A Landlord Toilet Story with Numbers

When a tenant calls, I expect an issue

It's been almost five years since we acquired our first rental property. Still, every time a tenant calls, I hesitate before picking up the phone. I know that they wouldn't call me if everything was going smoothly. 

Tenants only call for two reasons:

1) They can't pay the rent on time
2) There is a repair or maintenance issue

Either way it's not a happy call. So I dread picking up the phone. I look at the phone display with the tenant's name. I count down in my mind.

Five, four, three, two, one. Then, I pick up the phone.

My skin is getting thicker.

After five years, I know that whether I pick up the phone now or listen to the voice message a bit later, the issue will need to be addressed. I also know that the sooner I resolve it, the least costly it will be. Rarely, I see issues resolving themselves. Unfortunately, most of the issues not only stick around but also worsen rapidly whenever I procrastinate.

However, I also learned that there are always different ways to resolve an issue. The easiest way is often the most costly.

Let me give you an example.

What's the Issue? 

O-oh! Hard water, ruined tap

A couple of weeks ago, my tenant called and let me know that they have a few problems: the shower tap is broken, kitchen and laundry room faucet leak.
I scheduled a local plumbing company. They visited and gave me a quote....

I always expect the worst. So I wasn't even in complete shock. But still... this specific quote made me nauseous.

It's January - the first month of the new year - and the cost of this repair basically wipes out most of my profit for the entire year. 

Any future maintenance issues at this place would eat away cash flow from other properties.

How is this possible? All it takes is a broken tap and two leaking faucets?

I reviewed the quote:

Service Charge   $49.99
Kitchen Faucet   $599.45
Laundry Faucet  $368.31
Shower Valve Remodeling Plate $192.33
Handle Wall Mount Tub & Shower w/ Valve $911.50
Become an Advantage Plan Member $99.99 and get 15% off
Member Discount ($248.60)
Tax $256.49

Grand Total: $2,229.46

We thought we could
handle the easy stuff 

That was the worst case. The best case quote was for $1,420.13. Better, but still bad.

The quote seemed high. I just got my own new bathroom faucet for $47 off Amazon. $599.45 for a new kitchen faucet seemed absurd in comparison!

I checked with my property manager. Does the price seem reasonable? He'd quote around $1,200 for the worst case. I called a different local plumbing company. They quoted $1,500 for the worst case.

My husband and I went to our favourite store. You guessed it right - The Home Depot.

We decided that we'd at least be able to get the easy stuff done on our own. Then, call the plumber for the hard stuff and save that way.

We showed the tap picture to a Home Depot staff member.

How do we go about it? 

In the best case, they told us, we'd be able to buy the parts and replace what's been broken. We just had to know exactly the brand and type of the faucet and taps.

In the worst case, we'd have to call a licensed plumber. They didn't recommend that we'd attempt to cut the tile on our own. We didn't look handy enough...

This time we were lucky!

My husband was able to replace just the broken parts. We decided not to worry about the laundry faucet for now as the issue seemed to be very minor when we examined it up close. So my husband fixed the kitchen faucet and the shower tap.

Actual Costs

Aaawwww....
My husband fixes our tenants faucet

Manor faucet    $79.98
HANDLE         $13.49
FLANGE          $5.92
FLANGE          $5.92
WASHERS       $3.94
CARTRIDGE   $9.56

Tax: $15.45

Grand-total: $134.26

Problem Solved!

All I can say is: Tenants are happy! We are happy! 

Forced Appreciation for Noobs

You know those customers at Home Depot, who point their finger and call everything "Thing" or "Thingy" when seeking advice. 

They have no idea what any of the tools are called in English. They just show up and trust the Home Depot staff will understand their mumbling and point out a way to resolve the issue.

Well. That's me. And trust me - the approach works!

Ever since I started 50Doors, I mostly point my finger, gesture, mumble and draw the best I can whenever it comes to building, renovating, and fixing things and thingies.

And people around me not only understand me but also gladly help me out!

To my big relief, I realized that not knowing can be advantageous.

Through lack of knowledge and skills, I learned how to trust people who know better, how to tell experts from talkers, and how to create real value from simple ideas.

Here is an example.

I had an idea of renting a property, which was never rented out before, but I was unsure because cash flow wouldn't be good enough. I talked my idea over with a friend who is a lot more experienced. He suggested that I renovate, split the place into two units and double my cash flow. My gross annual rent will increase by $14,400 and result in positive cash flow.

I loved the suggestions, but I was unsure that I could split the unit into two apartments. I talked it over with my husband who is a lot handier. My husband thought the concept was feasible and explained to me how the unit could be split. Together we made these drawings:

I loved our discussion and the drawings, but I wasn't sure how this could actually be accomplished and what it would take.

So I sent our drawings to my friend, who runs an on-demand property management company. Within a week, I had several quotes and a start-to-finish renovation project plan. I now knew that a $25,000 investment will be required. The work could be finished within about three weeks.

