Interesting article on Real Estate Investing….
Stop dreaming, and get off the sidelines. Here’s how you could make money, maybe even get rich, investing in real estate. What are you waiting for?
by Frank O’Brien
from BCBusiness
March 2004It was just over a year ago Sandra Dorman, a 58-year-old former Nanaimo schoolteacher and retailer, “lost everything” – her marriage, the family home, her confidence and most of her retirement nest egg … all gone. Today, Dorman, now single and cheerful, owns five condominiums in Vancouver and Burnaby, all rented out with positive cash flow. She’s just bought a vacation lot in the South Okanagan, a new house for herself on three-quarters of an acre just south of Nanaimo and has money coming in every month from nearly $1 million worth of rented real estate. This spring she plans to flip some of her West End condos – with projected profits of $50,000 from each deal – and will be looking to buy more real estate.
Dorman credits her startling financial turnaround to a once-in-a-lifetime break – and perhaps a last chance. It was done with a modest inheritance and the subsequent $2,600 investment she made joining a new and unique real estate investment group headed by Vancouver property guru and author Ozzie Jurock. She says the inheritance got her started, but it was the real estate workshops that “changed my life.”
“This is my personal business now,” Dorman says. “I’ve caught the real-estate bug and I love it.”
Dorman isn’t alone. Today in British Columbia, ordinary people are making extraordinary fortunes in a runaway real estate market that shows no sign of slowing down.
Take Mike Cunning of North Vancouver. In the past year he has bought seven small-town rental properties – which now churn $5,000 a month – and pocketed a quick $45,000 flipping just one house. Or the Victoria couple who made $60,000 in a few days after finding a realtor asleep at the switch.
But how do novices like Dorman, Cunning and others become serious real estate players in an arena which offers a chance for lifetime income, an opportunity to scoop thousands in cash . . . but which can also turn around and disembowel you financially? Just ask the sad folks back in Vancouver’s overheated market of the 1980s; when interest rates suddenly jumped, many an over-leveraged portfolio got savaged.
“I remember people coming in and dropping the house keys on my desk,” says Margaret Johnson, recalling her days as a mortgage lender at a Greater Vancouver credit union 22 years ago. “We were charging 21 per cent interest on renewals and some simply couldn’t pay it.”
Today, Johnson, a licensed credit counselor and insolvency consultant, is the president of Surrey-based Solution Credit, a debt management company. She says times have truly changed: “With the low mortgage rates, there is very little danger of being hurt in the Greater Vancouver real estate market.”
Although her business has doubled in the past year, it is mostly from consumers tapped out on credit cards. The only real estate related woes are from people who bought a leaky condo and then couldn’t afford the repairs, but she hasn’t seen that in five years. “We simply don’t have clients today who are over-leveraged in real estate.”
Sound good? So what does it take to get into the action? “It takes guts,” answers Rudy Nielsen, the man who is perhaps the quintessential rags-to-riches real estate story. Founder and owner of Niho Land & Cattle Company, Nielsen went from near bankruptcy in the 1980s to become one of the largest land holders in the province: “You can hear all the advice, read all the books but eventually you have to get off your ass and buy something.” Agreed, says Ozzie Jurock. “Most people understand what they need to do, but there is a big step from understanding to taking action.”
In January 2003 Jurock founded the Real Estate Action Group. It now draws about 100 members to its monthly meetings. In return for the one-time $2,600 initiation fee, Jurock holds workshops once a month for 14 months. The usual meeting spot is the downtown campus of Simon Fraser University. Here, potential real estate investors tap into expert speakers such as Nielsen and are mentored by Jurock who goes on to help each member create a personal plan for investing in British Columbia real estate. Members also have secure access to a section on Jurock’s website where they can swap information or search and post their own real estate deals.
“After the first meeting, the second or the third, whenever the member is ready, I sit down with him or her and map out a personal one-on-one business plan,” says Jurock. The strategy is based on three words: commit, perform and measure.
“You commit to a plan of action, write it out and sign it, then you do what you said you would do and then you measure your results,” explains Jurock. “We look at what worked and what didn’t work and then, if needed, we do the whole thing all over again.”
