BOOM Issue 17 by Boom Magazine

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Issue 17

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Mortgage Strategies for Investing Accredited Mortgage Professional (AMP) Sylvia Sigurdson of Mortgage Depot gives out helpful pointers to real estate investors on financing options for purchases and refinances. Understanding the fundamentals behind mortgage strategies, such as interest rates, amortization, payout penalty/blended rates and multi-level mortgages, is essential in achieving property investment success.

Are You an Investor...Now?

Susan Mallin, an experienced Financial Planner shares her insights on purchasing properties in the US from a financial planning perspective. Read on to learn about what to watch out for when you are looking into investing south of the border as a Canadian buyer.

If Warren Buffett were a Real Estate Investor

Investing in stocks is similar to investing in real estate in many ways. In this article, you can find how some famous quotes by Warren Buffett can be applied to property investment.

5 Easy Mistakes to Avoid When Considering a Deal

Author Richard offers advice on how to avoid the common traps real estate investors fall into. He also discusses about walking the fine line between conducting proper research beforehand and â&#x20AC;&#x153;just going with itâ&#x20AC;?in closing a hot deal.

Achieving Work-Life Balance as a Properti Investor

Expert Advisor Jared Chamberlain of The Chamberlain Group Real Estate share with real estate investors the importance of leveraging personal strengths to better manage their time, and in turn, wealth. By recognizing and focusing on key strengths, Chamberlain has been able to see obvious improvement in his work and personal life.

about BOOM Magazine BOOM Magazine is all about property investment. When this magazine was conceived, the market lacked some real content relating directly to property investment. It seemed like just about every realtor could contribute an article about selling your home, and it would be in blogs and magazines all over the place. BOOM Magazine was created for the property investor, by the property investor. Each month, you will see contributions from professionals in the market as they share their experience in the field. Within BOOM Magazine, you can expect the very best of our market - whether it relates to property investment, financing and leveraging or the different asset types, BOOM Magazine will be sure to have it as an editorial. Would you like to contribute to BOOM Magazine? Email editor@bestofourmarket.com and weâ&#x20AC;&#x2122;ll talk. Would you like to influence the direction of the magazine? Register to subscribe and vote on the polls on what type of articles you would like to see more of.

contributors Sylvia Sigurdson

Jared Chamberlain

For over 14 years, Sylvia has been assisting people with their mortgage needs, originally as a licensed realtor and now as an Accredited Mortgage Professional (AMP) at Mortgage Depot in Victoria, BC since 2004. She has specialized in helping her clients acquire investment real estate as part of a wealth-building strategy and excels at structuring mortgages with the greatest tax advantage in mind.

Jared Chamberlain is the Lead Partner of The Chamberlain Group Real Estate Expert Team with Royal LePage Foothills in Calgary Alberta Canada. Jared and his wife Rebecca together run a real estate team that have helped over 900 home buyers and sellers have a positive experience in their real estate transaction in the Calgary area. Jared focuses on Online Marketing for their clients and is an Amazon best-selling Author of “The New Rise in Real Estate”.

www.mortgagecanada.com

www.chamberlaingroup.com

Julie Broad

RicharKilleen-Payne

Julie Broad has been investing in residential real estate for over a decade across Canada. She’s a featured keynote speaker and an award winning real estate blogger with a passion for helping others transform their financial future with real estate investing.

Richard Killeen-Payne is a full time REALTOR® (Keller Williams Realty), Investor and President of Invicta Property Investments based in Halifax, Nova Scotia. Moving to Halifax from the UK he is a Chartered Management Accountant with a passion for Real Estate Investing and all things real estate as well as the founder of Real Estate Investors Halifax group with over 290 members. He has been a featured speaker and presenter to industry leaders at Real Estate Investing Network (REINTM) events as well as being featured in the Canadian Real Estate Wealth magazine many times.