Wow! That's a 57.5% return on investment!

ROI is $14,400 / $25,000 = 57.5%

It's been almost three weeks since the start. The work is nearly complete. Two separate units are now a reality.

I am starting to look for tenants! It seems surreal that the ideas came to life so fast and soon there will be two families moving into their new homes and starting to build their memories.

Simple ideas turned into real value, which will positively affect the lives of many people for many years to come.

I am extremely grateful to the amazing property management company that actually got the job done!

Fortune Property Management 

converted my mumbling into 

two beautiful apartments 

within a couple of weeks.

Thank you!

When You Thought You Could Fly and Then... Got Stuck

When you thought you could fly
but then got stuck
and are really afraid!

Sometimes, the moment you think that you've figured out how to become financially free, the situation changes and you have to adjust your plan.

Approaching the Financing Wall

In the past five years, my strategy was to get a new property using expensive private money, renovate it, get a great tenant, then re-finance with more affordable money.

The refinance step is critical. It improves my cash flow. In addition, after the refinance, equity starts to build up within the asset because my mortgage is interest-plus-principal-paydown, rather than interest-only.

Without refinancing, holding on to the property is pointless. The property doesn't bring much positive cash flow. It doesn't accumulate equity over time either. The downpayment money is getting lazy. It's stuck inside of the property, not doing much.

This strategy worked for me five times.

With five different properties, I got a private interest-only loan to acquire a vacant asset. Renovated. Advertised. Got a great tenant. Enjoyed my skinny cash flow for a few months. Then, qualified for a traditional mortgage at a better rate. Refinanced.

Voila! Much better cash flow and principal paid down by my tenants. How nice!

The process worked like a clock. Over and over again. Until it failed.

Slammed Against The Financing Wall

At the end of 2017, I acquired three properties with private money. My plan was to replace the expensive interest-only loan with a more affordable conventional loan in a few months. Like previously, this would lead to improved cash flow and principal paid down by tenants.

Except, this time I couldn't qualify for a conventional mortgage!

The problem was that I no longer met the bank's underwriting criteria. In simple language, the lenders concluded that it was too much risk to give me another mortgage.

In the past, I had a job. My salary looked great from a lender standpoint.

Today, I am self-employed. My rental income is considered risky. Even though it is supported by 17 families working at 17 different jobs, lenders believe it's riskier than relying on my old one-woman paycheque.

In the past, I had one property. It looked great from a lender standpoint, as having a mortgage was so typical.

Today, I have a bunch of assets. Yet, most lenders don't approve more than five mortgages. They consider it risky because a borrower with more than five assets doesn't match their typical good borrower profile. Having more than five mortgages is not typical.

Investors call it the Financing Wall.

When you just gained the momentum, then slam - no more money for you!

Through and Beyond The Financing Wall

Long story short, let me jump to the conclusion of the story:

Don't give up when you don't qualify for a mortgage four times in a row. 

Don't give up when your credit score went from Excellent to Good to Fair. 

Don't give up when your situation doesn't fit a conventional good borrower profile.

Don't give up when your credit card payments give you creeps.

Instead:

• Make sure your mortgage broker is as awesome as mine! See their contact info below
• Eliminate liabilities! read through my prior blog post on how eliminating liabilities can decrease the burden of expenses and expedite your financial freedom
• Make sure you have Plan A, Plan B, and Plan C and you do just fine with or without better financing
• If your profile doesn't match the characteristics of a good borrower, learn what those characteristics look like and tweak your profile to change your financial future, so you can qualify down the road. Here is a link to an Excel template that I use to help me stay as organized as possible and make a very good impression on potential lenders
• Keep learning, so you can adjust your strategy or start using new strategies! There are infinite number of different ways to accomplish a goal.
• Ask! What I didn't realize far too long is that no matter what your situation is, chances are someone has been there and will gladly help you find a way out. Email me at ask@50doors.com

Here's the info for my broker, who has helped me with financing many-many times when I doubted there was a path forward. In fact, he shared this quotes with me when we broke through the Financial Wall after a few unsuccessful attempts:

"Never give in. Never, never, never, never--in nothing, great or small, large or petty--never give in, except to convictions of honour and good sense." 

-- Winston Churchill

If you need a mortgage in GTA, check out these guys

PS Did you know that a $300,000 mortgage with 3% rate will cost upwards of $575,000.00 and you could save 10 years and $90,000 of interest if you were to pay just $200 more per month? Here's an Excel tool that I use to do all my numbers when it comes to planning accelerated mortgage pay down and tracking my results

Vacancy: Landlord's Worst Nightmare

Vacancies Keep me Awake at Night!

A few days ago we filled our last vacancy.

What a Relief!

The search took about three weeks. Our property manager began advertising the unit on November 19th. 

We started with $1,650 asking price, which was higher than the average for similar units in the area. There were barely any inquiries at that price. 

