. Some cost effective things that you can do to increase the value of a rental property would be:

• Freshly paint the property
• Replace worn carpets with a neutral tone carpet or with laminate flooring
• Re-finish old looking kitchen cabinets
• replace outdated appliances with new, slick looking appliances

In the next article of this series, we are going to conclude Step Four.

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Step Four Continued – How to buy your first rental property

The third step that you must take in order to buy your first rental property is to determine the location in which you are going to buy the rental property.

In part one of this series, we talked about determining WHY you are buying your first rental property.

After you have established why you are buying the rental property, you then have to determine how you are going to finance your rental property.  This is the second step you must take.

Determining your location

This is the stage in which you will begin researching potential areas to invest. The first step that you should take in order to find potential investment areas is to start networking.

1) Contact your local Realtors Office

One place you can start your research is by contacting your local Realtors office. The purpose of this activity will be to speak with a Realtor in this office who specializes in buying and selling investment properties. When you find a Realtor in this office who specializes in investment properties, you can ask them the following questions:

• Where are these potential rental properties located? (You want to know if these properties are close by to where you live or further away from where you live.)
• What is the price range of these rental properties? (From Step Two of this article series, you will already know what the maximum amount is of a mortgage that you can afford.)
• You will want to also ask this realtor to give you a description of the tenant profile that lives in these properties.  You want to know at the very beginning what type of tenants you would be potentially dealing with.  You will want to know things such as, are they high income or low income earners?  Are they long term tenants or are they transient?

2) Ask your mortgage broker where he/she is investing

From Step Two of this article series, you will recall that the mortgage broker that you are using should have experience in doing mortgages for rental properties, and should as well be a real estate investor.

As a result, you can gain a lot of insight from your mortgage broker as to potential areas that you can invest in.  When I first started actively investing in real estate, I did a lot of independent research myself.  It wasn’t until I spoke to my mortgage broker in detail about where he was investing that I ended up deciding that I was going to invest in the same area.  I owe a big thank you to my mortgage broker, Kevin Boughen, for helping me determine the area that I ended up investing in.

If your mortgage broker is investing in a location that you do not necessarily want to invest in, there are many other ways in which your mortgage broker can still help you.  Since your mortgage broker will be dealing with many other real estate investors, he/she will be able to share with you stories as to where these other people are buying rental properties.

Taking it even one step further, if your mortgage broker’s other clients are agreeable, you could even contact them yourself, and ask them questions about what location they are investing in, and you can also ask them about some of the challenges and opportunities they have found in their particular location.

3) Join a quality real estate investment network

For the Canadian readers, the best real estate network that you can join, hands down is The Real Estate Investment Network, REIN. This organization is by far the best Canadian Real Estate Network, and arguably the best Real Estate Network in North America. When you are trying to determine that location that you are going to buy your first rental property, you can ask many of the action takers in this group as to where they are investing. Really helpful members of this group that would be happy to help you with any questions would be people like Chris Davies, Danielle Millar, Mark Loeffler, and Carla Johnson.

For the American readers, one of the best online real estate networks that you can join is Josh Dorkin’s Biggerpockets.com. This is a premier real estate social network. There are a multitude of very knowledgeable real estate investors associated with this network. Experts in their own different fields are John Fedro and Steph Davis. John and Steph again are two action takers that would be more than happy to help, if you have any questions.  By associating yourself with a network such as Biggerpockets.com, you will be able to speak with many real estate investors who will help you in determining what location you should be investing in.

In speaking with a specialized Realtor, speaking with your mortgage broker, and by networking with a quality real estate investment network, you should be able to creates a short list of places to invest in, or you should be able to narrow your list down to one particular City or Town in which you want to focus your effort on.

If after going through this exercise you find yourself in a position where you have a long list of potential places to invest in, it is in your best interest to pick one of those locations and stick to it.

Focus is very important.  Thus your ability here to focus on one area and one area alone is the key to getting started.

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Step One – How to buy your first rental property
Step Two – How to buy your first rental property
Step Four – How to buy your first rental property

In this article, I am going to discuss the second step that you must take in order so that you can buy your first rental property.

In the first article of this series I discussed the first step that you need to take in order to buy your first rental property.  As a recap, this first step is determining WHY you are buying.  Once you have firmly established in your mind why you are buying, you are ready to move onto the next step.