Connect with her at: www.revnyou.com

Kerri-lyn Holland Kerri-lyn Holland (REALTOR®), who grew up in St. Albert, has had a passion for real estate for most of her life, and has over 7 years experience in real estate. Holland & Associates (with RE/MAX River City) pride themselves on their work ethic and surround themselves with like-minded service providers. They provide outstanding service to both buyers and sellers in the Edmonton area, including St. Albert, Sherwood Park, Beaumont, Spruce Grove, Morinville, Stony Plain, and Leduc. Please visit www.kerrilynholland.com for more info

Mortgage Strategies for Investing By: Sylvia Sigurdson Financing plays a major role in real estate investing. The terms and conditions of your mortgage affect your cash flow significantly and can even make or break the success of owning property. Here are a couple of points to keep in mind when you’re researching financing options for both purchases and refinances. Interest Rate Getting the lowest interest is not always the most important factor in the big picture of your investment financing. If having a positive cash flow is your priority, then it may be worth paying a higher interest rate to get better terms. For example, if you were offered a mortgage at 2.99% that had a 25year amortization, the payment would be the same as taking 4.5% with a 35-year amortization. Therefore, any mortgage with a 35-year amortization and an interest rate less than 4.5% is going to improve your cash flow. The days of interest-only mortgages are over but a secured Line of Credit (LOC) allows for interestonly payments. If the LOC had an interest rate of 5.75% the payments would be the same as in the above example. (Keep in mind that you would never pay it off, but this argument relates to cash flow only.) Of course, when comparing apples to apples, or amortization to amortization, the lower rate would be the way to go! Amortization As mentioned, amortization plays an important role in any successful real estate investment strategy. Here’s why: As long as you have a mortgage on your own home and the interest is non-tax deductible (if you haven’t already borrowed against it for investment purposes) it’s important to finance any revenue properties for the longest amortization possible. There are still a few lenders out there who do 35-year amortiza-

tions, making them ideal for revenue properties. The rule of thumb is to always pay down your principal residence mortgage first because it is the nondeductible debt. If you’re able to save $200/month by stretching out the amortization on the income property, take that extra $200 and put it directly onto your personal mortgage. Once all of the non-deductible portion of your own mortgage is paid off in full, then amortization on your revenue property becomes irrelevant from a tax-savings perspective. You can pay off the investment properties’ mortgages as quickly as you like, starting with the one(s) with the highest interest rate. There may be other factors involved so this is not a hard and fast rule. If you’re planning on selling one, for example, you may want to focus on that mortgage in order to reduce any potential payout penalties. These are all things to discuss with your broker when you’re talking about ‘the plan.’ Payout Penalty/Blended Rates I’d like to clear up a misconception around mortgage Interest Rate Differential (IRD) payout penalties and blended rates: Your payout penalty represents the interest between the rate you have and current lower rates. Therefore, if you keep your current higher-rate mortgage you will be paying those penalty charges over the remainder of the term of your mortgage. If you blend your mortgage rate by keeping your current rate and ‘blending’ it with a lower rate you also end up paying the higher interest charges over the remainder of the term. It just feels better, because it’s blended with the lower rate, bringing down your current high rate on paper. In both cases, you’re ultimately paying the extra interest but it’s spread out over the term as opposed to upfront in one lump sum.

Ask your mortgage broker to run the numbers to see if the interest you would save by refinancing at today’s low rates is the same or greater than the penalty. For example, if your penalty is $10,000 but you’d save $10,000 between the two interest rates, then it would make good financial sense to refinance at the lower rates. Often there’s an opportunity to reduce your monthly payments (better cash flow) or take out equity to purchase other property. If there’s enough equity in the property, you can add the penalty to the mortgage so you don’t have to come up with ‘the cash’ for the refinance. Multi-Level Mortgages While we’re on the topic of refinancing, if you are getting ready to purchase your first income property it is the ideal time to change the structure of your mortgage in order to make it more effective at tax time. If it makes sense to do so (depending on payout penalties, etc.) a multi-level mortgage will give you much more flexibility when the right property comes along. You can set the terms of your existing mortgage to whatever your preferences are and the remainder can be set up as a secured Line of Credit for ‘future investment purposes.’ When you purchase the property this LOC will be used for your down payment and closing costs. Some lenders allow you to also convert an LOC to a blended mortgage, so make sure you ask before making the final choice. If you’ve already purchased a revenue property, used some of the equity in your home for the down payment but didn’t get a multi-level mortgage, it would be worth looking at the next time you refinance. The biggest reason? You can have two different amortizations for both your personal non-deductible mortgage and your revenue property. Set the first one as short as possible and the second as long as possible for your maximum tax advantage. And if there’s any equity left overset it up as a secured LOC for ‘future investments’ as well. As long as the equity is there (20%) and you qualify for the higher mortgage, re-advancing on this type of mortgage is relatively simple, making it ideal for the savvy investor.

