By Stephanie Chabot
It seems like it could be an easy thing to become a landlord, right? Well, it isn’t always quite that easy. How do you decide what kind of landlord you want to be? Do you want to rent a room, a space (like parking or storage), a unit, land, a building? How do you find opportunities? How do you figure out if a deal is worth it?
Dear Diary,
I started my Real Estate Investing (REI) journey last year. Actually no, that’s a lie. Truly I started three years ago when I began educating myself and looking for a property. I now own three properties, including Short Term Rental (STR) as well Long Term Rental (LTR) that I use to house hack and pay for the home that I live in.
I made a lot of mistakes along the way and I learned a lot of lessons. By reading this article, you should be able to avoid these mistakes that I made on your own REI journey!
Casting a Wide Net
When I first started my search, I was an absolute mess.
I had done limited research, and I was looking for something that had a huge amount of cash flow. Unfortunately in my area, this wasn’t necessarily possible as property prices are very high in my area, and rent control is extremely strict.
Because of this, I had no focus area. I cast much too wide of a net.
One day I was looking at a condo in the city, the next day I was looking at a plex 2 hours into the countryside. I was looking at renting bedrooms in a manor, and I was looking at a piece of land I could have an agricultural business on.
I mean, I had the right mindset of considering all possibilities, but I also really needed to narrow it down. Why is that?
When we cast too wide of a net, it makes it very difficult to analyse opportunities. I couldn’t easily compare the maintenance, vacancy, cash down required, etc. for all of these properties easily. It led me to being stuck, overwhelmed and confused.
What I needed to do was to pick an area, and pick the type of rental I’m looking for. This would make comparisons easy, would reduce my stress (and my poor real estate brokers’ stress), and help me find something quickly (it ended up taking me almost 3 years to buy).
Building The Right Team
It’s very important when buying an income property to have the right people on your side. Generally, this is a very different process from buying your personal residence.
A Trustworthy Lender
The first person you need is a mortgage broker or lender that you can work with quickly and efficiently. When you buy a personal residence, the amount that you qualify for generally doesn’t change (certain amount for a condo, or a certain amount for a single family home).
With income properties, what you qualify for in a mortgage can vary based on the property’s revenue (or appraised potential revenue), so you need someone who is available to give you a quick answer on if a property can work or not.
What you’re looking for here is for someone who you can trust, who gets back to you quickly, and who is easily reachable (within reason, obviously not in the middle of the night, lol!)
An Experienced Real Estate Broker
A real estate broker who traditionally deals with single family residences will differ from a broker who is experienced with income properties. Often, you might even be able to find brokers who have their own REI portfolio, and can assist you in your search.
In my experience, my broker was someone who felt comfortable telling me something was a bad opportunity, or wouldn’t give me the results I was looking for. This was extremely valuable assistance to me because where I ended up buying was in a different province. I would have made some terrible purchases if it wasn’t for her help and honest input.
You also want to look for someone that will actually assist you and not pass you off to an inexperienced team member. It’s important to look for efficiency and diligence, and not to lose out on deals because your broker is too busy to get back to you or show you properties.
See from your network (more on that below), if they know any real estate brokers experienced with the type of property you’re looking for. Have an initial discussion with them, ask questions, and see how you feel about working with them. Don’t be shy to tell them you don’t think it’s a good fit! This is your money and you should feel 100% comfortable with who you’re working with.
A Network of REI Investors
Have you ever heard the term “it takes a village to raise a child”? Well, real estate is the same. You can certainly try and do your best to do something on your own, but you will save yourself a lot of time and trouble with the right network.
This wasn’t necessarily easy for me to do initially. I know a few people that had basement rentals, but these mostly just came with their single family residences. They were not necessarily the contacts I was looking for in terms of vetting deals and helping me with the day-to-day.
Since I did not have this network at my disposal, I went to the next logical place: the internet!
Between podcasts, joining local/national/international REI Facebook groups, following REI accounts on Instagram, reading blogs, searching through TikTok – I was able to build a really great surrounding of supporters.
I have to say, Facebook is my personal favourite! (That’s funny because it’s pretty much the only reason I go on Facebook). I love seeing these forums of people helping and encouraging each other! It’s so helpful, and there is so much to learn.
Tradespeople and Other Workers
Another very important part of the team are the people that will help you maintain your property. If something goes wrong, you want to have the right people to call that you can trust. You also want to have the right people working for you so things DON’T go wrong! These are everything from plumbers, electricians, to cleaners and landscapers!
Generally, your real estate broker and local REI network will be a great asset in providing you with recommendations depending on what you’re looking for.
Remember that the team you need here will vary depending on the type of rental you have, as well as what you want to do yourself to save costs.
Property Management
I won’t get too deep into this one as it is purely optional. Depending on how much you want to be involved in your rentals, you might consider a property manager or property management company.
In essence, property managers will take a percentage of your revenues in exchange for managing some or all of the work for your properties (finding and vetting tenants, collecting rents, property maintenance, etc.)
It’s important to look into this very carefully:
1) Property management can eat into your cashflow
2) Property management varies tremendously with the quality of service you receive
3) Property management might be necessary depending on your proximity
If you do choose a property management company or person, make sure to have someone who is recommended to you and experienced. You don’t want someone who isn’t giving you top-quality service if you’re giving them a chunk of your profits.
Don’t forget that the more properties you acquire, you can negotiate how much of a percentage you are paying to your property manager. Always negotiate!
Analysis Paralysis
I think that this one speaks for itself. It also ties back to casting too wide of a net.
Analysis paralysis is when we get too overconsumed in the analysis part of an investment (maybe the numbers, maybe the logistics, etc.). This is the beacon of overthinking.
I spent a tremendous amount of time in analysis paralysis. I lost deals because of it.
At one point, I had to take the risk. I had crunched the numbers, considered the logistics and it was TIME.
It’s very important to do your diligence, but at one point you will need to take the plunge!
Taking The Plunge
There is risk in everything that we do. Every little thing, every day has risk associated to it. We choose (consciously and unconsciously) what kind of risk we want to take on a daily basis.
When it comes to bigger decisions, we need to make an analysis (qualitative and quantitative) and eventually accept the risk and take the plunge.
You’re bound to make some mistakes, but with those mistakes you will learn lessons. I think of it like anything else: for example when you learn to ride a bike. First you might know what to do, be a bit afraid, but eventually you will take off, stumble, learn and improve! REI is just the same.
Happy investing!
Love,
Stephanie