December and January are typically slow months for tenant search. People are busy with holiday prep and after holidays they go into hibernation-mode for the remainder of the winter. I was worried that we'd have a vacancy until Spring.

Vacancies Keep Me Awake at Night

The reason I am so afraid of vacancies is because they are very costly. Every month of vacancy, I'd have to come up with money to pay the mortgage, property taxes, utilities and, in case of this specific property, property management and condo fees as well.

Ouch!

Typically, they recommend that you include 2-5% vacancy fee in your cash flow calculations.

Given 5% vacancy, my annual cash flow would be $1,280. Or $100 a month.

In reality 5% only works if you manage to go without vacancies for a while. Actual losses are a lot higher!

For example, my annual loss for a year with one month of vacancy is about ($1,660). That's because:

I will not get a month of rent of $1,600
Pay about $300 for the utilities during that month
Pay about $2000 for tenant search and making the unit ready - fresh paint, minor fixes, etc. add up
Pay all regular expenses of $16,960...

If my property is vacant for two months, the loss will be ($3,560).

With three months of vacancy, I'd lose ($5,460).

Once I do find a tenant, it will take a l-o-o-o-o-o-o-o-o-o-o-o-o-ng time to catch up.

I'd need the tenant to stay for almost 2 years, to catch up after one month of vacancy.
The tenant will have to stick for over 3.5 years to catch up after two months of vacancy.
Lastly, the tenant will have to stay for almost 6 years, to fully catch up after three months of vacancy.

My math is simplified, of course. I don't take rent increases into account at all, for instance. Still, you get the idea why I hate vacancies. Vacancy losses are horrific.

The danger is on the flip side as well. If you rush and get a BAD tenant, you can end up with thousands and thousands in losses... See my blog post here for details - My $30,000 Mistake.

Here is a chart with the numbers in my examples above:

	Projected: 5% Vacancy	Actual:    1 month    Vacant	Actual:     2 months     Vacant	Actual:     3 months     Vacant
Gross Rent	$19,200	$19,200	$19,200	$19,200
Less Vacancy	($960)	($3,900)	($5,800)	($7,700)
Rent Income	$18,240	$15,300	$13,400	$11,500
Expenses
Financing Cost	$6,860	$6,860	$6,860	$6,860
Condo Fee	$5,304	$5,304	$5,304	$5,304
Property Taxes	$1,961	$1,961	$1,961	$1,961
Other	$1,200	$1,200	$1,200	$1,200
Property Management	$1,094	$1,094	$1,094	$1,094
Insurance	$540	$540	$540	$540
Total Expenses	$16,960	$16,960	$16,960	$16,960
Net Profit (Loss):	$1,280	($1,660)	($3,560)	($5,460)

Success! Got a Great Tenant

Needless to day, the pressure was on.

We lowered the price by $50 to $1,600. Luckily, the interest picked up! 

The ad generated over 230 views, 15 inquiries, three viewings, and a great application on December 9th. 

Our property manager uses Naborly for tenant screening. I've never seen a Naborly report before and was quite impressed. The multi-page document covered most of the information that I typically review for a candidate and gave some additional insights. Here is what the report covered:

• General info about all occupants
• Previous addresses and address verification
• Equifax credit summary and score
• Debt summary including monthly debt payments
• Rental history
• Financial information
• Employment history
• Analytics showing the likelihood of key tenancy risks (late payments, eviction, property damage) 
• Analytics showing the likelihood of a successful tenancy during the entire term.

Our property manager also collected a photo ID, a full credit report, and a letter from the employer. They conducted a face-to-face interview and verified employment and personal references. My property manager summarized their findings including possible risks.

I reviewed all the information as well and did my own due diligence. I typically research every piece of factual information and make sure all facts align and make sense. The way I do it is very simple: research every name, every address, every company name, every email, and every phone number that the candidate provided; look in Google and on all social media platforms; contact all references and chat with them; verify income.

In this case, all checks were successful. I accepted the application and to my delight, the tenant confirmed that they'd like to go forward as well.

No Vacancies!!!!!
Overwhelmed with JOY and
will definitely sleep like a baby :)

The property manager impressed me very much! This was the first time when they found a tenant for me and I loved how smooth the tenant on-boarding process was. 

As soon as this last vacancy was filled, I started sleeping like a baby again! 

Plumbing 911!

Oh-oh! Plumbing 911!

Over the past couple of weeks, I had to deal with a few plumbing issues. Just wanted to share some pictures, so that you can see how simple or extensive a plumbing problem can get!

Urgent yet Easy Plumbing Issue

Our tenant called on Friday evening. Their basement was flooded. Every time they used a toilet, the water would back up in the basement. Urgent help, please! - tenant really needed help. It's unpleasant when you can't use the bathroom.

We called a few plumbing companies and were placed in their priority queue. We called and called! Trying to expedite the resolution. However, no one was available and most companies didn’t even return our calls. Thankfully, our tenant was quite understanding. We did our best to get help as fast as it was possible, but no luck until the end of the weekend.