Are You an Investor...Now? Without a doubt Alberta’s energy sector has brought excellent growth to Edmonton’s real estate market in recent years. Holland & Associates at RE/MAX River City describe the current investment property landscape in terms of its challenges, as a result of heightened competition, and opportunities, given Edmonton’s diverse population. Discover what type of tenant and property best fits your investment portfolio.

Are You and Investor...Now? By: Kerri-lyn Holland & Jason Holland Edmonton is a dynamic city for investors who are looking for affordable property values and a strong rental market. Its close proximity to the oilsands in northern Alberta, as well as its large upgrader projects planned for the future (such as the new bitumen refinery expected to be operating by 2016 in Fort Saskatchewan, just minutes from Edmonton), amount to great employment opportunities. Sectors such as financing, manufacturing and retail are benefitting directly or indirectly from the growth experienced in the energy sector. With many projected projects in the works, Edmonton is a sure location for years to come. This spring has brought an influx of investors from all types of backgrounds. Whether you are a first-timer or well-experienced and looking to expand your portfolio, Edmonton has something for everyone. The current market is extremely active on the investment property front. Investors continually keep a sharp eye for properties as they become available, and then are ready to rush out to see them and write an offer within the next hour. It sometimes leaves first-time investors at a disadvantage because of the speed at which decisions are made in order to beat outcompetitors. As competition becomes fiercer, we are starting to see the onset of more multiple offer situations. In some cases, we are even seeing offers with no conditions. Many of these unconditional offers are for lot value properties, where the house has essentially no value and the buyer is simply purchasing the land. It is very popular for investors to look for larger lots which are a minimum of 48 feet wide and zoned for duplex development. They often buy older homes at lot value and then build a brand new duplex. These duplexes are popping up all over the place in areas near the university. Areas like Belgravia, McKernan, and Allendale are very popular with

young professionals and families who want to live in a mature neighbourhood close to the LRT, but without the worry of the maintenance of an older home. Vacancy rates in Edmonton have remained consistently low, providing investors with increased purchasing confidence and a steady income year-round. This also means that investors are in a position to be more selective when choosing a new tenant. With low vacancy rates, many investors owning older properties are avoiding upgrades on their property. They are happy to collect the rent and fill each nook and cranny with a paying renter. This strategy has been very popular in university areas where there is a high population of student renters. Students typically will share kitchens, bathrooms, and require just a bedroom with a lock on the door. In Edmonton, around the University of Alberta, it is not uncommon for students to pay $500 per month for a room in a house. A 3 bedroom home with a finished 2 bedroom basement could generate $2500 per month. If you are new to investment properties a more comfortable route would be to focus on areas that professionals are renting from. Since the income of professionals is higher than the typical student, they are more willing to pay for a better quality property in a good location. As a landlord of amore modern or updated property, the likelihood of repairs and maintenance would also tend to be less. With so many options, it is important that investors take the time to consider the type of property that suits them in regards to the amount of work required, the type of tenant they want to have, location, and of course their expected income from the property. This way, once the property does become available, the investor and their realtor can recognize and seize the opportunity right away.

Holland & Associates at RE/MAX River City (Kerri-lyn Holland & Jason Holland, and their Licensed Assistant, Catherine Evasiuk) pride themselves on their work ethic and surround themselves with like-minded service providers. They provide outstanding service to both buyers and sellers in the Edmonton area, including St. Albert, Sherwood Park, Beaumont, Spruce Grove, Morinville, Stony Plain, and Leduc.

If Warren Buffett Were a Real Estate Investor Investing in stocks is similar to investing in real estate in many ways. In this article, you can find how some famous quotes by Warren Buffett can be applied to property investment.