Call it the hands-on approach. Jurock does. He also estimates that, so far, 70 per cent of the members in his Action Group have gone on to actually invest in the real estate market. Compare this, he says, to the five per cent of people who take the plunge after listening to a single ‘regular’ real estate seminar or simply read books on the subject.
Hands-on doesn’t mean pushing anything into anyone’s hand, either. Jurock steers clear of recommending any specific property, concentrating instead on the general principles of investing: “We teach people how to fish; we don’t give them any fish.”
“If Ozzie was trying to sell me a certain real estate property, I would have walked out the first day,” says Cunning, a 28-year-old real estate agent who was among the first to join Jurock’s group. He’s glad he stuck around.
Cunning didn’t have the pots of cash to play in Greater Vancouver real estate so, taking Jurock’s advice to checkout the smaller centres, he targeted the emerging ski town of Fernie in the East Kootenays. In the past year, Cunning and his wife Melina Scholefield, a civil engineer with the City of Vancouver, have become big players in little Fernie. They now own seven properties and 15 rental suites in total, all with positive cash flow.
An example of a Cunning/Scholefield deal: the $113,000 house with a basement suite bought last year on a 15-per-cent down payment. It rents out for $1,000 a month or $300 more than the mortgage payment.
“We are getting up to a 50-per-cent return, cash-on-cash, in Fernie,” enthuses Cunning. His long-term plan: “I want to get to $10,000 a month net from real estate rentals and then I plan to retire.”
Meanwhile, Cunning says the monthly three-hour Action Group meetings keep him focused, but also inspire him to take risks. “Ozzie is always telling us to challenge our comfort zone.” Taking the cue, Cunning went for his first real estate flip last summer, buying a $102,000 fixer-upper in Fernie and selling it two months later for a $45,000 profit.
Fernie has been good to the couple but good things seldom last. “It is harder to find the bargains now in Fernie,” explains Cunning. “A lot of buyers are moving in, but there are a lot of other good areas.”
The trick is to anticipate these good areas, get in and ride the economic uplift. (Of course, the reverse is true too. If the local economy takes a hit after you buy, your anticipated positive cash flow could easily go long-term negative.) Cunning is currently scouting Prince George, the hard-hit northern resource town where he believes housing prices are near rock bottom. Or so he believes.
Easy Street flanked with your very own rental properties; it’s a compelling dream. Most wannabe investors have sought out real estate investment advice for years and, for years, people have been willing to sell them those dreams. Just ask Cunning. He once spent $5,000 for a three-day Russ Whitney seminar. Other Action Group members confess that they had read ‘no money down’ books from American authors such as Robert Allen (Allen declared bankruptcy in 1996 and is now pitching stock market plays) and the aforementioned Whitney. (Whitney is a convicted felon who once served 19 months for a New York robbery and is now the target of a number of lawsuits. But he’s still on the seminar circuit.)
Clearly, when choosing a real estate mentor, there are the good, the bad and the ugly.
It’s Jurock’s experience and blue-chip credibility in the Vancouver market that has convinced some veteran real estate investors to join the Action Group. Jurock, 60, began his career as a Coquitlam real estate agent 30 years ago and rose to become national president of Toronto-based Royal LePage Real Estate Services. He later became president, chairman and chief executive officer for National Block Bros. Real Estate. Working from a Howe Street office, he now publishes the popular (1,000 plus subscribers) investor newsletter Jurock Insider, runs a real estate website marketplace, holds two packed annual Real Estate Outlook conferences and appears regularly in Vancouver newspapers and on TV and radio as a real estate expert.
Most telling to members of his Action Group, Jurock is also an active – hectic is perhaps a more apt term – real estate investor. In 2003 alone he bought and sold 91 properties in British Columbia and, he says, made a profit on each flip. He also owns a number of rental properties across the province. Says Jurock: “I follow the principles I teach.”
“Ozzie Jurock knows his stuff and he is willing to share his knowledge without a big ego,” says group member Ender Ilkay. Ditto for the speakers brought in to address the Action Group meetings. “Many of these are high-quality presentations where you learn something new.”