It helps when you have good local connections in the area! 

This is one of the reasons why I’m working towards gradually shifting from self-managing all units towards partnering with a property manager.

Finally, we got an appointment scheduled for Monday morning.

Fortunately, it turned out that the issue itself was easy to fix.

The plumber cabled approximately 45 feet to clear blockage, finding it approximately 32’ in the drain line at the front of house. When he retrieved the cable, we found roots on the line.

Roots Blocked a Pipe

Non-Urgent yet Difficult Plumbing Issue

We recently acquired a duplex (the one we've split up into two units). During pre-purchase inspections, we identified two problems that needed to be solved:

1) Sewer stack rusted and needed to be replaced
2) After each rain, rain water mixed with sewage backed up into the basement.

The two issues were not urgent and didn't create too much inconvenience for the tenant - he knew we'd find a good solution and was not rushing us.

Our tenant recommended an outstanding local plumbing company! 

Two technicians visited us and did a lot within just a few hours:

• replaced the old stack with new ABS plumbing
• cleared sewer lines, removing calcium build-up and roots
• fixed broken plumbing under the utility tub in the basement
• replaced P-traps and some old sections of the lines
• cleaned floor drain and put a back trap on it
• there was only one section of the lines (6-7 feet) that could not be snaked and inspected with a camera.

Now, the first issue was resolved.

Next, we had to wait until it rained, to find out if the basement would flood.

Flooded! Not Again...

There was a big storm over night! Unfortunately, the basement still got flooded.

The plumbing company let me know that most likely the problem comes from the city lines.

However, we had to inspect the last section of our pipes, to make sure everything is in order on our end. Without this, the city would never start looking into the problem.

The plumbing team came prepared to inspect the last bit of hidden lines. Take a look at the pictures below to see what it took!

Now, we know that all of the plumbing under our house and up to the City line is in good shape.We'll wait for a rainy day to find out if the basement would still get flooded. Fingers crossed...

Getting ready to dig!

Where does this pipe go?

Holly, molly!

New Pipes!

No More Flooding (Hopefully!!)

Cleaning Up!

In The Landlord Paradise

I love flowers on the side of the house!

In the last post, I shared that I've been tolerating an eight-month long vacancy because of fear, which wasn't even my fear to begin with, but it still paralyzed me.

Now, determined to fix the issue, I set out to find a great tenant ASAP.

Determining Price

To determine the price, I analyzed all for-rent ads on Kijiji. There were 39 of them.

Out of 39, only eight were listed under “House Rental” and the rest were in “Apartments and Condos”.

Even though my unit is an apartment in a duplex, it comes with a basement and a backyard, and takes up a larger part of a two-story house. I decided to put my ad under “House Rental”. It seems to be fair and puts my ad into a bucket with less competition.

Out of 39, the majority of 21 ads were two-bedroom places like mine.

In some cases, prices included all utilities, some covered only some of the services, and some were with tenants paying for everything in addition to the rent. In my case, utilities must be included because meters are not separate.

During my analysis, I made the following big assumptions about the monthly cost of utilities:

• ·         Water = $100
• ·         Hydro = $200
• ·         Water + Hydro = $300

I used these assumptions to calculate all inclusive price for all ads.

Next, I looked at two bedroom units by price and saw that out of 21,

·         6 were below $900

·         4 were between $900 and $1,000

·         6 were between $1,000 and $1,100

·         3 were between $1,100 and $1,200

·         2 were over $1,200.

Aiming to be in the middle and also making sure cash flow would be positive, I decided to price my unit at $1,150.

Placing the Ad

Kitchen Looks Great!

I placed the following ad:

Big 2 Bedroom Duplex for rent $1,150 all inclusive

$1,150.00 URGENT

Looking for responsible tenant(s) for this Spacious Move-In ready Duplex!

INCLUDES:

- Lots of Parking

- Large Patio & Backyard

HOME:

- Bright living and dining rooms

- Great functional kitchen

- 2 bedrooms with large built-in closets

- You'll love the spacious Bathroom (pls see pics)!

OTHER:

- Lots of storage space

- Central AC

- Appliances: Fridge, Stove, Dishwasher, Washer / Dryer

UTILITIES: all inclusive

Please text/call or email Anna at MY_PHONE / MY_EMAIL to book your viewing.

We'll be showing the unit this week on THURSDAY, FRIDAY and SATURDAY.

Please reach out to me now to book your viewing: MY_PHONE

Unreal Number of Inquiries

Living + Dining Remind me of Spain Villas - lots of white tile

I got a gazillion responses, mainly through texts!

I booked 31 viewings over four blocks of time: Thursday afternoon, Friday morning, Friday evening, and Saturday morning. Only two people are scheduled for Saturday morning.

So far, as of the end of Thursday, 20 people showed up out of 29.

Landlord Paradise

Since the level of interest turned out to be super high, I started to wonder if I’ve set the price too low.