Step Two – Figure out how you are going to finance the property

Often times people put the cart before the horse. They think that they can start to look at potential rental properties, and once they have found one that is suitable, they want to buy it. They then try to obtain financing for the property, and often times become disappointed because they are not able to afford it.

People make this same mistake when they are in search of their own principal residence. They go out and find a house that they adore, and then they try to get financing for it. This is not the right process to take.

Before you even start to research any potential rental properties you need to consult with a representative in your bank or with a mortgage broker.

If bad credit is preventing you from buying a property, you need to consider The H.O.P.E. Program.  They have helped more than 12,000 people get homes who NEVER thought they could, assisting even those with POOR credit get qualified.  This is one of the best Rent To Own Programs out there as it gives access to thousands of property listings for Rent To Own homes.  CLICK HERE to enrol in The H.O.P.E. Program or to have your credit repaired.

If you chose to deal with your local bank, the person that you deal with at your bank branch should be the individual who is responsible for doing mortgages. Although your bank branch can get the job done, I am a fan of dealing with mortgage brokers. I like dealing with mortgage brokers because, if you select a good mortgage broker, their level of knowledge will be quite high. As such, they should be able to answer all of your questions.

I also highly recommend that you deal with a mortgage broker who has experience in providing mortgages for real estate investors. In addition, I also highly recommend that the mortgage broker that you are dealing with is a real estate investor, and owns at least one rental property. Not all mortgage brokers are created equally, and as a result, their level of knowledge with providing mortgages on rental properties can vary dramatically.

One of the best mortgage brokers in the business, providing mortgages on rental properties is Kevin Boughen. Kevin is my personal mortgage broker. If you have any questions regarding financing your rental property, or are in need of a mortgage for your rental property, contact Kevin at kboughen@dominionlending.ca

Determining your down payment

This is one of the important points that you will be discussing with your mortgage broker. Clearly, every person’s situation is different. People will have differing amounts of money that they can put down, as well, people will be earning different amounts of income. These variable come into play when your mortgage broker is determining your financing.

A general rule of thumb, that you should confirm with your mortgage broker is that you should be putting as a down payment 20% of the purchase price of the property.

In Canada, putting down 20% of the purchase price of the property, in most cases allows you to avoid paying the Canada and Mortgage Housing Corporation, CMHC premium.

Also, if you have plans on purchasing more than one rental property, putting down 20% of the purchase price of the property is a good strategic move. This move will be to your advantage when down the road you are trying to obtain financing for future properties.

Determining whether you should get a fixed rate or variable rate for your mortgage

There is no right or wrong answer here. This answer depends upon your risk tolerance and what you feel more comfortable with.

In simple terms, with a fixed rate mortgage, the interest rate on the mortgage that you are paying is fixed for a set period of time. As a result, the interest rate on the mortgage does not increase or decrease throughout the duration of the term. An average term that people will have for their mortgage is 5 years. It is important to note that the term is very different from the amortization.

With a variable rate mortgage, the interest rate on the mortgage can rise or fall throughout the duration of the mortgage term. These fluctuations can be unsettling for novice real estate investors. The fluctuations sometimes cause anxiety on the part of the investor, because they do not know what their exact payments are going to be on the mortgage. For example, with a variable rate mortgage, as the interest rate increases so too will the payment on the mortgage amount. This rise in price is often inconsequential if you have done your due diligence and have mitigated any potential risk to you with regards to the increase in price that you will be paying.

Get your pre-approval from your mortgage broker

There are a number of different terms that are used for the pre-approval.  Another interchangeable term is the ‘pre-qualification’.

At the end of the day, whether you call it a pre-approval or pre-qualification, it all means the same thing.

What it means is that you have the go ahead from your mortgage broker to go out and start to look at potential rental properties.

As this point your mortgage broker would have examined many things.  They would have looked at how much of a down payment you are putting down, how much income you earn, what your existing debt is, as well they would have reviewed your previous credit history.  These are all variables that effect the financing of your future rental property.

Once all of these items have been reviewed by your mortgage broker, they will give you a price range in which you should begin looking in.  In most cases, they will give you the potential mortgage amount that you should not exceed.

For example, your mortgage broker may tell you:

“Neil, you can afford a mortgage up to $200,000 on your next rental property”

If this is the case, I know that once I begin my search for a rental property, I cannot purchase a rental property over the $200,000 mark, as I would not be able to afford it.

In summary, once your mortgage broker gives you a pre approval, this is essentially a ‘green light’ for you to go out and begin researching potential rental properties.