If Warren Buffett Were a Real Estate Investor By Julie Broad Stock investing has some fundamental principles that are similar to real estate investing. For example, in-depth research for both investments is critical. Bad management can ruin a business just like it can ruin a property and in both cases, the best money is made in the long term 99% of the time. What are some famous quotes by Warren Buffett that can be applied to real estate investing? 1. “No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month just by getting nine women pregnant.” It’s the same thing with wealth creation. You can make money fairly quickly in real estate, but cash is not the same thing as wealth. Real wealth creation in real estate does take some time. It doesn’t take a lifetime but it’s not overnight. 2. “The smartest side to take in a bidding war is the losing side” When the price is going higher and higher, you are losing your return. That is why you don’t want to win in a bidding war. Usually when bidding wars end the winner has overpaid. The winner is the last fool standing. Nobody gets rich paying too much for an asset. You’re much better off, as a real estate investor, to find the assets that aren’t as desirable today and find a way to create value and make them desirable than you are to buy the hot products at hot prices and hope they continue to be the hottest ones. 3. “A public opinion poll is no substitute for thought” It’s difficult to ignore the sentiments in the market. When everyone is excited or scared about real estate, it’s really hard to ignore that. But the best

deals on real estate are when nobody is buying and the media can’t stop talking about the housing crisis and the poor economic situation of the housing market. No matter what - do your own market research. The confidence and clarity that comes with doing your own research is invaluable even if you do end up heading the same direction as the herd. At least with your own facts, you will understand why you did, and be able to recognize and make adjustments if the climate changes. 4. “I don’t try to jump over seven-foot bars; I look around for one-foot bars that I can step over.” Many new real estate investors dive in thinking they will do a dozen deals in their first year, buy properties for “60 cents on the dollar” and cash flow thousands of dollars every month. Deals like that do come around, but they aren’t that common. Often you can find deals like that in areas that you probably don’t want to drive in let alone own in. And quite frankly, if you wait for deals like that in good areas you could be sitting around trying to be a real estate investor for years. Instead, focus on finding a good area to invest in and then find a good solid property that will be easy to attract great tenants to. Over time you will find that you make a lot of money from cash flow, mortgage pay down and property appreciation from that one simple deal. If you keep doing that... finding one foot bars to step over instead of waiting until you find a seven foot bar you can leap over, you’ll build your wealth steadily and successfully over time. 5. “I made my first investment at age eleven. I was wasting my life up until then.”

Time is passing by - whether you’re investing or not. And given that it takes time to build your wealth there is only one thing you should be doing right now... focusing on how you’re going to make yourself wealthier tomorrow by doing something today. Keep it simple. Real estate investing is a great way to make a bit of cash every month and build massive wealth for the future. If you try to make it more complex than that, Warren would have words with you!

5 Easy Mistakes to Avoid When Considering Real Estate Deals Author Richard offers advice on how to avoid the common traps real estate investors fall into. He also discusses about walking the fine line between conducting proper research beforehand and â&#x20AC;&#x153;just going with itâ&#x20AC;?in closing a hot deal.

5 Easy Mistakes When Considering Real Estate Deals By: Richard Killeen-Payne Certainly the best strategy for dealing with mistakes is to avoid them in the first place. Doingproper analysis right from the start will allow you to take better control of your investment. Here are some tips to help you navigate around common analysis mistakes: Mistake # 1: Taking too long

are selling the property and want to get the best possible price so it is in their best interests to make the numbers look good. Mistakes # 4: Not factoring in a vacancy contingency fund

Even if you are totally confident that you will have no trouble renting the unit, you should still consider a vacancy contingency fund (5% of your gross rent) and include it as a monthly expense. Even if you don’t end up using it, it will certainly help cushion the blow if you do. It’s your job to minimize this number but However, spending too long analyzing, deliberating never take it out of your calculations. and procrastinating may just lead to fruitless, unprofitable investments. Develop a method now that will Mistake #5: Not Verifying the Property Taxes allow you to run your numbers quickly and efficiently. The good news is….the more deals you analyze, Again,back to the expenses sheet. Property taxes are, the easier it will become and the more refined your in most cases, based on the previous year. The deanalysis method becomes. tailed listing cut *should* have the most recent property taxes listed. Bear this number in mind as it is Mistake #2: Overestimating Market Rents highly likely that it will increase and may affect your projected cash flow. There’s no sure way of finding the optimal rent for a property but there are ways you can find rental rates Bonus tip! Trying to make the numbers work: for similar properties on your own. Look through When you find yourself “playing” with the numbers online sites that offer rental listings and find similar just to make the property cash flow work, you need to properties. stop and walk away. This is the first sign that you are getting too desperate to get a deal. Take a deep breath, Pay close attention to rental ads that come up on web- close the spreadsheet and move on to another propsites that your market and renters search on. Make erty. Remember, the next good deal is just around the adjustments to the proposed rents based on what the corner - you just have to look. norm is in your current market. Also, check CMHC (Canada Mortgage & Housing Corporation) for up- Real Estate investing can be a great way to improve to-date statistics on vacancy rates, typical rent… etc. your financial status in the long term. In order to experience success, you need to be strategic in your apMistake #3: Relying 100% on the Seller’s Num- proach and avoid some of the most commonly seen bers property analyzing mistakes. A great deal usually will not stick around for long. Buying an investment property is time-consuming and emotionally-taxing since you you want to be certain “it’s just right” before taking action.