Not that Ilkay doesn’t know a few things himself. The 36-year-old West Vancouver real estate developer and investor bought his first house at age 19 and now owns 14 rentals. Since joining the Action Group last February, Ilkay has bought seven acres of oceanfront north of Duncan on Vancouver Island to be subdivided into 30 to 35 serviced lots. The lots will come onto the market this spring priced at around $200,000 each.
Ketan Ladva, 34, president of residential and commercial developer Sherbrooke Holdings in Vancouver, credits the Jurock group for convincing him to make a move into personal real estate investments after being “burnt bad in the stock market”. After attending a series of sessions, he focused on East Burnaby where, with a partner, he bought a large lot for $320,000 last spring with a 25-per-cent down payment. He then built a duplex, sold each side for $398,000 and pocketed a healthy profit by year’s end.
For less seasoned investors, such as 40-something Daryl and Denise Kube of Victoria, networking with members of the Action Group like Ilkay is worth the price of membership. Daryl, a Saanich firefighter, says that meeting regularly with like-minded investors to share information “is what it is all about.” In the first eight months after joining the workshops, the Kubes bought two houses with a total of six rental suites and paid $140,000 for one of the first building lots at the new Bear Mountain Golf and Country Club near Victoria. “We’re not bright or anything,” Daryl says, “but we bought the lot with just a deposit and it has probably appreciated $50,000 since then.”
So is it simply dumb-ass luck and the result of a no-lose market situation that’s making for all those happy faces? Jurock bristles at suggestions that his devotees are making money simply because the B.C. market is so hot. “There is no ‘good’ or ‘bad’ market; there are only good or bad deals you personally make.” Yet, he also notes that successful real estate investing in B.C. “has never been easier because of the financing available.”
As an example, Jurock points to someone buying a house in Burnaby that has a legal rental suite; finding a house/mortgage-helper combo is one of his pet recommendations. As long as the rents cover the mortgage, taxes and with a bit left over for maintenance and contingencies – aka positive cash flow – eventually the investor will have a clear-title property “that will pay off forever,” says Jurock. “Who cares if the market is hot or not?”
It is hard to argue that B.C. doesn’t appear ripe and friendly for real estate investors. The average house price in Greater Vancouver has increased by 15 per cent in the past year and the new B.C. Residential Tenancy Act, which came into effect January 1, allows landlords to increase annual rents by 4.6 per cent. Even the RBC Royal Bank, biggest in the country, is offering no-money-down mortgage loans and Canada Mortgage and Housing Corporation approves 95-percent-of-value mortgage insurance on homes, regardless of the price.
Prove you can handle the payments and you could buy a million-dollar house with no money down at all.
But if you do, pray that you keep your job, interest rates don’t bounce upward, the provincial/local economy doesn’t go sideways and any tenants you have don’t walk out the door or start a marijuana grow op. Notes Johnson: “Real estate investing is always a gamble. But, with the Olympics coming and the confidence is this market, the gamble is not that huge in B.C. right now.”
So how does one become a filthy-rich real estate investor in B.C.? Judging from discussions with those who have successfully jumped into the market in the past year, it ain’t easy but it is certainly possible.
Jurock cites a number of principles. Research is a key one, lots of research – the rental markets, the type of property you’ve targeted (single-family, duplex, condo and all the one-two-three-bedroom permutations involved) and the area in which you are buying. He recommends novice investors spend at least two months studying a targeted neighborhood or town until they know as much as the best realtor in the area. “It is about not only what to buy,” says Jurock, “but what not to buy.”
In Victoria, Daryl and Denise Kube followed this dictum and it paid off. “The idea is to find a ‘sleeping’ realtor,” says Denise. To wit, an agent who doesn’t really understand what he or she is selling. Perhaps the agent is from out of town, or out of the area or simply unfamiliar with the product and hasn’t assessed its true value. In other words, a relative bargain.
Such knowledge is power and certainly, profit.
Thanks to their own research, the Kubes knew that in Victoria residential lots 50 feet by 120 feet qualify for R-2 zoning, which allows for two attached residences. They kept an eye on new listings and when a small house on such a lot appeared, asking price $199,000, the Kubes snapped it up. For a $200 fee, the City of Victoria confirmed the variance that would allow them to add an attached, strata-titled home to the existing small house. Even without actually building the extra space, the Kubes estimate that the property is now worth at least $60,000 more and has the potential of generating twice the rental revenue.