I asked a few applicants how my unit and its price compare to other apartments they’ve seen. Most said that they are comparable; and only a couple of people said that I could charge a bit more. I checked with my property manager and he thought the price was right as well. It’s what people in the area can actually afford to pay for this size and type of a place.

It appears that the market is very landlord friendly. Lots of demand, and lack of units. Landlords get to choose from a large pool of applicants.

It’ll be a long time, before I forgive myself for an 8-month long vacancy in this landlord paradise type of market. Unreal. I’m such a la-la.

$300 Duplex Conversion

Over the past year, I’ve been meeting a lot of investors whose strategy is duplex conversions.

Here is how it works, in a nutshell:

1. Buy a home 
2. Get permits to add a legal unit to it. For example, create a legal basement apartment; Or get a permit to split the unit vertically creating a quasi semi-detached home.
3. Hire and oversee contractors & trades to get the work done
4. Re-finance to get your money back
5. Rent both units
6. Live happily ever after (or until you get another one of these duplex conversions).

Based on meet-up presentations I’ve seen, my understanding is that the cost to add a legal unit nowadays averages at about $90K in GTA. Perhaps, you’d see numbers between $75-110K, depending on how optimistic the presenter is.

Here’s how our “Duplex Conversion” Happened

My husband and I got a duplex. It turned out that the two units are connected by a door. Initially, there was not even a lock on the door, which wasn’t an issue since one of the units was vacant at the time.

As we were getting ready to find a new tenant, we had to replace the door with a wall and properly separate the units.

In Our Case, Duplex Conversion Was a Lot Less Elaborate

Step 1. Take measurements & get some two-by-fours and other hardware

Step 2. Measure & cut.

Step 3. Put a back wall up & add insulation

Step 4. Finish up with the fancy front wall. Voilà!

Now we have a proper two-unit house. Can't wait to find a great tenant to move in!

Oh-oh! Power Has Been Shut Off

Taking out melted
two-week-old food
out of someone else's fridge
does NOT feel glamorous

Hi! Did you have a good summer?! I hope you did!  I'll post a few articles today. I did a lot of camping in August, and stayed offline most of the time. It's time to catch up now.

Yay! We got a New Door - door #18!

At the end of July, we acquired a new asset. It’s a condo townhouse in Barrie, ON, which we will fix up, clean, refresh and rent to a nice family.


This town house is different for us because it’s our first condo – comes with a pool, gym, and snow/grass services. Very nice!


On the flip side – vacancy costs a lot more than with our typical freehold town homes: Condo fee is quite an expense to carry in addition to mortgage payments!

Oh-oh! Did I miss something??

Since we’ve done quite a few acquisitions, you’d think that everything would go smoothly! but…


I didn’t call the power company to open a new account fast enough and they shut off the power!


This mishap was a definite oversight on my part: I had a lot on my to-do list and held off with all the administrative set up for too long, so that I could finish higher priority tasks. Now, I am sitting at the house and waiting for my hydro appointment.


Since it’s summer and there is no tenant yet, being without power isn’t really a big deal.
No hydro during winter when you already have a tenant would feel a lot more stressful. And that has actually happened last December at another property when a furnace suddenly died.

Having said that, previous owner of the place was leaving quickly and left all her groceries in the fridge. I can tell you for sure - Taking out melted two-week-old food out of someone else's fridge does NOT feel very glamorous. I had to triple-bag the garbage. Yucky....

Any Costs?

Luckily for me, there is no re-connection fee.

The only cost is my time – I have to drive to/from the property and stay here during my scheduled 4-hour appointment time block.

This trip pretty much takes up an entire day! I can imagine how stressed I would've been, if I was still working and had to ask for time off to take care of this.

I am keeping fingers crossed, and hope my cell phone and laptop battery will last until the technician arrives.

Here we go… The technician is here! Hurray!

Should've Would've

Here's what I should've done.

Within a couple of days after closing, I should've called all vendors, enabled new accounts and set up auto-payments for the following services:

• Hydro
• Gas
• Water
• Tax
• Condo Fee

In addition, I should've notified each provider of my intention to rent the unit and to have tenant pay the utilities down the road.

In this case, many vendors have a process for rentals to make sure the account automatically goes back into the owner's name without re-connection fee, as tenants come and go.

Hey! Where should I invest?

I often get a question:

"Hey, I'd like to invest in .... 

plug in any town or city you are wondering about - Toronto, Milton, Hamilton, Windsor, Oshawa, Montreal, Ottawa, Rochester, Buffalo, etc... - 

... what do you think?"

To be honest, in most cases, I think absolutely nothing. I'd really have to do some homework and educate myself about the market before I can answer such a question.

Sometimes, I have a gutt feeling. Especially, when I've had some previous experience in a certain city. Still markets are so fluent and I'd need to look up latest stats and information, in order to provide an educated opinion.

I'd like to share a few questions that I research, whenever I'm getting ready to expand into  a new location.