Happy Investing!

Neil

PS: The H.O.P.E. Program has helped more than 12,000 people get homes who never thought they would be able to, assisting even those with POOR credit get approved.  This is one of the premier Rent To Own programs as it gives access to thousands of property listings for Rent To Own Homes.  CLICK HERE to enrol in The H.O.P.E. Program or to have your credit repaired.

Related Articles:

Step One – How to buy your first rental property
Step Three – How to buy your first rental property

email me: NEIL@FIRSTRENTALPROPERTY.COM

In this article series, I will explain in detail all the steps that you need to take in order to buy your first rental property.

People new to real estate investing often have no idea where to start. I get a lot of questions from aspiring real estate investors as to how they should begin, and what they should be doing.

Getting started in real estate investing can be a daunting task. However, if you take the time to build a solid foundation of knowledge before you begin, you will be off to the races. If you follow the advice precisely in this article series, you will have all the information you need so that you can confidently buy your first rental property.

Sometimes people need help buying a property.  The H.O.P.E. Program has helped more than 12,000 people get homes who never thought they could, helping even those with BAD credit get qualified.  This program is the premier Rent To Own Program as it gives access to thousands of listings for Rent To Own homes.  CLICK HERE to enrol in the H.O.P.E. Program or to have your credit repaired.

Step #1
Determine why you want to buy a rental property

This step is extremely important. However, it is a step that is often overlooked by people because they do not perceive it as being an important step.

It is an important step because, knowing ‘why’ you are buying your first rental property, will help you to stay motivated and focused on this goal when times get tough for you.

In the world of real estate investing, times often get tough because owning and managing real estate is not easy. It takes time, effort, and organization on the investor’s end in order to successfully manage a portfolio of rental properties.

Also, people who do not have a clear sense of why they are buying their first rental property tend to get confused. If you don’t have a crystal clear vision of why you are doing it, it is easy to lose your focus and shift your attention towards another project. For instance, one day someone could be interested in real estate investment, the other day, they could be interested in stocks and the financial market. Although on the surface, this may sound okay, it is not. A lack of focus is never a good thing. You need to be focused like a laser.

Here are some clear examples of ‘why’ an individual would invest in their first rental property.

Example #1

An individual needs the extra monthly cash flow from the rental property.

With the cash flow, the individuals decides to pay down the mortgage on their principal residence. As such, they are able to dramatically reduce the time it takes for them to pay off their mortgage. Paying down their mortgage faster is an important goal for this individual. This is a strong ‘why’.

Example #2

A young couple is trying to save money for their young child’s future education.

In order to save for this education, they decide that investing in real estate is the best game plan. They plan to buy a rental property, keep it for several years, and then sell it. They will use the equity from the sale of the property to pay for their child’s education. Making sure that the child has enough money for their future education is extremely important to them. Therefore, they are motivated in making sure that this plan works. This is a strong ‘why’.

Example #3

Similar to example #1, here the individual requires cash in order to pay down their debt.

Instead of using the cash flow to pay down the individual’s mortgage on their principal residence, they use the monthly cash flow to pay down bad debt such as credit card and loan balances. Here the individual might be quite motivated and focused on paying down this debt, until eventually all of the debt is paid off. This is a strong ‘why’.

Now, here are some examples of situations where an individual does not have a strong ‘why’ as to why they are buying their first rental property.

Example #4

They want to make a lot of money from their rental property.

Neil’s Commentary: “What exactly does this mean? This is a very vague goal. Vague goals are not good because they are impossible to measure. How much is ‘a lot of money?’. Goals need to be more measurable. In order to be a more specific goal, this individual should quantify how much money they want to make from their rental property. For instance, they should restate their goals as follows:

“I want to make a lot of money from my rental property as I will be holding the property for a minimum of 5 years. My expected equity appreciation over this time from is going to be $50,000. Once I have reached this equity appreciation target, I will sell the property.”

Example #5

An individual wants to buy their first rental property and then they want to become a real estate investor full time.

This if often a lofty goal that is not achieved by many real estate investors due to lack of focus. Again, this is a very vague goal that is difficult to measure. In order for this goal to be more focused and more specific, numbers and time lines need to be stated.