Sandra Dorman agrees that smart investing takes a lot of legwork. With five Vancouver and Burnaby rental condos now in her portfolio, Dorman is always on the lookout for new acquisitions that meet her criteria.
When looking for an older condo in Vancouver’s West End last year, she visited at least 20 properties and spent hours going through the minutes of the strata council before making any decision. Typically she requests the minutes of two years’ worth of council meetings, looking for any sign that the building may have structural or other problems, such as leaks. If there are any problems, she closes the book and walks away. She believes it’s far better to have no deal than a bad or indifferent one.
Dorman also follows another of Jurock’s principles: pull a strong team together. Her crew includes: a trusted Vancouver real estate agent who continually updates her on listings and reports on any recent sales in buildings in which she owns an apartment; a savvy Vancouver mortgage broker; a property manager and; a trusted real estate lawyer.
It was also through her membership in the Jurock Action Group that Dorman learned how to use creative financing and leveraging.
Mortgage broker Peter Kinch of Vancouver, one of the monthly Action Group speakers, explains the secrets of rental cash flow analysis wherein once an investor owns three or more properties, certain lenders will let the investor add in the rental income to qualify for a new mortgage.
“I call it the 1.1 rule,” says Kinch. “Essentially, the rental cash flow analysis used by some lenders treats revenue properties as a commercial portfolio once a client has three or more properties. As such you can enjoy much more favorable debt-servicing calculations.”
The 1.1 rule is quite simple; a lender likes to see $1.10 of income for every $1 of expense. The income is based on the rent and the expense is a factor of the mortgage payment, property taxes and any strata fees. Says Kinch: “What makes this little formula very interesting for the investor on a modest income – or one that can’t be verified – is the way it is treated by a lender once you have three revenue properties.”
For example, an investor could take $80,000 and split it up amongst three modest investment properties (assume 25-per cent down on each) instead of one expensive property. He or she would then qualify as having three revenue properties and – as long as the debt coverage ratio is 1.1 or greater – the investor would only need enough employment income to service personal debt, such as the mortgage on their own home. “Future expansion of the portfolio would only be limited by the ability to come up with the down payment, not the investor’s personal income,” Kinch explains.
Dorman also learned that it’s possible to buy rental properties with as little as 15 per cent down, rather than the 35 per cent down she put up for her first condo buy. She also soon realized there is a lot more money to be made, faster, by buying and selling: “Cash flow through rentals is not my priority now. Buying and selling wisely is what I’m attempting to do. I am holding two properties long term, along with my own home. The others are being flipped.”
Armed with two core rules, Vancouver developer Ender Ilkay has been buying and holding rental properties since he was a teenager: “First, will the property have positive cash flow if I had to use 100-percent financing? Second, is this a building and a neighborhood I would want my family to live in?” If the formula works, Ilkay puts down 25-per-cent and plunges in.
Tony Haughian, 42, a civil engineer who now lives full time off the dozen rental properties – mostly triplexes – he owns in East Vancouver, has an even a simpler rule of thumb. “I use the one per cent rule. If the property is $300,000, it has to generate rent of $3,000 a month.” Haughian, a member of Jurock’s Action Group who buys at least one rental property each year, goes against Jurock’s advice in one key aspect. “I never use a realtor to find property, I only deal with the listing agent.” His reasoning: “In a hot market like Vancouver where there are multiple offers, the listing agent gets both ends of the commission with me as the buyer. Somehow I always seem to get the property I want.”
From his vantage point, Jurock is delighted to see his students coming up with their own strategies. “We teach people that they can learn to do it all themselves, that they shouldn’t put all their faith in a real estate guru, even me.”
Instead, he believes, you should put that faith in yourself … assuming you have the guts to go out and do it.
“Today in B.C., you can become a millionaire, you can become rich,” says Jurock. “You can do it with no down payment, you can do it tomorrow. Anyone can do it.”
-BCBusiness