If you have questions or would like to share your own tips on how to choose a great location to invest in, please add a comment below or send me an email!

1. Do People Want to Live There?

Ideally, population should be 100,000 - 200,000. If it's smaller, you'd really need to study the demand and supply carefully and make sure you know who your tenants are and how you'll find, attract, and keep them. You’ll also need to verify current inventory. Last week, I came across a city that had 26,000 vacant units while the total number of households is around 85,000 and has been declining. This tells me that supply drastically exceeds the demand and I’d have issues filling in units. Prices will not go up for a while in this market. 

There should be evidence and factual proof of recent and upcoming population growth. There are many great cities that, for one reason or another, have experienced population decline. Study latest trends in detail, before deciding to invest in them.

For example, if you come across a town that has been losing people over the past 50 years, I wouldn't bet on a sudden popularity spike. Watch out when you see outward migration, job loss, crime rate increase, poverty climbing up, vacancy rates sky-rocketing, lots of unused or abandoned inventory, etc. All these signs show you that you will likely have difficulty finding quality tenants. 

On the other hand, if you see population decline slowing down, flattening out, and notice people  starting to flood back in, you are onto something! Projected population spike might be a potential gold mine. If you start investing at the right time and get your property at a price that works, you might catch the wave of appreciation. 

Even though appreciation is always a bonus and should not be used in your assessment calculation as a given, it still makes sense to look for areas with high probability of growth and stay away from dying towns.

Projected population growth, recent considerable increase in population, new jobs and businesses opening, new or refreshed infrastructure changes, nearby city or town becoming hyper expensive and over-populated, and vacancy rates dropping are some signals of an emerging market.

2. Lots of Diverse Positives 

Look for social and economic diversity with lots of positives. Be careful when you see a location that has only one great thing going for it. An example of this is all the single big employer cities as well as cities majorly supported by a single industry.

I know that it might seem highly improbable for a giant company to shut the doors, yet we’ve seen so many examples. Windsor, Detroit, and Rochester are some examples of cities that went through a relatively long down town due to larger employers leaving.

One of the ways to find cities with lower risk of over concentration is to look for diversified and balanced list of positives across a wide spectrum: diverse demographics, income levels from entry to high, education from high school to PHD, household sizes from single person to families with kids, several unrelated employment industries, various types and levels jobs - white color, blue color, small businesses, large businesses, new technologies, and established employers, etc.

3. Who and How is Helping the City Grow?  

Lastly, I do a lot of research regarding economic development plans for each location that I plan to invest in. 

Looking at the plans of a City gives you a lot of insight into upcoming trends. For examples, some cities would promote latest technologies, set up programs to attract businesses, implement solutions to upgrade skills of the population to meet incoming businesses' requirements. You'd come across articles when agreements are made between various levels of the government to fund major infrastructure improvement programs: build new bridges, highways, and train stations; grow wind mills farms; re-build airports, etc.

On the other hand, you might come across a town that has its entire budget dedicated to fixing some pot holes in the roads. Most achievements listed on their website would be outdated or insignificant. No major partnerships with outside investors would surface, when you search for news on economic development. You'd realize that no one cares if the city grows. The focus is on status quo. In this case, you'd need to make sure you are good with the status quo and it works for your strategy. Momentum might last a few more years and this may be sufficient.

To recap, since my strategy is mainly based on buy-fix-rent-and-hold-long-term, I focus on finding locations with a high probability of market appreciation due to:

• Sufficient market size for my needs
• Recent, current and projected positive trends in population growth
• Lots of evidence for finding quality renters and demand for the type of units I offer
• Good supply/demand balance and trends 
• Minimal risk of economic collapse due to over-concentration in a single niche/industry/social group/etc.
• Great leadership and people interested in helping the city grow with budgets dedicated to major improvement projects that will attract jobs, people, businesses, and money. Work already under way! 

Pocket Deal: You make money when you buy! Literally

Got a property with 20% off!

In one of the real estate training programs I took, we learned about pocket deals.

I knew, in theory, that if you build great relationships with real estate brokers, you'd start getting deals off the market, which they call pocket deals. But so far this has never happened to me until today.

Today is my lucky day!

Because... I GOT MY FIRST EVER POCKET DEAL!


These deals are supposed to be great because:

• Price is low - you get a gigantic discount
• No one else even knows about the deal
• No competing offers even in the hot seller market!

Here is how it happened.

One of my friends focuses of flips. It's essential for him to find properties at super low prices. So, he  designed a system of finding deals off the market and putting them under contract. His system works great!

He gets houses ch-e-e-e-e-e-a-a-a-a-a-p. Then, fixes them. And flips!

Occasionally, he comes across a house at a good discount, but the discount isn't big enough for a flip. The cost of the transaction would eat most of the profit. These situations are best for those who buy-fix-rent-&-hold, like myself.

So instead of flipping, the deal was assigned to me. In this transaction, my friend plays the part of a wholesaler. He adds a profit (aka assignment fee) for himself before re-selling the deal to me.

