Real Estate Riches

A Money-Making Game Plan for the Canadian Investor

Tahani Aburaneh

• Publisher: Wiley
• Year: 2012
• Print ISBN: 9780470964217
• eBook ISBN: 9780470937716
• Edition: 1
• Topic: Business
• Subtopic: Real Estate
• Index: Business

If there were one advantage that would make a significant impact on the growth of your real estate portfolio, what would that be?

If you are just starting out as a real estate investor, what anxieties or worries might you have? What expertise in particular would help you understand market fundamentals and help you achieve your goal of becoming a successful investor and attaining financial freedom?

If you're an experienced investor, what systems do you have in place to support your growth without making costly mistakes? Have you built up a proper support team?

If you are a successful real estate agent, with experience in residential property, what could you do to enhance that success in both personal and professional growth? Have you thought about how real estate investing can help you and your business?

The answer to these questions lies in a very special kind of relationship-the relationship between the real estate investor and the real estate agent.

Real Estate Riches is designed to provide investors with insights into the skills and services that a knowledgeable agent can provide-one who specializes in meeting the needs of the investor by understanding the investor's mindset, vision, and goals to allow them to focus on the larger aspects of their business. Real Estate Riches is also intended to illustrate to the agent what an investor's business looks like-from the different strategies and types of properties the investor focuses on, to the specifics of investment towns, neighbourhoods and streets, to timelines and cycles for growing the investor's portfolio.

How do you go about finding that agent with the requisite skills? The answer lies within the pages of Real Estate Riches. Filled with real-life case studies, tips, and the hard-won knowledge that comes from experience, the book is motivational, practical, and useful-and it will be among your wisest investments.

"This book really shows professional investors and professional agents how, if done right, both parties can come out with better financial results with less hassle by treating the real estate business like any other business-creating long-term relationships in which each party respects the other's profession and treats each other's time like the important commodity that it is."
- Don R. Campbell, Author, market analyst, and investor

"Tahani is an inspiration. She shows firsthand how with the right mindset and the right team you can build a future in real estate while not compromising what's truly important."
- Philip McKernan, Author of South of 49 and Fire Sale

"Tahani's story is powerful, and demonstrates what can happen when you focus on helping people and living your passion. She reveals the 'human' side of real estate, and why it's so important to build a powerful team around you that you can trust."
- Greg Habstritt, Founder of SimpleWealth.com and best-selling author of The Real Estate Secret

"Tahani gives the novice investor a clear insight into the world of a savvy, investor-friendly real estate agent and the importance of having someone with her experience on your team. Whether you are a seasoned investor or just starting out, this book will be an invaluable tool in your investor toolbox."
- Peter Kinch, Owner, DLC Peter Kinch Mortgage Team

Tahani Aburaneh is donating the royalties from the sale of this book to www.care.org.

Part I

Making the Investor-Agent Connection

Chapter 1

Why You Need an Investor-Savvy Agent

If you've bought and sold a principal residence or investment property, you know how important it is to have a realtor act on your behalf during the process. He or she can help you find a property, prepare your home for sale, write offers to purchase, negotiate the purchase price, make referrals for other services, and generally guide you through the numerous steps. You could never do that with someone you didn't trust and value, right?

Now imagine that on your journey to becoming a more sophisticated investor, with more deals, properties, and dollars at stake, you're able to work with an agent who specializes in working with investors like yourself. Someone who, yes, can handle all the technical details of buying and selling property, but who also understands the investment side of the business—because he or she is also an investor. Someone like that can help you find an excellent buy, instead of a good one, and can help you choose a solid investment, rather than a lucky one.

How much would that be worth to you?

In any profession, be it law, medicine, or in this case, real estate, specialists provide an expertise that their more generalist colleagues do not possess. For real estate investors, investor-savvy agents are a huge asset because they intimately know all the important steps you're going to take and the information you need to make solid decisions—after all, they have acquired income-producing real estate themselves. Such experience could be the difference between an excellent and profitable buy, and one you come to regret.

