THE ROAD TO RICHES?

Is being a landlord the road to riches?
By Tina McFadden
Postmedia News  Mar 15, 2012

CALGARY — Leaky faucets, broken water heaters, late rent — these aren’t the only issues that landlords have to deal with.

In the 12 years Rod Faulkner’s been renting out properties in Calgary, he’s dealt with unpaid gas and water bills, one physical threat and three trips through the civil court system to sue for damages.

“In the 12 years, people have scammed me in just about every way imaginable,” says Faulkner, who owns 12 Calgary revenue properties. “And every time I get scammed, it costs me money, and I learn a new lesson.”

Property managers can help landlords head off some of the challenges associated with rental properties. Typically, property management companies advertise vacancies, screen tenants, arrange for any maintenance work, deal with tenancy problems and collect rent. However, they typically charge 10 per cent or more of the monthly rent, as well as a tenant finder fee.

“All it takes is one bad tenant and costs go through the roof,” warns Gerry Baxter, executive director of the Calgary Residential Rental Association. “It’s very expensive to get rid of bad tenants. . . . More than anything, I think (being a landlord) is a challenging business.”

But the tenant headaches are still worth it, according to Faulkner, because the capital appreciation on revenue properties can pay off big-time — that is, if you can find a good deal in Calgary’s high-priced real estate market.

“Property values have definitely increased, and it’s harder to find a good property nowadays,” Faulkner says.

Realtor Janet Miller, who owns two rental properties in Calgary and one in Sparwood, B.C., says she’s figured out a way to pick good tenants — and keep them. She checks references for all tenants, and then undercharges in rent. For instance, on a single family home that would normally rent for $1,200, the rent may be dropped by $100.

“If we drop that rent to $1,100, for tenants it’s huge,” she says “For us, it’s not that much.”

The benefit is twofold. First, tenants don’t turn over very often. Second, the tenants rarely bother Miller with complaints.

By keeping her rents low, Miller says she also minimizes the maintenance factor with tenants.

“We have tenants who truly believe that they are flying below the radar, and they do not want to phone us when the doorbell fails,” Miller says. “They just go out and fix it. . . . They want to talk to us as little as possible because they know that they’re getting a crazy good deal.”

Faulkner doesn’t have any trouble finding tenants. But he says you need to pick your tenants carefully: “It’s a bit of an art to pick a tenant.”

And his guiding mantra when considering a property is: “Right building, right price, right neighbourhood.”

He looks for properties near downtown or the C-Train stations, as well as in neighbourhoods that exhibit pride of ownership. His portfolio includes townhouses, duplexes and triplexes, as well as the harder-to-come-by multiplexes.

He says multiplexes with four to 12 units are harder to find because they’re owned by guys like him who have accumulated properties and know how profitable multiplexes are.

“They’re not usually willing to sell them,” he says. “You can get 50, 60 years of good solid returns out of a building like that.”

A good revenue property should be “cash positive,” says Faulkner, meaning it should pay down your mortgage, and ideally, provide positive monthly cash flow after expenses.

Faulkner has managed to find the right properties at the right price (his latest purchase was less than a year ago), and he believes you can still find positive cashflowing properties in Calgary today. Again he says it all comes down to the right property, price and neighbourhood. He factors in rising interest rates when determining whether the price is right.

A systems engineer, Faulkner, 42, plans to retire in less than 10 years — many years earlier than he could retire without the revenue properties. He expects to earn approximately $200,000 in cash flow annually from his revenue properties. Alternatively, he says he’ll be able to sell his entire portfolio for $4 million to $5 million. Of course, that’s assuming he continues to make the right purchases and the economy goes well.

“You have to believe in the Alberta economy, that we’re going to have a constant influx of immigrants,” he adds. “Calgary’s forecast to grow and grow and grow.”

As a realtor for MaxWell Canyon Creek, Miller advises clients looking for revenue properties. During the past year, about 20 per cent of her buying clients purchased rental properties. She has recommended single family homes and condos — it all depends on her clients’ needs and goals.

If clients can’t come up with the mandatory down payment for a revenue property (20 per cent), she’ll suggest renting out the property they’re living in, and buying a new primary residence for themselves with five per cent down.

Miller, unlike Faulkner, believes it’s highly unusual to find revenue properties in Calgary that cover all your costs or provide positive monthly cash flow. However, she’s not looking to make money on her rental properties each month. If she starts to make money, she shortens the amortization on the mortgage and reinvests the money into the property. That way, she keeps her mortgage payments high, pays off her mortgages faster, and deducts the mortgage interest and other expenses.