Here are the numbers:

Market Price	290,000	[1]
Sold to Whosaler At	217,500	[2]
Assignment Fee	15,000	[3]
My Price	232,500	[4]
Downpayment	54,375
Closing Costs	10,875
Renovation	15,000
Total Investment	80,250	[5]
Instant Gain	31,625	[6]
ROI at Purchase	39%	[7]

1) Comparable houses are currently selling for 290K

2) My friend was able to purchase the property off the market at 217.5K

3) He charged finders fee,  which is called assignment fee, of 15K when he assigned the deal to me

4) I am paying 232.5K for the house

5) To get the property, my total investment will be ~ 80K, including dowanpayment, closing costs, and a renovation

6) Based on current market prices, I'll have immediate gain of 31.6K:

Gain = 290K - 232.5K - 10.8K - 15K = 31.6K

7) The moment I buy the property, my return on investment (ROI) is almost 40%:

ROI = 31.6K / 80.25K = 39%.

Cash and Other Benefits of Refinancing

Refinance - a way to convert Real Estate equity to cash

I can't believe it's already June and half of 2018 has zoomed by! May was a productive month. One of the big accomplishments was re-financing two of our properties.

Real Estate isn't very liquid type of investment. This means that you can't easily convert the value of your real estate properties into cash and go buy some groceries. This value is called equity.

Equity equals to current market price of your property minus the mortgage / loan balance that you have against the property.

As you hold a property, equity grows as market prices go up and as your mortgage principal is paid down by your tenants. If market drops, equity drops as well.

There are several conversion mechanisms to convert equity to cash. Re-financing is one of them. Another method is selling the property.

When you re-finance a property, you are basically starting over with a new mortgage.

As a result, your monthly mortgage payment will change. In my case, it went up considerably because interest rate has gone up from 2.95% to 4.39% and also because the size of the new mortgage is a lot higher than previous mortgage balance.

It might seem on first glance that re-financing and getting a higher monthly mortgage may be a very bad thing. If you think about it, your level of debt goes up. Your interest costs go up. Your cash flow from the property goes down. There are also various costs associated with the refinance transaction including mortgage broker fees, lender fees, and lawyer fees. Why would you do it?!?

Here are the reasons why this worked for me:

1) Getting Your Money Back 

Several years ago, when I originally purchased the property, I put in some money as a down payment. After purchase, I invested some additional money to renovate the place.

Refinancing helps me get all of my money back.

Once you have your money back, you can use it however you please. You can put it as a down payment for another asset, for instance. Or maybe you are nearing retirement age and would like to spend the money on your day-to-day expenses. Or perhaps, you have higher interest debt and you could use the money to pay off the lenders.

2) Maximizing Return on Investment

Let's take a look at an example. Suppose you buy a property for $100,000 with $20,000 down payment and suppose the market goes up by 2% every year.  Let's also say that principal pay down is negligible, for simplicity of calculations.

Then, after the first year, the property will appreciate to $102,000 and you would've gained $2,000.

Return on Investment (ROI) = $2,000 / $100,000 = 10%.

In this example, the market went up by 2%, but you made 10%.

This is because even though you provided only 1/5th of the money (20% down payment), you benefited from the growth of the entire house - and you got all of the gain.

What if you re-finance and pull all of your investment money out? In that case, you no longer have any of your money in the property, yet again you benefit from the appreciation of the entire house. This is when you get maximum returns:

Return on Investment (ROI) = $2,000 / almost nothing  = Infinity!

3) Doubling # of Assets That Work for You

Suppose, you buy another asset using the money that you pulled out at refinance.

Now, you have two assets working for you. Together, the gain from appreciation is $2,000 + $2,000 = $4,000.


Here are sample numbers for a refinance transaction:

The numbers above show you key numbers behind a refinance transaction. In this example;

New lender approved a loan of 255K. Out of this loan, previous mortgage of 135.5K was paid. Almost 7K was paid in fees.

Investors got all of their money back.

There was 63.7K of cash pulled out of equity. This is ~ 115% return on investment since the start of the project. Or, 29% annualized ROI.

Note: mortgage debt increased from 135.5K to 255K.

If you have any questions or would like more info, please comment below or contact me.

PS It might be tricky to figure out how much equity you've got in your property. Here's an Excel tool that I use to do all my numbers when it comes to planning mortgage pay down and future refinance transactions to extract equity.

Untangling a Messy Insurance Situation!

Look before you Leap!

When I was a little girl, my parents always expected me to run into trouble because I often rushed too much!

I would occasionally run into a corner of a wall or hit my shoulder on a doorway, just because of running and not looking ahead.

At school, I'd replace a minus sign with a plus mid way through solving a math problem or substitute a 3 for an 8...

Small mistakes lead to wrong answers and, in childhood, to a lot of bruises.


Well, some things are just a part of our nature. I have to admit that I'm still experiencing similar types of issues and hitting obstacles just because of going too fast and not looking ahead.

