Last week, we were at a friend’s place for a birthday celebration. Before the cake and candles came out, over drinks, the conversation shifted to Real Estate Investment… this group of friends that we were with is dynamic to say the least with our professional backgrounds ranging from construction managers to accountants, lawyers to construction contractors, engineers to finance geeks, business analysts to real estate professionals: Just about all of us are homeowners so this conversation topic comes up rather frequently. A friend of ours wanted to get some feedback from the group of us about some of the 1-2-3’s of Real Estate Investment and if his family wanted to acquire a property “What should I look for in a property to ‘flip’? How can I minimize risk? How can I stand to profit most?“

My wife and I own a few income properties of our own: we purchased them through the boom times of 2005 through 2008 here in Calgary. Some of them, we’re happy with. Some of them have been headaches and a lot of hard work. We’ve earned our stripes and taken some hard knocks, but to do it again (which we’ll inevitably do) it will be with a completely different focus… and with the help of professional mentors.

My limited scope of ‘buy and hold’ Real Estate Investment experience has been focused mostly between renovated, furnished downtown condos for executive rental… I’ve actually never completed a ‘flip’ before, although having worked in the personal finance and mortgage brokerage world for the past 12 years, I’ve both helped and seen many clients, not to mention colleagues that are professional investors, go through the process several times to varying degrees of success.

Can investors get away with quick flips today? Yes… but IMHO not as easily. Markets are more balanced, the ‘rush’ factor isn’t as prevalent as it used to be and first-time homebuyers are taking their time in looking for the ‘right’ home, not just the ‘right now’ home. Sum: you can’t pump the same amount of juice out of a flip – with the same lacklustre renovation job – as you once could.

So this begs the questions: what does a ‘TRUE’ Real Estate Investor do that unsuccessful real estate investors don’t? If it’s really a viable business model, how do they do it?

To get to the bottom of this, my natural instinct was to turn to my friend and colleague, Dave C Bonk of Royal LePage Solutions. Dave has been an entrepreneur for over 12 years and involved in several businesses relating to Calgary Real Estate with a current focus on real estate, acquisitions, sales and consulting. Dave has extensive experience in most aspects of residential building, finance structures, sourcing properties to purchase and sell or hold. From a young age Dave quickly learned to “work smarter, not harder”. If he was going to focus his energies on his “day job” as a property investor, he had to maximize his “per transaction” profits: with this in mind, he surrounded himself with several mentors and professional colleagues that he could symbiotically grow with. He also earned his license as a Realtor here in Calgary as a strategic move: if a guy is aiming to maximize profits, access to the MLS system and the ability to earn commissions on his transactions is paramount. Dave has been instrumental to my own continuing education in the Real Estate Investment field and is a great source of motivation for myself. I can say that for all of the “investors” that I’ve met in my career, I will assert that Dave is one of the few true, bona fide professionals in this field.

I had the pleasure of talking with Dave this week and he was kind enough to provide me with some insight into his “Top 5” list of how to be a successful Real Estate Investor:

#1 – Patience, Patience, Patience, not only Location, Location, Location

This is Dave’s Number One rule to Real Estate Investment. While the latter rule applies for hopeful sellers and long-term holders, “for your highest chances of the most success whether it’s an acquisition or a sale, don’t paint yourself into a corner to ‘have to’ buy or sell. If I’ve ever been in a rush to buy or sell its usually meant that I’ve left something on the table. Be prepared; know what you want, and when you see it, pounce like a cow. ”

#2 – Make your money on the Buy

Imagine a $500,000 bungalow in a just-off-downtown neighbourhood here in Calgary. Let’s imagine that apples to apples, there are several “like” properties for sale at the same time: if you’re able to purchase one of them for $475,000 before doing anything else, you’re already $25,000 (5%) up on the rest of the market. This goes a long way to absorb renovation costs and other expenses throughout the buy-reno-flip process and adds to your total profit at the end of the day. There are several ways to achieve a strong acquisition including seller motivation, foreclosure, homes in disrepair, job transfers, divorces, etc. “ I strive for win-win deals; you know it’s a win-win when both parties leave the negotiation slightly put off”

#3 – How can you maximize your potential returns through this process?

Dave does countless hours of market research before making any moves whatsoever. “After researching the market for hours and sometimes days or weeks, I may only go see one or two key properties. Recent sales, comparables, market influences, property-specific influences… are all taken into account. I also always recommend that investors bring their ‘team’ along with them: inspectors, family member, dad, contractor buddy, financing guy (if required)… This enables you to move quickly and all decision makers are present as the right properties don’t last and often: they need to be moved on quickly”

Once he’s ready to buy, Dave’s perspective is “The best way I know how to get a good deal on a property is to pay cash and close quickly. If I’m up against a standard retail buyer and his offer has multiple conditions, financing deadlines, inspections, etc… and mine doesn’t, I’m already in a better position.” Many buyers who want to get into the exciting game of house flipping will need to put a financing condition on an offer, by having a strong pre approval in place will speed this condition along and make your offer more appealing to a seller. Make sure that your mortgage broker has all of the tools they need to be able to help you get the financing you need, as efficiently as possible. No one wants to chase anyone for paperwork, or at the very worst, have a transaction fall apart because it took you 2-3 weeks to order your Notices of Assessment from Revenue Canada.

#4 – Best form of Real Estate Investment

“Flipping houses and consulting for others who wish to do the same is my job, it pays the bills. Getting money to truly work for me comes from long-term holds and is hands-down the best form of Real Estate Investing. Buy for revenue: buy secure, not sexy. Your renters pay off your mortgage (long-term profit for ‘free’), you should be able to eke out some positive cash flow (ongoing cash flow income) and ideally, due to the markets rising and general inflation, the property goes up in value. Buying an undervalued property to fix up and either live in or rent out delivers double benefits to the investor. You’ll have the security of equity in your property while the tenants pay the bills.”

#5 – Have your team and your toolkit put together first.

Ensuring that you have all of your costs and timelines measured out with a solid and reputable team is paramount. “I’m not grabbing the yellow pages and calling around to find the best contractors – I’m using just about the same team on every project I do and I make my contacts available for my clients who I consult for. This includes everyone from my lawyer, mortgage guy, drywallers, electricians and suppliers.”

Of course, experience and reputation with your team helps to finish a project faster. “Most of my clients who I help buy and sell houses for profit are contractors or people who aren’t afraid of a renovation. Just knowing how and fix a house isn’t enough. Let me put it this way: sometimes the trick isn’t knowing how to fix issue, its knowing which issues to fix. Having the right team in place right from the purchase and financing to ongoing consulting along the way and finally the final sale – this saves time, frustration and generally a lot of money.”

Investing in Real Estate is a daunting task that involves substantial time, investment and potentially, risk. This risk can be mitigated by having a sound amount of mentorship and education as well as planning and the right people on your team. If you are interested in having David consult with you on your next investment property purchase, you can reach him via his websites: www.DaveBonk.ca, www.FlipAHouse.ca or www.SellerFinance.ca .  As always, the mortgage professionals here at Trimor are happy to provide you with your mortgage financing questions and needs!

To your financial success,

James C Tworek

Partner, Director of Corporate Development | The Mortgage Centre, Trimor Home Finance www.TrimorMoney.com | www.SuHipoteca.ca | www.CalgaryMortgageBlog.ca

@trimormoney on twitter