In the meantime, her tenants are paying down her mortgages. By the time Miller and her husband retire, the mortgages will be paid off.

“And somebody else will have bought the houses for us,” says Miller with a laugh. She expects the income from their rental properties to account for a significant portion of their retirement income.

“The beautiful thing about buying a house instead of stocks is that somebody else is paying off the investment for you,” she says.

“I really believe in real estate as an investment.’

What real estate can do is diversify stock portfolios, says Frederick Montilla, a financial consultant with Investors Group.

“If you speak to affluent Canadians, they have a combination of everything — they’re totally diversified,” he says. “That means they have money in the stock market, they have money in their pension, they have money in their corporations, and they have rental properties as well.

“The person who has an investment property will be better off than the person who is just investing in the stock market because the person buying rental properties has two advantages — the value of their property is appreciating while their tenant is paying their mortgage, and their mortgage is depreciating,” says Montilla.

“The only problem is (real estate) is not liquid,” adds Montilla. “But if you were to compare both, the rental property will outperform the stock market returns.”

In Faulkner’s case, the revenue from his rental properties has enabled him to launch an additional business. He recently opened a liquor store in Canmore, The Market Beer, Wine & Spirits.

You have to look at your rental properties as a business, he says. “Some people get attached to them. They feel it’s their home, and when a tenant puts a hole in the wall, they feel personally affronted . . . . You have to be detached from it . . . . The only reason you’re putting in the extra effort is to make money on it.”

THE MAGIC 8 BALL

8 Factors That Devalue A Good Home
By INVESTOPEDIA

If you’re considering selling your home, there are a number of factors you should consider regarding the resale value of your property. Some of these issues may devalue your home or scare some potential buyers away entirely, even if your home is an otherwise outstanding property! Consider these eight factors when listing your home.

1. Location, Location, Location

Many real estate television shows repeat this phrase over and over. Buying a home in an area that provides residents with access to services and effective transportation is important – though many buyers don’t wish to live too close to airports and busy roads for fear of noise.

Visual appeal is another concern. Cell phone towers and power lines can be seen as eyesores – or possibly even having potential health hazards. Local school closures can also deter potential buyers who have children or who are considering having children in the near future. Some buyers may be leery of purchasing homes that are on flood plains.

To ensure maximum resale potential, consider how many of these types of issues exist near the properties you’re considering. Remember, though, there’s no way of knowing exactly how a neighborhood will evolve over time. (A lazy or incompetent real estate agent could spell disaster.)

2. Good Renovations Gone Bad

If your home looks like a DIY nightmare, this can definitely devalue your home. Though putting money into renovations generally increases the value of a home, poorly done renovations can have the opposite effect. If buyers feel that the renovations will have to be redone, there’s a good chance they’ll make a lower offer or keep looking for a move-in ready home.

3. Overly Creative Customization

That bright pink feature wall might have seemed like a good idea at the time, but the truth is that unusual paint choices – both inside and outside the home – can turn buyers off, even if your customization is the cutting edge trend in current home design magazines. Customizing spaces so that they may not be functional to future buyers, like turning the garage into a home gym or a granny apartment, might make some buyers reluctant to buy your property.

The same can be said for unique landscaping choices or renovations that are too high scale for the house. A professional chef’s kitchen or marble bathrooms in a modest home suited to first-time buyers won’t likely provide a good return on investment.
4. Unappealing Curb Appeal

The first thing potential buyers will see is the exterior of the property. If the house appears to be outdated or in poor repair on the outside, people will assume it is the same for the inside. Water features or swimming pools and overly landscaped green space may turn off some buyers since people tend to associate high maintenance yards with expensive upkeep and unnecessary headaches. Old fences and sheds can also devalue your home, especially if they look like they’re in dire need of replacement. Keep the gardens weeded and the lawn mowed so that potential buyers can see how nice the property is, inside and out.

5. Pets Gone Wild

Many people won’t mind buying a home that has had resident animals, but no one wants to live with constant reminders of former owners’ pets. Damage to carpets, walls or a strong smell of animals will put off some buyers – especially those with allergies. Consider letting your pets live elsewhere while the property is for sale. Also, a good cleaning and repairing of any visible damage will help to mitigate the potential devaluation of your home associated with pet ownership.