Found Really Cool Insurance Company

A few months ago, when interviewing market leaders on various topics as part of my book research, I discovered a very neat insurance company.

They specialize in home insurance and use technology to let average consumers choose exactly the coverage they need for their homes.

This process gives you an experience similar to how the rich would do it - a consultant walks with the rich through their home, pointing out fur coats and expensive vases and painting, and asking whether those should be insured and at what value.

This company repeats the same experience for every client using super friendly online application process.

For example, if you own a bike and live downtown Toronto, you can add bike insurance coverage. On a flip side, you can skip everything that doesn't apply to you and save some money. So, if you don't need jewelry or fur coat coverage, you won't be adding it to your plan.

Evaluating Risk can be Tricky! 

Another very neat aspect is that selections by default include all the necessary coverage. So you can't make a costly mistake accidentally.

For instance, even though earthquakes rarely happen around here in GTA, you shouldn't remove earthquake coverage to save a couple of bucks on your premium.

When dealing with insurance, always imagine what you'd like your coverage to be in case a certain disaster happens. Would you think saving two bucks a month was a great idea, when your home got shattered by an earthquake that no one even expected?

No! You'd want some money to get yourself a new place or fix those cracks in the foundation.

I learned during the interviews, that insurance providers already figured out adequate cost based on the likelihood of a certain event. They wouldn't charge consumers millions of dollars for earthquake protection in GTA. However, they do have a lot of data to validate the scenario and, if there is a slight chance that an earth quake is possible and can cause considerable damage, they'd offer the coverage.

So what I really liked about this new insurance company is that they wouldn't let you waive coverage of the type, where a typical consumer wouldn't have sufficient data to make a wise decision. They wouldn't let you take on a risk of losing everything just because your assumptions are based on day-to-day life and not backed up by lots of data with detailed analysis of trends and probabilities.

Instead they'd let you make very safe decisions such as increasing your deductible to save money on your premium or removing coverage that will not cause you to be out on the street in case of a disaster. For example, removing bike insurance and increasing deductible from 1K to 5K would be a great way to save money without putting yourself at risk of becoming homeless at the same time.

Saving $1,200 = A Week on Vacation

Now, at last but not at least, this new insurance coverage ends up being cheaper than what I currently have.

All the small savings from choosing the specific optional coverage I need and waiving safely components that I don't need, add up. Also, even though I have several properties, this company doesn't charge me extra.

Each of my properties still qualifies as a regular residential rental home and there are no extra charges for being a commercial client with more than 3 rentals. Traditional insurance providers would usually charge you extra, once you have more than three rentals.

I got quotes for the first three of my rental properties with a total saving of $400 a year. This might not sounds like much to you, but here is my math.

Saving across all of my properties would be around $1,200 a year.

$1,200 roughly equals to half a year of profits on one of my rental home. This is because my typical goal is to make $200/month on every unit. By tweaking my spending on insurance, I gain half a year worth of profits.

Let's see how the saving compares to what people usually make on a paycheck at a job. Let's assume 30% tax and 80K/year salary.

$1,200 equals to  $1,714 paycheck earned at work before tax. This is about 5 business days worth of work. Basically a week!!!

No matter how you look at this. The saving of $1,200 sounds HUGE in my mind and I wouldn't want to miss it.

Going Too Fast

Better Safe Than Sorry!

Obviously, I got very excited about this opportunity to streamline my insurance expenses and rushed forward.

I got three quotes for three properties and successfully transferred two of them to the new insurance provider: my primary residence and one of the rentals.

It was a very smooth and easy process and only took a couple of minutes and clicks at the computer.


Unfortunately, there was a snag with the third property!

What I didn't realize was that the company only insures a very specific type of residential properties.

There is an underwriting process that takes place after you get a quote and before you get coverage confirmation.

Oops!!! Left With no Coverage!

My third property didn't meet the underwriting requirements and coverage was rejected.

This happened because this property is not a typical residence. It is a triplex and is on cultural heritage list.

Unfotunately, I rushed forward and had cancelled the coverage with the existing provider BEFORE I received a note from the new vendor that they would not cover this property.

I did so because:

• I saw the two other properties transfer very smoothly. 
• I loved the quote for the third property as well. 
• It was the last day to cancel renewal with the current provider without any fees. 
• I tend to rush!

Ouch!!!

To make matters worse, when I started looking for another new vender, it turned out that most insurance companies would not even quote you on rental properties insurance unless you also cover your primary residence with them.

So, now with only a few days left, before my coverage expires I have to find insurance coverage at reasonable cost and move two of the properties from the new vendor elsewhere.

The good news is that the new company that I describe above doesn't have the requirement of covering primary residence. So I can still take advantage of their pricing for most of my properties. In addition, their cancellation fee and process is easy.

Now, fingers crossed! Let's see how my search plays out.

Have any comments or questions? Please comment below the post or get in touch directly. I'd be happy to hear from you.