For instance, this goal can be restated in the following manner:

“I want to buy my first rental property by the end of this month. The property will be cash flowing $500/month. I then plan on purchasing 6 properties a year over the next 5 years with joint venture partners, all of which will be cash flowing at least $500/month. ”

Buying your first rental property requires you to follow a step by step process. The more organized that you are on the front end the easier time that you will have with purchasing your first rental property.

Step number one can never be skipped. With step number one, you need to clearly understand why it is that you are purchasing your first rental property.

Happy Investing!

Neil

PS:  The H.O.P.E. Program has assisted more than 12,000 people get homes who never thought that they could, helping even people with POOR credit get approved.  This is the best Rent To Own Program as it gives access to thousands of property listings for Rent To Own homes.  CLICK HERE to enrol in The H.O.P.E. Program or to have your credit repaired.

Related Article:

Step Two – How to buy your first rental property

In Part One of this article, we discussed the first four common questions that Joint Venture Partners ask.

In this article we are going to cover the last four common questions that are asked by Joint Venture Partners. I have listed them below in no particular order.

Before we kick things off, I would like you to check out after reading my article,  a recent article by Florence Foote.  Florence discusses, investing in the path of progress, a concept that I will soon be writing about on my blog.

Now, back to business…

5) JV Partners will ask, “What is your share in the deal?”

The answer to this questions is very simple and straight forward. You tell your JV Partner that as the real estate investor you will be doing all of the work, the joint venture partner will be putting up all of the money and the profits and cash flow will be split 50/50.

6) JV Partners might ask, “This seems rich, is this negotiable?”

Your answer to this is, “No”.

You must say no politely but with authority.

There are 2 reasons why your answer is ‘No;.

First, if you have never purchased a property with a JV Partner, you will learn quickly that you are going to be earning your 50% because there is a lot of work involved in buying and managing rental properties. There is a lot more work than many people think, especially people who have never invested in real estate before.

Second, when asked if the split is negotiable, if you waiver and say that it is negotiable, you have lost value in the eyes of your JV Partner.  You will also seem less attractive to give money to. If you are backing yourself into a corner in which you are re-negotiating, your perceived value has decreased.

There will be instances where people will push you on this. They will want to make you agree to a split other than 50/50.

Take note that you will not agree to a split other than 50/50. There is a lot of work involved on your end.

If you cannot come to agreement with the potential joint venture partner with regards to the 50/50 split, politely tell them that this opportunity is not for them.  End of conversation.

7) JV Partners will ask, “Can you offer a guaranteed rate of return?”

Your answer to this is, “No.”

You have to be honest if you are going to attract joint venture money. The real estate market is not linear, rather it trends up and down. By knowing historical trends in real estate values, we know that in the long term, it trends upwards.

Knowing this, you should never guarantee anything. To say that you ‘guarantee’ a rate is wrong. You can provide projections to your joint venture partner of your anticipated returns, however, never guarantee anything.

One year you may have a return of 57%, the next year the return may be 18% and the following year the return could be 27%.  The ride may look something like this:

It is important to emphasize with your joint venture partner that if they don’t make money, then you will not be making money.

You can also tell them that you do not wok for free, so you are going to make sure that both you and the joint venture partner are going to make money with this particular venture.

8 ) JV Partners will ask, “Can I see the property before we buy it?”

Your answer to this yet again is going to be….

You guessed it…

“No”

I have never shown a joint venture partner a property before purchasing it.

You never show a joint venture partner a property before purchasing it because real estate investing in not based on emotions, it is based on numbers.

I say again…

Real Estate investing

is not based on emotion,

it is based on numbers!

For example, if you are investing in the stock for Telus, you do not drive to the Telus headquarters, open the doors of the building and look inside. If you do not like the tile in the building, or the light fixtures, or the way the front reception desk is designed, do you chose not to invest in the company? Of course not! You chose whether or not to invest in this company based upon your analysis of the company’s numbers, or if a trusted party that you know says that Telus stock is a good stock to buy.

It works the same way with real estate investing. You either crunch all of the numbers yourself, or you take the advice of a trusted party who has done all of the due diligence into the deal at hand.

Once you have closed on a property, you can take pictures of the property and send them to your joint venture partner.

Remember, there is no emotion with real estate investing. Leave your emotion out of it.

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Part One – The Eight Common Questions that Joint Venture Partners Ask

Once you become an experienced real estate investor, you will have people approach you that want to invest in real estate with you.

Being a real estate investor with a clear track record of success means a lot.

It means that you have taken some calculated risk, invested in real estate and have succeeded.

