Real Estate Weekly has some great advice, and today I'd like to share something on Real Estate Investing:
Are you looking for a great real estate investment deal but struggling to find one? Don’t dismiss options that don’t seem particularly promising at first. A skilled investor can turn even a mediocre deal into a money maker.
Take our example. We bought a Nanaimo property in September 2005 and sold it in June 2011. We bought it in a hot market and sold it in a soft market. That’s not the recipe for success, but we made it work.
By drawing on some equity in another property and getting bank financing, we were able to buy this property with only $10,000 out of our pocket.
From 2005 to 2010, it basically broke even each year. For most of those years, we didn’t worry about the fact that it wasn’t a super-duper cash-flowing property because we both had jobs that paid us enough so we didn’t worry about it.
When I left my job in 2008, we couldn’t afford to have any of our properties underperforming. We needed cash coming in to pay our bills. So we listed the property for sale in 2009 but it didn’t sell; we had very few showings and we didn’t get a single offer. To make matters worse, it was vacant and our property manager wasn’t very proactive in helping us fill it.
Stuck with a property that was starting to cost us money, wasn’t selling and didn’t have great management, we decided to fix it up a bit more and try to turn it into a rent to own.
Unexpectedly we discovered a tremendous demand for rent-to-own properties in that area. The property filled instantly, and because it was now a rent to own, we:
- received a $10,000 option fee, which paid for all the upgrades and repairs we had to do;
- no longer had a property management expense because the tenant handled most maintenance issues;
- received slightly higher rent because some of the rent went towards a credit they would receive when they bought; and
- created an exit strategy for the property that didn’t require a realtor and made it easier to sell an investment property in a soft market.
Thirteen months later, the tenant successfully closed on the property and he is now a happy home owner. In the end, this mediocre property made us $118,000 after six years of owning it.
The best part is that even if the property had not gone up in value, we still would have made a pretty awesome return on it.
Here’s how it looked:
- Our purchase price: $274,000
- Our sale price: $344,000
- Appreciation: $70,000
- Mortgage pay down: $33,000
- Cash flow: $15,000
Total cash return over six years: $118,000
Even cooler than the money we made was that we helped a young guy who was struggling to qualify for bank financing to become a home owner. Without this program, he would still be a few years away from home ownership.
The bottom line is that there are a lot of ways to make money from a rental property. A good understanding of what is possible can really change your perspective. Plus it’s nice to see that even a mediocre deal in an average Canadian market can make really solid money in times like these.
Forget about the things you think are holding you back. Instead, think about what’s possible.
Because YOU Deserve the Best ...