The Value Proposition of an Investor-Savvy Agent

The job of an investor-savvy realtor is to understand you, the client, as an investor, not just a homebuyer. Many realtors are interested in individual transactions—simply buying and selling homes and gaining commissions. Investor-savvy agents, on the other hand, understand your goals and objectives because they are investors themselves, and they have the knowledge and expertise to help you find cash-flowing properties that meet your strategy, vis-à-vis where you are in life and in your real estate investing career.

For example, I recently met with a couple that were thinking of becoming real estate investors. As soon as I began talking to them, I learned they'd bought only one house, their own home, and had been living there for 25 years. They were ready to buy investment property, and wanted to understand the different strategies they could choose from. It would have been a huge mistake for me to put them in something that didn't suit them, something fast-paced such as a fix and flip. For this couple, and for many typical first-time investors, the ideal fit would be something stable—in a stable area with stable returns—that they could buy and hold with little work. With one long-term primary residence, stability was the story of their lives, so a slow-moving, easy-to-manage property would be perfect for them.

For another client, a contractor who is very comfortable as a handyman, a suitable property might be one that required a little work—not necessarily to fix and flip, but a home that would benefit from a little sweat equity in painting and other cosmetic improvements, which he could provide himself, to improve cash flow and increase value.

It really depends on individual clients: their goals and strategies, financial resources, limitations, and knowledge and experience. And, of course, the essential question of why: Why do they want to invest in real estate?

“The Big Why”

Let's talk about your “why.” Why do you want to invest in real estate? Is it to build your retirement nest egg, to pay for your kids' education, to generate extra income to pay expenses, or to replace your income entirely by becoming a full-time investor? Few people actually love bricks and mortar, but who wouldn't love financial freedom?

Whatever your “why,” investor-focused agents can help you achieve your goals, because they understand investment real estate—the local market and other important factors—more than realtors who deal purely in selling primary residences. Agents selling homes only to first-time or move-up buyers simply match up potential properties to buyers' parameters for location, price, proximity to work, and other key criteria.

Searching for investment properties, on the other hand, involves a different process and another set of rules. When working with investors, realtors need to be more knowledgeable about the local market fundamentals, developments in the economy, goings-on with the municipal government, what makes one potential neighbourhood or street more desirable than another, the vacancy and rental rates for the area, and the tenant profile for the neighbourhood.

The importance of the above points cannot be overstated, and we will discuss all of them in greater detail later.

First-time or would-be investors sometimes try to make purchasing decisions based on advice from friends or relatives, what they hear or read in the media, or other information that doesn't always make for the best choices. Selecting neighbourhoods and properties to invest in requires looking for very specific trends and developments. A tip from your Uncle Fred or the friendly community butcher isn't going to (pardon the pun) cut it for you in terms of unearthing real investment opportunities. It may help, but it's an opinion, and quite likely not an informed opinion. When dealing with your or your family's financial future, you need expert advice.

Among the most valuable tools that licensed agents provide are reports called CMAs—comparative market analyses—also known as “comparables.” This is critical information that should be closely considered when buying a property, since it details recent buying and selling activity in the neighbourhood, how long each property has been on the market, the asking and final selling prices, and other data.

Local Market Expertise

Investor-savvy agents provide critical information that you, as an investor and landlord, will want and need to know, including:

• How much could this property rent for?
• What are the average rents in this neighbourhood?
• What are the vacancy rates in this area for this type of property?
• How have rents in the area been trending over the last one to three years?
• What kind of tenant will this property attract?
• Are renters attracted to the neighbourhood?
• Is the property saleable, since one day you will likely want to sell it?
• What is the recent price appreciation for similar properties in the area?
• Are there any new developments in the area, such as highway or transit construction or a major new employer, that make this an appealing home for prospective tenants and that could eventually increase the value of the property?
• Is there a new tax assessment for the area, which could increase property taxes?