One of the greatest assets that you will have as a seasoned real estate investor is your life experience as your investor.  There is nothing more valuable than ‘being in the trenches’.

Starting off investing in real estate can be an extremely intimidating experience for many new investors.

I have observed and spoken with many people who are interested in real estate investment.  I would say that the minority of these people actually end up pulling the trigger and investing in real estate.

Why is this the case?

I believe that only the minority of people end up investing, because it is this minority that has the courage or receives the proper guidance.

Success with real estate investment is all about surrounding yourself with people with experience investing in real estate.  You need to learn from others that have invested before or who are in the process of investing.

If someone has an interest in real estate and wants to begin investing, they are not going to magically learn everything they need to learn about real estate by hanging out with the same people in their lives.

They have to expand their horizons and start to network with people who are taking action with real estate investing.

Joint venturing is a reality especially for experienced real estate investors.

When an experienced real estate investor is speaking to potential joint venture parters, there are a series of common questions that always seem to be asked by these joint venture partners.

I will cover the first 4 question in this article.  I will also address how you should answer these questions when speaking to these joint venture partners.

1)  JV Partners will ask you, “Will the real estate market continue to go up?”

When you answer your potential joint venture partner, you tell them, “Absolutely!”
You as a real estate investor should have full confidence in the real estate market and you should believe that the market is going to continue to go up. (it always will). If you do not believe that the market is going to continue to go up, then you have no business in asking a joint venture partner for funds. Be confident in responding. Believe in the market and believe that it will continue to go up.

2) JV Partners will ask you, “What is the worst that can happen if I invest with you?”

When people have not invested in real estate, they are generally anxious and think that bad things will happen to them if they invest.

The worst thing that can happen is that your tenants will end up paying off the mortgage and your rental property will be free and clear of a mortgage in 25 years.

This is the worst that can happen, and this is what you tell your potential JV partner.

When they see that the worst case scenario, is not even a bad situation, they will start to see things differently and have more confidence in real estate and in you.

3) JV partners will ask, “Can I see the joint venture agreement?”

You should always use a joint venture agreement, no exceptions. If your potential JV partner asks to see the joint venture agreement, you say, “No”. And here is why…

You are not a lawyer and you do not understand legal jargon. The joint venture agreement is often times a 5 to 10 pages document of exactly that….legal jargon. Since you are not an expert in explaining these documents, you should not be doing it. This should be the job of your real estate lawyer. Good real estate lawyers deal with these documents every day and can explain them very easily and in plain English.

Advise your potential JV partner to meet with your real estate lawyer so that they can review the document together. You can even go ahead and book the appointment with your real estate lawyer for the two of them to sit down and go over the document.

Again, since you are not an expert in legal jargon, don’t even try to explain the document. If you try to explain the document and the legal jargon involved, you run the risk of making a mistake in interpreting the information in the document. This could cause a lot of confusion between you and your JV partner.

4) JV partners will ask, “Can I get a copy of the Joint Venture agreement so that I can show MY lawyer”

Your answer to this should be, “Absolutely. In fact, this is one of the terms of us doing business together. You need to get independent legal advice from your lawyer.”

Getting independent legal advice is always mandatory. If someone is not willing to get independent legal advice before entering into a Joint Venture Partnership, then don’t enter into the partnership with them.

Your real estate lawyer will have a copy of the joint venture agreement. As such, your real estate lawyer can send directly to your JV partner’s lawyer a copy of the joint venture agreement. Once the other lawyer has a chance to review this agreement, the other lawyer will consult with your JV partner and explain to them the details of the JV agreement.

In tomorrow’s article, I will cover the next 4 common questions that joint venture partners will ask.

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Part Two – The Eight Most Common Questions Joint Venture Partners Ask

Let’s face it.  Most landlords suck at land-lording.

You always hear stories from people who are renting  homes as to how bad their landlord are.  Have you heard one of these stories before?  I sure have.

You seldom hear people talk about their landlords in high regard.  If they do, perhaps their landlord is a sweet little old lady.

The reality of the matter is that most landlords do not know how to be good landlords.  As a  result, this can put a definite strain on the tenant – landlord relationship.

Why does it matter if there is a strain on the tenant -landlord relationship?

Well, it matters for a variety of reasons.  First, as  landlords, you do not want your tenants to be upset.  If they are upset with your land-lording skills or lack thereof, this is your fault and you need to correct what you are doing wrong.

