News from The Globe and Mail
Real estate brings peace of mind
Saturday, December 04, 2004
Joanne Beehler decided to move out of the stock market and into real estate because she wanted more control over her destiny. Real estate gives her piece of mind by giving her more control over her finances than she would have if she invested in the stock market, says the 37-year-old who works as a manager at a telecommunications firm in Ottawa.
"If a plane crashes in Europe, the markets can react overnight," she says. "In real estate, change is much slower, and it gives you time to plan and decide your strategy."
She educated herself by reading, but says she got a big boost from attending a "hands-on" real estate course in 2001. Not only were all the key players there -- including brokers, realtors, land surveyors and a city inspector -- they trooped around to various houses to get some real-life examples. The course also introduced her to her real estate partner, Paul Blacquière, a fellow student. "I had skills on the team-building, relationship side, and he's technical, good with computers, and great at numbers."
How she does it
For their first rental property, the two set their sites on acquiring a multiunit dwelling, rather than a single-family home. "That way even if a tenant leaves you'll at least still have some income coming in to cover some of the mortgage," she says. "It's not all or none."
They began looking in Vanier, a lower-priced neighbourhood in Ottawa's east end, where their course had taken them. Ms. Beehler soon found a power-of-sale -- a home being sold off by the bank. With an asking price of $114,900 and four competing bids, they bought the property for $115,000. They put 15 per cent down, using Canada Mortgage and Housing Corp. insurance. The two units generate $1,625 in rent a month.
Their quick eye for a smart buy paid off. Within two years they had the property assessed at $195,000. They pulled some of the new equity out and put it into buying more property.
In January, 2003, they purchased a triplex for $175,000, and in November, 2003 another duplex for $180,000. They've since added two more properties -- a four-plex and a five-plex -- both costing $250,000.
Most of their mortgages are variable, and with so much debt to carry, interest rates of course are front and centre in her mind.
"When we do buy we're quite conservative. We will put a lot of buffer in terms of expenses, and we look for extremely cash-flow positive properties to cover us if rates rise."
And while they are in real estate for the truly long term, they also want to meet a couple of key short-term goals. Not only must a property have a positive cash flow from the beginning, it must produce a 10- to 15-per-cent profit, so that it beats most mutual funds. "We won't buy anything if it doesn't make money out of the gate."
They've also worked up a spreadsheet into which they put all sorts of numbers, which is especially helpful in financially comparing different properties they are evaluating. And any assumptions they make are very conservative, and with as much information as possible.
For instance, instead of just taking the seller's numbers, Ms. Beehler asks for and goes over all the utility and other bills for the past year to evaluate the true operating costs.
"That way there are no surprises in the first year," she says. "Some people try to tweak the income numbers up or the costs down in order to make the purchase make sense."
But perhaps their biggest method of risk reduction is simply keeping focused on the fact that their real estate buying is for profit, not pleasure. Some people, she says, end up buying -- and then renovating -- as if they were going to live in it, overspending along the way.
"People often buy the type of place they would want to live in. We want to buy places we can rent and make a profit on."
They're now trying to grow even faster. The idea is to enter into a joint venture with their new company, Spirepoint Properties, and other investors. The investors put up the money and she and her partner locate, buy and manage the property. Any positive cash flow is split, as are any gains on sales.
Hiring help. "It let's me spend time on the business not in the business. For 6 per cent of the rental income [the norm she says tends to be about 8 to 10 per cent], the property manager collects rents, oversees renovations, makes deposits and pays the utilities. "It helps us get our lives back," Ms. Beehler says. "All that's left for me to do is manage the books." And even that she gets help with, thanks to a bookkeeper.
"In our first property we went 25 per cent over budget because we tried to make it look like our home, rather than a home we were going to be renting out."
"If you want to be successful you have to treat it like a business, you have to manage it. You can't rely on your team. You always have to check up on things, like are repairs being treated as planned and on budget, and are notices for rent increases being sent out in time."
Occupation: Manager with telecommunications company.
Investment personality: Disciplined real estate investor.
Portfolio: Two duplexes, one triplex, one four-plex, one five-plex.
Portfolio size: Seven figures.
Rate of return: NA.
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