Top 3 Investment Property Exit Strategies

There are so many approaches to real estate investing. With that said, careful planning and evaluation are the key ingredients to all profitable real estate deals. Exit strategies are designed to continue to earn profits or maximize profits for the investor,while minimizing the investor's involvement in them. Deciding what real estate investment exit strategy to use should be based on the type property you are purchasing, your life style and financial goals. From Stephen Covey's, 7 Habits of Highly Effective People,begin with the end in mind.  Beginning with the end in mind will allow you to maximize your returns and make any necessary changes along the way to accomplish your goals. There are three most common real estate investment exit strategies. Buy and hold, flipping and lease to own. Each exit strategy should be evaluated carefully to maximize returns.

Buying a property, renovating it and selling it is called "flipping".  The goal is to buy the property below market value, quickly make the necessary fixes, to minimize holding costs and sell it for profit. This exit strategy relies on the principle of appreciation.  Appreciation is defined as the increase in value of an asset over time.  Appreciation is usually realized over a long-term horizon. It can be difficult to time the market, but it can be done with the right property and market conditions.  Properties that are located in high demand areas tend to cost more, which can decrease the cash flow potential if a significant down payment is not made. Even when a large down payment is made, opportunity cost should also be considered. Carrying costs may be high and rent may not be able to cover them. Just because a property costs more doesn't mean it will generate more cash flow. In fact, the opposite might be true based on the above scenario. These homes typically generate a negative or very low cash flow compared to the initial investment.  Therefore, a rehabbing exit strategy might be the best option taking into consideration type of property,market condition, size of down payment and purchase price.

Buying and holding investment properties and renting them out is also a popular exit strategy. It is slightly contradictory because the investor isn't necessarily selling the property, but merely steps away from day to day involvement. The property can be passed down through generations and never be sold. This exit strategy can increase your wealth, build equity and generate cash flow. The most important factor in using the buy hold-rent exit strategy is looking for properties that generate cash flow. The rent needs to be able to cover all of the expenses incurred with holding the property. Be sure to consider all of the cost of holding an investment property. Maintenance, repairs, property management fees, taxes, insurance and mortgage payments should all be included.

Many investors are not interested in the idea of being a landlord for an extended period, but are also not into market speculation. Many landlords will opt for lease to own agreements with tenants. They can generate cash flow in the short-term while minimizing risks. Usually, the deal is structured with a down payment made by the tenant to secure the property and show good faith. The landlord may also structure the deal were the tenant is responsible for some of the repairs, thus further increasing cash flow. This exit strategy can also provide the landlord protection in a soft market. Landlords may secure a  tenant that is willing to purchase the property at a future date for more money than the open market would provide. If the option to purchase is not exercised, the investor still owns the property and is free to sell if desired.

Tenant Relations and Your Bottom Line

If you own an investment property or you are thinking of purchasing one, it is likely that your property will be tenant occupied. Your approach to tenant relations will have a big impact on your bottom line. Owning an investment property, is akin to running a business. A high level of customer service is vital to running a profitable business.  Tenants want to feel that their landlord cares about their well being and safety.  They want to know that their landlord can be depended on to follow through on commitments. Landlords that are committed to a high level of customer service attract tenants that pay their rent on time, take pride in maintaining the property and are good citizens to live among. Good tenants decrease your overall maintenance costs and provide a predictable rent roll. Providing a high level of customer service will keep your property rented with minimal issues. Once you have qualified your tenant it is up to you to manage the relationship.

Whether it is a product or a service, customers want value for their hard earned money. One of the criterion used by prospective tenants to determine value is the physical condition of the rental unit. The physical condition of the rental unit is also an indicator as to how attentive the landlord will be in addressing any future repair issues. Prospective tenants are likely comparing your property with other rentals in the area. In the end, a prospective tenant will want to ensure that they are getting the best value for their money. 

There is a strong correlation between the maintenance of a property ,it's vacancy rate and turnover rate. Properties that are well maintained and that address tenant repairs in a timely manner are in high demand. These units tend to keep tenants for a longer period of time, thus decreasing marketing costs and loss of income during turnover. In a renter's market, where the supply of rental units is greater than the demand, tenants are even more discerning and will spend their money on the properties that are well maintained. When a property is well maintained it  will attract a tenant that will want to upkeep the property and take pride in where they live. When the perceived value is high rental units are usually rented at or above market value.