Here's a short anecdote. At one brand-new townhouse complex in Kitchener, I called the listing realtor to ask a few questions: How much would the townhomes rent for? What was the vacancy rate in the area? Did she know of any new employers coming into the area or of any other developments that would make the area better to live or invest in? She could not provide the answers, since she did not work with investors or people looking to buy properties to rent out. Her focus was purely on selling the units to buyers of primary homes, and she could talk only about upgrades and other features in the homes. Luckily for my client, he did not have to worry, as I knew the area well, and could help him look at the bigger picture.

It's an investor-savvy agent's job to gather this kind of information to help you, as an investor, make informed decisions on areas and properties to invest in, and to teach you what to look for on your own. They should know what's happening in the area over, say, the next five years. For example, are there any new construction, economic, or development projects planned or underway, such as upgrades to major highways or new transportation infrastructure? They should understand the demographics of the tenants the area attracts and have suggestions at hand to improve potential properties to make them more desirable than other competing rental properties. And they should offer ideas for your exit strategy—presumably resale in due course.

How to Get Good Comparables

As mentioned earlier, comparative market analyses (CMAs) or comparables are one of the most valuable services licensed agents can provide their clients. These reports include details on recent buying and selling activity in the neighbourhood, size and style of the property, how long each house was on the market, the asking and selling prices, and other critical information, which, as an investor, you can then use to guide your buying and selling decisions.

Getting accurate comparables can be challenging if you do not know your search criteria or the neighbourhood in question. It's quite common, for example, for two or three realtors to look at the same property and have different opinions on its value. That's why it's critical for you to see the CMA yourself, to see what the realtors base their opinions on and how they arrive at their estimated value.

Have you ever sold your home and asked three realtors for their opinion? It's the same house, but the three agents may come up with three completely different prices, and even more price range differentiation if the property needs work. The After Repair Value (ARV), what a property would be worth after improvements are made, is harder to estimate. To get the best ARV possible, you need to use both sold and listed comparables. You want to know how much the comparables listed and sold for because you need to know what people are willing to pay for the property based on the sold comparables (market value), and you need to know what your competition is doing when you put your property on the market to sell.

When looking for sold comparables, your search criteria should consist of the following:

• similar properties on the same street, or
• similar properties in the same area, or
• similar properties in the same town, if none of the above comparables is found (for more unique properties, you might need to search the whole town)
• a time frame of six months back, or three months in a hot market
• the same number of bedrooms and bathrooms as the subject property (if you are unable to find comparables with the same number of bedrooms and bathrooms, you can have a variance of one less bedroom and/or one less bathroom)

You can also search the history of the subject property, when it was last sold and how many times it has turned over.

Relying on your agent's years of experience and knowledge of the local housing market to interpret the data and make recommendations, you will compare the CMA information to the property you are considering purchasing. You must get a CMA for every property you are considering buying or selling, as this is the key way to determine the appropriate price.

Tahani's Tip

Never rely only on a realtor's opinion of a property. Always ask for their opinion, but also look at the comparables yourself.

Differences Between Regular and Investor-Savvy Agents

Consider some of the key ways investor-savvy realtors differ from their more generalist colleagues:

• General-Purpose Realtor: Thinks short-term about individual deals
• Investor-Savvy Realtor: Considers the long-term objectives of the investor and is focused on the long-term relationship, not one deal
• General-Purpose Realtor: Is focused on buying and selling houses
• Investor-Savvy Realtor: Pays constant attention to local developmen...

Table of contents

• Cover
• Title Page
• Copyright
• Acknowledgments
• Foreword
• Introduction
• Part I: Making the Investor-Agent Connection
• Part II: Investment Strategies and Due Diligence
• Appendix A: Online Resources
• Appendix B: Glossary
• Appendix C: Sample Offer Clauses and Conditions
• Appendix D: Property Analyzer
• Appendix E: Contact Information
• Index