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Question - Why don`t people post numbers? What am I missing?

TangoWhiskey

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Ok. Since I raised it here goes:



Market overview: I target a small town maritime environment with a large employer that has been there 10 + years and which has a good funding/business future (military bases/large factories). Typically these places are completely off the radar screen of anyone else except for locals. They're a great market though because they have most of the list of positive factors for RE investing, sometime an amazing number of the requirements, and due to the low competition and low prices these deals can result in amazing cashflow.



There must be lots of places like this in Ontario. If you can find them in 900 000 person Nova Scotia which is dying in most rural areas they're everywhere.



If we used stock market terms, I'm a deep value investor hunting for globally underpriced cashflow dividend yield stocks. The best cashflow is found in the maritimes so far as I can tell.



That's the market.



I won't do a deal with less than 10 % cash on cash yield, unless I"m getting all my money back within one year on refi. Both of the other full time investors I've worked with along with myself have never had less than a 100 % year 1 return across about 15 deals. When you dial in your niche the cashflow is very high here.



Biggest current deal is an 18 unit mostly rehab oceanfront project we closed on a couple months ago that should end with units renting for about 1K/month. Bought for 1.125 mill with a 500 K (underestimated) construction budget and an estimated refi value of 2.2 mill. The Montrose broker says he can get an 85 % cmhc valuation (which only remain in the Maritimes - straight from the head CMHC multifamily underwriter out here) and I've had 85 % valuations here as well so we should get all out capital back in one year once the friggin! construction is done. One other good thing about being out here is there is a lot of labour looking for work. And surprisingly pro landlord legislation that just got even easier. I've given out 180 $ rent increases on day of closing. There's very few such places in Canada.



If I was to pick one spot in Canada to pursue real estate investing it would be Nova Scotia or Newfoundland 3 years ago IF cashflow was the key criteria. You will make as much in other parts of Canada but it will be through appreciation not cashflow. OTOH freedom is my core value and we make about 6-7K/month off 35 units, good enough for two adults and three kids. One good deal here really can set you free... but every serious investor probably feels this way about their particular niche.
 

housingrental

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Tango - Tell us about your back up plan / how you have mitigated risk if the major employer(s) close up shop in town or other reasons for population decline which is common in similar towns?
 

TangoWhiskey

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It boils down to diligent screening for very specific tenant profiles and being very detailed in assessing a market.



1 - I keep very close tabs on the markets for the products the main employers provide or make. In this case, the markets appear stable and the plants are actually expanding, which is unusual for that particular employer, or in the case of military bases how does that base figure in the overall military force structure and future needs. Some bases are expanding, others closing.

2 - I keep very close tabs on the different municipal finances to make sure some town council isn't heading for a massive deficit and dreaming up new hidden ways to pay for pensions for town staff or infrastructure, which happens all the time in small towns.

3 - trying to transition the tenant base of a building away from employment income to other sources, especially retirement income. The largest growing demographic in these types of towns are female seniors. Amazing tenant group to deal with. Lower middle class income/upper lower class income single women over 45 are about 40 % of my tenants. Usually there's a divorce in the background and if treated well these ladies basically never leave. Those are equity building tenants.

4 - trying to avoid a heavy concentration of tenants from the principal employer - I don't want more than about 15 % of tenants getting their living from that employer - and try to find tenants who have jobs in health care, which in an aging province are as secure as it gets.

5 - have a detailed understanding of the demographic future of a town with the exit plan based on that.

6 - be disciplined and only buy when the price reflects the true risks - I walked from 22 townhouses that were only 25 years old that had a 90 % VTB on an 850K total price - because the vendor wouldn't go down to the 600K that I thought was a true pricing of the risks I had dug up in the due diligence.



The best way to mitigate these risks would be to pick small towns around a regional center that lies between two large cities - think the satellite towns of Red Deer for example. You should find some slammer deals with great long term performance in those types of places and all you need to do is spend some time with a map and phone.
 

Thomas Beyer

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[quote user=TangoWhiskey].. being very detailed in assessing a market.


Very very good insight here for small towns as you can get far better deals than in big cities, but the risk is higher. You show very concrete, specific steps to reduce that risk as far as possible.
 

reinvestors88

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Thanks a lot for sharing Tango...it is very informative and encouraging...cheers to your success!!!
 

Al Verwey

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Sep 17, 2007
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It boils down to diligent screening for very specific tenant profiles and being very detailed in assessing a market.
Saw this old post. How have things gone for you since then. I have relocated to the Maritimes and am looking for investment opportunities out here.
 

RELover

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Interesting post. I am also interested to know how things have gone for you since your last post and whether you can share info on your business model.
 
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