How do you know what you are doing wrong?

Most landlords have no idea what they might be doing wrong in relation to the relationship management of their tenants.

So…

If you are a sucky landlord and are doing things wrong that are upsetting your tenants, and you have no idea what it is that you are doing wrong, you are up sh*ts creek, right?

Well, no.  Not yet…

This is where I come in and let you know what you can do to build better relationships with your tenants.

The below mentioned list are a list of items you need to put into action.  I personally abide by this list and I have felt that these actions have helped me to both understand my tenants and build a good working relationship with them.

1)  Always send your tenant a welcome gift when they move in.

This is a must do.  You cannot EVER skip this step.  Giving a gift to your tenant upon their move in sets the tone for your relationship to come.  You want to welcome them wholeheartedly into their new home.  You also want to show them that you care about them.  Giving them a gift will do just that.

What type of gift do you give?

I have given gifts such as potted plants and gift baskets.  My personal favourite and my ‘go to gift’ is the gift basket.  You can buy pre-made gift baskets anywhere.  Try places like Wal-Mart.

I really like to design my gift baskets from scratch.  That way, you can personalize things to a certain degree. I design my gift baskets from scratch from the store Fruits and Passion.

Also another great place that you can buy gift baskets is through a company called, T Kid Baskets.  My fellow REIN Member, Carla Johnson‘s daughter runs this company along with one of her friends.

They sell large $40 gift baskets and medium $25 eco-friendly packages for new tenants, plus they have a $20 treat basket.  $1 from each basket goes to Free The Children. To place your order, the girls can be reached at tkid@ttri.ca.

2) Call your tenants once a month

I have stuck to this routine for the past 5 years. I always try to touch base with my tenants once a month via telephone. The purpose of my call is to touch base with them and see how things are going. I also want to know if they are having any problems with anything. I like this strategy for a number of reasons.

First, by talking to my tenants once a month, it allows me to get to know them better. So many sucky landlords end up never talking to their tenants…Months or even years go by and they have had no direct communication with them.

Second, regular communication with my tenants demonstrates to them that I am proactive. I want to demonstrate to them that if they ever need to get in touch with me, they will be easily able to.

3) Treat your tenants with respect

When you demonstrate to your tenants that you respect them, in most cases they will reciprocate this respect.

There is a saying that holds very true. It is:

In order to gain respect, you have to show respect

Show respect to your tenants by doing such things as:

1) responding to their calls promptly
2) be nice to them
3) listen carefully to their concerns
4) take action when you are called upon

If you show respect to your tenants, you will no doubt be respected in return.

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If you want to be a results oriented real estate investor for the long term, you can’t do it alone.

There is a saying, ‘It takes a village to raise a child’.

Well, with respect to real estate investment, ‘It takes a team to make an investor’.

I have discussed in previous posts some of the key members that you will need on your team of professionals, a.k.a. Real Estate Team.

The list does not stop with these people.

There are many more people that you will have on your team, that will all serve a very important function.

It is very important to assemble a great team, because you will have to rely upon these people in a time of need.

If you have a collection of great people working with you, they will unknowingly help to alleviate a lot of stress from your life.

Speaking of stress…today I had a situation arise where I realized that I needed to have one of my newest rental properties painted and painted fast. When I closed on the property, I did not spend any time or money upgrading the interior because I thought it looked fine. Although the existing paint job wasn’t THAT bad, looking back, I should have had the unit painted right after closing. Luckily, I have a very good painter on my team of professionals that I was able to call.

Because I know him, and I am comfortable with him, he is going to go check out the property this week by himself.  He will access the property through a lockbox I have at the property.  Once he takes a look around he will send me a quote for the paint job, I will approve it, and should he should start and finish the job within a few days time.

Having someone like this on my team, who is so responsive and willing to jump into action when called upon is a great help for me.

It wasn’t always like this though, I had to go through a really brutal painter to get to this good one. The first painter that I had was lazy and tried to rip me off on one of the jobs that he did.

The moral of this story (and this article) is as follows…

Assemble a team of professionals. As a real estate investor, you will need to rely upon these people. You will not become a successful real estate investor all by yourself. When you do become successful, you will be successful because of all of the contributions of the people on your real estate team.

Fellow real estate blogger Shae Bynes wrote an article called The 7 Day Plan for Aspiring Real Estate Investors. This was a well thought out article, that I would like you all to check out.

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