[quote user=Rooks]Briefly looking through MLS.ca i came across a few single family homes that range from $70 000 to $150 000
Well, that is a start.
Spend a few weekends in Hamilton to look at such properties, then select an area of town to invest, then find a realtor you can work with, find a lawyer, a mortgage broker and a property manager.
Then truly understand what rents are obtainable for a property you intend to buy.
Here is one lesson (out of 80) from my upcoming book "80 Lessons Learned on the road from $80,000 to $80,000,000" that is applicable here. :
Lesson 69: The First Steps to Becoming a Real Estate Investor
Frequently, the question on any new investor`s mind is `How do I start?`
While it`s possible that you may be able to use other people`s money on your first transaction, it is not likely. Investors who should be using other people`s money on their first deal are few and far between. Most likely they brought some other form of experience to their first deal that allowed them to raise joint venture money immediately. With that disclaimer out of the way, let`s talk about the steps to take when getting started.
First of all, you should assess your cash situation. Cash is a combination of real cash (in your bank account, or a sock, or under a mattress), or the cash of a committed friend or family member. If you don`t have enough real cash, then the next source might be a Home Equity Line of Credit (HELOC) or short, Line of Credit (LOC). On a LOC you have to pay interest only on the portion you use, which is good.
So don`t use it all immediately to buy a yacht or a fancy condo in Hawaii. These luxury items can wait. The likely result of spending cash or lines of credit on superfluous luxury items is a lifetime of being behind the financial 8 ball. On the other hand, if you invest your LOC into a cash-producing asset, you will begin the process of getting ahead. But if you`re reading this book, I suspect you`ve already figured that out.
The next step is to research the market. Decide what area of the country you wish to invest in and then what type of property you wish to invest in. This is a big country, so will it be the Lower Mainland of British Columbia? Edmonton and area? Southern Alberta? Rural Saskatchewan east of Saskatoon? Toronto and the GTA? Kitchener-Waterloo? Ottawa? Montreal? You get the picture.
The key point is that you are not looking for a `deal`-- you`re looking for a very specific deal in a very specific place, based on a very specific type of property. Only once you know your market extremely well will you even know what a deal looks like.
Is there a secret knack for finding deals? The secret knack isn`t so secret--it comes from first knowing what a non-deal looks like in a certain area, by knowing both an area and a property type really well, or by having a team that brings you those deals based on their very intimate knowledge of this very specific area.
Once you`ve chosen the area and the property type, spend a ton of time becoming an expert on that property type in that area. Then and only then should you start writing offers and buying. When you`re starting out, it`s better to have several smaller properties than one huge one. Many properties allow you to sell one if you have to.
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For example, if you focus on townhouses, you must know after your research (also referred to as due diligence) if a 1200 square-foot townhouse facing north is worth more than a similar one facing south, how much more a 1400-square-foot townhouse is vs. a comparable 1200-square-foot one, how much a finished basement is worth, what the rent would be for the 1200-square-foot one facing north vs. the 1400-square-foot one facing south, etc.
You have to be an expert, because you must be able to discern within minutes if a `deal` is actually a sound business investment. Thus, you must know if $138,000 for that 1200-square-foot south-facing townhouse is market price, overpriced or a screaming bargain. You must assume you are not the only person looking for a townhouse, and if you know it is a bargain, $20,000 below market, so will others.
It takes time to research any area. It also takes a little bit of money for driving time, flying there (if it`s out of your hometown), donuts, lunches, and materials to research. The bigger an area is, the more time you will have to commit to researching it. The entire province of British Columbia takes more time to research than the Lower Mainland which takes more time than Greater Vancouver which takes more time than North Shore which takes more time than North Vancouver east of Hwy 1 which takes more time than Deep Cove. More time researching could lead to good things, or it could lead to a paralysis of analysis, a condition where you are handcuffed from taking action.
I suggest you start with a very small area, for example one suburb of one of the Top 10 REIN (Real Estate Investment Network) towns in BC, Alberta or Ontario. Perhaps the best town to research is the one you live in? It will certainly reduce your management headache when you eventually buy.