The numbers on a listing sheet are very rarely accurate. How can you tell? If many of utilities costs are rounded up, double check to make sure the financials are not just an estimated guess! Don’t forget that they

Richard Killeen-Payne is a full time REALTOR® (Keller Williams Realty), Investor and President of Invicta Property Investments based in Halifax, Nova Scotia.

Achieving Work-Life Balance as a Property Investor

Achieving Work-Life Balance as a Property Investor By: Jared Chamberlain Investing in real estate is a fantastic way to build long term wealth. In fact, you are probably reading this because you already know this and are interested in some strategies. One of the biggest challenges in life is balance. Balance between work and family, play and meetings, personal life and work life. The reality is – what I have learned is – that balance will never be achieved; we need to learn to adapt and move with life’s ebbs and flows. Here’s why: If I have a large project at work, something else in my life suffers and naturally, I get pulled away from it. Let’s say that I am pulled away from time with family in the evenings. In an effort to ensure my family is on board, I make an agreement with them that for the next month, I won’t be home in the evenings. The next month arrives and I am back being home in the evenings, however, I decide that it’s a good time to start training for a triathlon. Naturally, something else in my life gets slighted, but only for a time. Then I need to adjust to the next thing. What does this have to do with investing in real estate? The reality is, there is always something in our lives that is demanding our time and attention. With the world around us moving so fast, constantly interrupting, we need to focus. The best way to focus is to know where you are heading and how you are going to get there. Life isn’t a matter of chance; rather, it’s truly a matter of small decisions and choices we make every single minute of the day – deliberately choose what your life is to look like. Darren Hardy emphasizes this when he says, “Un-

successful people think about what they don’t want most of the time. They talk about problems, listen to news and gossip, and spend their time blaming circumstances, situations on others. Successful people think about what they want and how they will get it. They are intensely focused on their goals and the information needed to help obtain them. Which person are YOU?” Here’s where I get to the ‘Strategic Investment Tip’: I observed and talked with many investors who had gone further than myself (they had purchased upwards of 18 – 30+ doors), asking them if they would do anything differently. While I received various answers, there was one common thread: time. Through it all they didn’t have enough time and were stuck in a cycle. Here’s what happened: As they purchased multiple properties with joint venture (JV) money, or their own money, they took on the role of overseeing and managing all the properties. After they had purchased upwards of 20 doors, and were living off some of the cash flow from these homes, they were stuck. They needed the income each month to live on, and due to the small amount it costs to use a property manager, they couldn’t justify sending all of these homes to a property management company. Rather than take their business to another level, they were consumed by the daily routine of, and battles associated with, managing the homes. The lesson I learned very clearly is that I need to work towards my strengths. Consequently, I have implemented this philosophy into our real estate company (www.ChamberlainGroup.ca). If you are good at managing properties, thriving in the work, perfect. Manage the properties, getting others to do

the rest. Perhaps your strength is finding great deals on homes, negotiation and getting JV money – focus on this! Do not focus on property management. A great resource to find out what your natural strengths are is Strengths Finder 2.0 by Tom Rath. The entire team at The Chamberlain Group have read this book. Knowing our strengths verses our weaknesses not only makes us stronger individuals, it has made us a stronger team. Jared Chamberlain is a real estate investor and Lead Partner with The Chamberlain Group Real Estate Expert Advisor team at Royal LePage Foothills in Calgary Alberta.