6. Not-So-Nice Neighborhood

A dodgy neighborhood with a high crime rate or homes on your block that look unkempt can scare potential buyers away. Even if your neighbors have unusual-colored homes or have made strange additions to their homes, this can be perceived by potential buyers as an eyesore.

7. Sinister Reputation

Well-known crimes, deaths or even urban legends associated with your house or neighborhood can decrease the value of a home immensely. Most people don’t want to live in a home where they feel that something awful has happened, much less move in with your alleged resident ghost! Though these kinds of issues may be out of your control, they may certainly have an impact on the resale value of your home.

8. Frightful Foreclosures

Many buyers are leery of purchasing foreclosures that are being sold on an “as-is” basis. The fear is that the home could be a money pit or require a huge amount of repairs before being move-in ready. Some good homes may be available through foreclosures, but it’s important to do your research, ask lots of questions and don’t be afraid to bargain. It’s also crucial that you get a home inspection so that you know exactly what you’re getting into. There’s a good chance that some work will be required when buying a foreclosure, but you may get great value for your money if you’re willing to put in a little work.

The Bottom Line

Neighborhoods change over time, so there’s no way to be totally sure when you buy a property how the area will look in the years to come. However, you should always make your best efforts to address any issues with your property that are within your control. Play up your home’s strong points and get involved with your realtor to ensure that any special features of your home and neighborhood have been highlighted.

Photo By: .Craig

GOOD THINGS COME IN 3s

Can I quote you on that? Renovating a home requires an endless process of decisions. And the first one-choosing who will do the work-is often the most daunting.
By Ruth Myles, Calgary Herald
February 26, 2010


The most well-known adage in real estate is "Location, location, location." The second-most famous, which applies to renovation, also features a trio: "If you're going to have work done, get three estimates." Easier said than done. What exactly should be in those estimates? Is there a fee involved? Should floor plans and finishes be nailed down before approaching these fabled three companies? Often, the sheer scope of what's involved can overwhelm homeowners interested in a reno, relegating the dream project to the back burner for yet another year. But take a deep breath--even better, take three--and we'll take that first step together.

Ask family, friends, co-workers and neighbours for recommendations. (Basically, everyone you know.) And don't be afraid to knock on a stranger's door if you know that a house down the street had a new kitchen put in. Most people are only too happy to share their experiences. Check out Calgary-based publications, such as the Herald's Life at Home or New Homes sections, for renovation features and profiles of award-winning companies.

Once you've compiled a list of contenders, start calling around. Have footage, features and finances on hand. Many companies employ a multistage approach to estimates. The process starts off with a ballpark figure, then moves into more detailed accounting the further into the process you get. "From ballpark to budget to final, we're going to be plus or minus 10 percent. If 10 percent is going to make or break the project, then we shouldn't be in the running to begin with," says Steve Perlette, project manager at Litwiller Renovations and Custom Homes. (Hence, the wisdom of budgeting an extra 10 to 15 percent of the total cost of the renovation. There's nothing like scrambling to come up with an extra 15K.)

Ultimate Renovations also begins with an educated estimate; then, if both parties agree, they draw up a plan and create a spec document that details anything and everything in the job, from framing to the number of electrical outlets to the kitchen sink and its faucet. "Pay for a proper drawing and then, if you want, go shopping," says Danny Ritchie, president of Ultimate Renovations. "This way, you're comparing the same apples to the same apples."

His company charges two percent of the job cost for these plans, but that fee is waived if Ultimate gets the job.

In addition to checking references, Ritchie recommends that potential renovatees request a visit to the business's office, as well as current job sites, to get a real feel for the kind of work they do. "Sure, they may have been in business for 40 years, but under 40 different names." And, as different companies have different levels of spec, it's important to ask what their level of finish is. "You can do very inexpensive casings, carpet at two bucks a square foot, stuff like that, so there can be a fairly substantial spread in specifications," Perlette adds. Once homeowners have a range of quotes from three companies in hand, Perlette recommends choosing between the ones that are consistent in pricing, throwing out the high and the low. "You'll usually have two or three that are fairly realistic and have valuable numbers in them."

Of course, people need to look at more than just dollars and cents when it comes to choosing a renovator. The potential to establish a real connection should be the final dealmaker. (That has certainly proved true for me. Five people have keys to our home and the only one not related by blood is John, our handyman since we bought the house in 2006.) "Pick the people that you like, that you enjoy talking with, that you think you can communicate with because it's a long process," Perlette says. "It's very invasive. You have to live with these people for a very long time."