Then, once you`ve decided on a very specific area of a city or an entire small town, you must decide on a type of property. A representative list is as follows:
1) townhouses
2) condos with an ocean view
3) single family homes older than 50 years
4) new sub-divisions
5) pre-sales
6) acreages
7) horse farms
8) trailer parks
9) office buildings in crappy parts of town
10) High-end luxury condos with high-end finishing
>11) land with subdivision potential
12) strip malls
13) defunct shopping centres
14) warehouses
15) storage facilities
16) fixer upper homes
Any of these property types allow you to make money once you know what you`re doing.
Most likely, the best one to start with (as there is plenty of supply and plenty of seller motivation) is a small house or a townhouse. I don`t recommend you start with a condo, as you can't control costs of the condo association. It`s probably not best to start with a big house either, as this type of property is usually more expensive and consequently hard to cash flow, although in a fix-and-flip deal that might be okay IF and only IF the numbers work very well for a successful resale
You often make the most money with properties that lack curb appeal and need repairs. Many prospective homeowners look for a pristine property that requires no work. (I happen to be married to such a buyer `maybe you are too?) Therefore, you can often negotiate a substantial discount for a property that needs TLC. Be careful, though! You must be able to accurately gauge how much it will cost to fix the visible, and frequently less obvious, invisible problems. This is where the four (of five) ways to make money come in, as you use your own cash, and that of others to fix an asset investing your own time and that of others, for your often substantial gain.
You have to decide how much time you want to spend working in this asset--it may be several weeks of full-time work in a rundown property. Do you have the time? Early in my real estate career I was running a busy software-consulting firm with frequent travel and I did not have that kind of time to devote to turning around such a property. That`s why I eventually bought an entire apartment building where others would do most of the work.
If you make one mistake on a big project, it could be the end of your tenure as successful owner of that property ` you may lose the property (and possibly the property which is securing the HELOC you used to buy it).
When you`re starting out, you might be tempted to rush into a deal. But, it`s better to pass on a bad deal than to realize six months into your ownership that you paid too much for a property and it is a drain on both money and time.
For each piece of real estate you have to hang in there financially and emotionally.
This means that you must make a realistic assessment of your cash situation (including closing costs, vacancies, and upgrades required in addition to `normal` expenses like: mortgage payment, taxes, utilities, condo fees, insurance, management fees, etc.) It also means that you must make a realistic assessment of your mental toughness or time commitment. Vacancies will arise. Basements will flood. Tenants occasionally have to be evicted. Perhaps the police will get involved. Furnaces break down (sometimes at midnight). Get used to it, or anticipate it. Be prepared to handle those things yourself, or preferably, hire a property manager that does it for you, but then be prepared to pay this person or company well. This obviously implies that you`ve purchased a property which cash flows well enough to afford management.
So ask yourself: who will manage this property impeccably? If the answer is `I don`t know,` or if doing it yourself requires you to neglect your family or health, then spend some time reconsidering, and hopefully you`ll find a property manager.
Cash-to-close on a property comes in two forms: real cash and a mortgage. To get a mortgage, you need various documents including property documents and personal documents showing the bank that you are credit-worthy. Prepare a binder with all of this information in advance so that when you show up at the bank you`re ready. Today I have all my tax information online going back 4 or 5 years as banks always ask for it. I also have summary and detailed property information on every property we own, as banks always ask for it when you apply for the next mortgage.
Spend a lot of time preparing this set of documents; find a mortgage broker to get you a mortgage, or at least tell you what kind of mortgage you can get depending on the type of property you`ve targeted. Horse farms are treated differently than trailer parks, which are treated differently than condos.
Before closing ensure you have someone in that market to manage the property impeccably. That could be you, although a professional with in-depth market insight, knowledge of legalities and local knowledge is likely better. Spend some significant time finding that special someone, as good property managers are very hard to come by.
Once the deal makes sense, you`ve got the money (cash + mortgage), and you`ve got the property manager, ask yourself if you will be able to hang in emotionally and financially. If so, close on the property!
Happy Hunting!
Oh, and by the way many hours are wasted when hunting and walking through the mud or underbrush. Many more hours are spent just waiting in the right spot. Then one day: BAM! Hopefully you were awake then as sometimes that moment is short, and perhaps the opportunity passed or a better prepared hunter got to the target first. So, be prepared and ready when you need to be ready!
