Good, Bad, Possible: The How to Purchase Investment Real Estate
Good, Bad, Possible: The How to Purchase Investment Real Estate
Good, Bad, Possible: The How to Purchase Investment Real Estate. As a real estate investor since 2002, I have seen The Good, The Bad, and The Possible of North American real estate.
My wife and I own investment properties throughout Alberta in Canada. In recent visits to our properties, we have seen the bumper sticker that seems to pop up every time there’s an economic downturn. This bumper sticker is more prevalent than ever:” Please, God, give me one more economic boom. This time I promise not to piss it away.”
If you have lived in Texas or any state whose economies are fueled by oil, you have seen these same stickers over the years. They are all connected to Black Gold, Texas Tea, Alberta Coffee, and the oil industry.
Many of us investing in North America remember March 9, 2009. The Dow Jones fell to just over 6500, and the TSX dropped slightly over 8000, destroying our investments and retirement funds.
The Good:
Good, Bad, Possible: The How to Purchase Investment Real Estate
However, we all must re-examine the bigger picture of long-term real estate success investing.
We had to be more aware of GDP ( Gross National Product) growth, increased rental demand, decreased vacancies, increased rents, increased property purchase demand, and increased property prices. All these factors lead to success when moving upward. The opposite happens when things are in reverse.
In January 2009, we saw property prices fall, property purchase demand decline, rents lower, vacancies increase, jobs disappear, people move out of cities and towns, and a decrease in GDP growth.
The dramatic economic change 2008 forced many of us to change our purchasing and rental practices.
Before 2008, many of us were not doing property analysis. If we were, we were accepting properties in our investment real estate portfolio that did not meet the criteria for a great rental property.
Many of us had impressive positive cash flow, but we were spending on lifestyle and not on keeping our investment portfolio financially healthy.
My wife and I weren’t concerned if we had tenant turnover. Conversely, another tenant was lined up to fill the vacancy. We were not sharp with our pencils when it came to operation costs.
We did not give our properties the TLC—the tender loving care—they deserved. If we were in condominium complexes, we were not funding them and doing the building upgrades the way we should have been. Many of us have underfunded reserve funds. This forced governments to revise legislation to require owners to improve these reserve funds’ viability and economic state.
TLC Wake-Up Call:
Good, Bad, Possible: The How to Purchase Investment Real Estate
Luckily, many of us got the wake-up call, as the stress we were experiencing was no fun.
In 2010 and 2011, my wife and I continued to make purchases in our portfolio- some of our best buys. We changed our 2008 and earlier purchasing practices and implemented a new “tender loving care” purchasing strategy for our investment real estate purchases.
Stage 1 — The Tender:
Focus on every property we purchased. We completed renovations, including new appliances and replacing the standard bi-fold bedroom closet doors with sliding mirrored doors—a big hit!
Also, we removed the carpet in the living rooms, dining rooms, and hallways and replaced it with laminate flooring, which was well received. We also replaced the exhaust fans over the stoves with combo microwave exhaust fans. We worked all the upgrades and new appliances into our mortgage financing.
Stage 2 — The Loving:
I looked at the entire condominium complex and joined the Board of Directors. We reviewed the overall appearance of the building, its structure, and the reserve fund study. In most cases, we only had to slightly increase the condominium fees, which still gave us access to a more substantial fund. As a board member, we made decisions to improve the curb appeal of the building by painting the walls, changing the flooring, and improving the lighting in many common areas.
This refresh improved each building’s overall appeal; even more, a building has only one chance to make an excellent first impression.
Stage 3 — The Care:
We re-examined our mortgages. However, as they came up for renewal, we built a rainy-day fund. Conversely, we would take a mortgage payment vacation or access a mortgage cash account. You won’t believe how those two mortgage changes helped us going forward.
2011 now seems like the distant past; how long did you stay true to your operational changes?
The Bad — The Slow Drip
The current economic downturn’s length is unusual. In March 2011, oil rebounded to $114.69; how many of us thought we were headed back to over $150 a barrel?
What started as a slow and steady decline has accumulated in January 2016 at $29.01 -five years in the making.
God gave us one more oil boom; did you recognize it or think you were in economic recovery forever? Or, as the bumper sticker asks, did you flush your financial wealth, knowledge, and lessons down the drain?
The Possible: 2017 and Beyond:
Good, Bad, Possible: The How to Purchase Investment Real Estate
We are again at a point where time is on our side; it has been a slow recovery. Even though we see see-sawing pricing between $42 and $52 a barrel, we saw an excellent lift from $29 a barrel just over a year ago.
No one can predict where oil prices will be. The one thing you can count on is action, and we all know governments can be slow to act. When you change governments, the impact can be positive or negative.
The oil industry is starting to see a much friendlier environment: the Canadian government recently approved two oil pipelines. With the change in the U.S. government, Keystone XL is back on the table. Getting these projects up and running and seeing their full positive economic impact will take some time.
In an interview with Victor D. Lillo, senior vice president of Business Development at Westridge Capital. Victor said, ” The significant production cuts from OPEC, combined with the natural decline rates of producing oil wells, will impact the oil glut; further, it seems reasonable that the oil market will come roaring back as the oversupply is reduced and global demand rises. Lillo observes that there will be significant returns to investors and companies engaged in CapEx recovery speed.
Current Market Conditions
Are you caught up in the past, or are you paying attention to the now?
I recommend you have new conversations with your local realtor or realtors you are using in the areas where you have purchased investment real estate.
You also need to talk to the property managers you are using or phone some local property managers and ask them if they have seen changes to the vacancy rates in their areas. Are the changes to lower vacancies, and what about rents? Are the rents staying the same, or are they inching? What about rental incentives? Have they stopped being as generous as they were in the past? These questions make you an active investor; don’t sit on the bench, as your skills never improve if you are not in the game.
As real estate investors, many of us have lived through two economic downturns. Did you implement the lessons learned and the recommendations made?
Ready for The Next Possible?
About the author, W. Rick
Dynamic entrepreneur and sales management strategist; with over 20 years of experience in his field. Rick has achieved multimillion-dollar sales growth while providing award-winning sales leadership and coaching in highly competitive markets.
An active real estate investor since 2002, Rick has developed his purchasing strategies and processes specializing in vacation and recreational properties, single-family homes and condo rentals.
In 2005, Rick re-financed his first rental property to fund the purchase of more positive cash flowing rental properties.
Rick sits on the Board of Directors for several condominium associations and is an active President and Treasurer. Sitting on these boards has given him a wealth of experience and insight into working with property management companies.
Rick has partnered with several joint venture associates and is committed to creating a positive investing experience for his associates by finding the properties, developing the investment, securing the financing and executing a proven positive cash flow system.
Why should you choose Rick as your Online Vault to Investment Real Estate Success Advisor?
An outstanding mentor and coach, Rick will work with you to build your investment real estate business starting from the foundation. From guiding you through the market research and critical drivers, building your team of trades, realtors, and lenders to attracting the investment real estate properties right for your portfolio and the joint venture partners to help you grow.
Through direction and training, Rick will help you develop your investment real estate goals and be a catalyst for you to purchase your first investment real estate property so you can build a strong financial foundation unlocking sustainable wealth and a living legacy for you and many generations to come.
Thank you for taking the only asset that gives us so much through life, but we can never get back our time.
Please join Rick on living his mantra:
” Prosperity for all aspects of your life forever.” W. Rick Harris