Buying Your 1st Investment Property

Real estate investment has always been a hot topic and will continue to be.  Everyone has heard a story about someone that has made a fortune in real estate. It is possible for the average individual 
to build wealth through real estate. A portion of everyone's investment portfolio should include hard 
assets or housing. Now, I'm not referring to primary residences, because although most people 
would like to consider their primary residence as an investment, you can only make 
money on your primary residence when you decide to exit the market. I am referring to income 
producing properties.  The start of a new year is a great time to plan out your investment 
strategies and think about what your investment objectives are. Investing in real estate can 
help you build wealth.To the first time investor getting started can be a bit intimidating. 
Finding your first investment property and doing your homework is key.                                                

There are two main real estate investment strategies: buy and hold or buy and "flip". Buying 
and holding is a great way to build long-term wealth and can be a protection against inflation. 
Finding the right investment property and holding it for the long-term is like a blue
 chip stock. It   may not make you rich over night,but in the long run it will end up 
performing well. Buying and flipping is a bullish approach to real estate investing,
 no blue chip stocks here. The buy and flip strategy can still be done in today's market, 
but the key is finding a property that is under-priced, and in need of primarily cosmetic
 fixes, that when completed with allow you to recoup your costs and make a profit. 
Regardless of the investment strategy that you follow, patience, due diligence
 and the willingness to walk away from deals that are not profitable is critical.  
When investing in real estate, the profits are determined when you buy.  If you buy too high, 
you may have a hard time recouping any costs and may even lose money. 
Take your time to find the right property.

A big part of evaluating a property is answering the following question: Does this property create 

positive cash flow?  If the answer is yes, you're on the right track. Positive cash flow means that the property will be able to pay for itself without adding any of your money.  It may even provide you with some extra cash.  Ideally, the monthly rents should be able to cover all 
of the monthly expenses.  Remember to look at the big picture, one month of repairs that throws off 
your income statement for the month doesn't mean you have a bad investment. Evaluate at least 
12 month period and factor in appreciation, depreciation and tax deductions.  You want your 
investment working as hard as possible for you.

Much of the work in finding an investment property is done up front. Find a real estate agent that
 understands the economics and numbers behind making a sound investment. A good agent will help
 you narrow down your search criteria and make the task of finding your first deal not so daunting. 
The location of the investment property will determine the amount of rent you can charge, 
the demographic that you are renting to and the amount of appreciation.  There are no right 
or wrong answers, it just depends on what you are comfortable with.  Some investors are 
comfortable with investing in lower income housing options, while others are interested 
in middle class single family homes. 

Investing in real estate can be a fun and rewarding way to build wealth.  With careful planning, 
patience and smart decision making you can start building a sound real estate investment portfolio. 

A Crude Awakening: How the price of oil affects the housing market

The drastic decline in the world price of oil from $105(U.S) a barrel to below $70 a barrel is both good and bad. For provinces like Saskatchewan, Alberta and Newfoundland, who are large net exporter of oil, decreased global prices of oil would lead to reduced revenue. Prolonged low global oil prices could have a negative impact on Canada’s GDP, which in turn would devalue Canadian currency. However, in provinces like Ontario and Quebec, that have a large manufacturing sector, we are likely to see growth, due to decreased energy costs and increased exports to key countries.  With consumers playing less at the pumps, the purchasing power of average Canadians would also increase. Industries that rely on crude oil may pass on their savings to the consumers of their products, which in turn would increase their real income and further stimulate spending.  As a result, the economy would experience a boost that increases employment and growth. More money circulating in the economy will support our strong housing market and rising house prices. The decreased global price of oil will increase the Canadian aggregate demand for owner occupied housing.  This will also create more options for individuals entering the housing market and existing homeowners.

How much is my house worth?

Pricing your house correctly can make the difference between a quick full price sale or a house that sits on the market and gets stale.  But how do you determine the price to list your house at?  The closer the list price of your house is to market value, the more likelihood of you receiving your price.  Market value is defined as the highest estimated price that a buyer would pay and a seller would accept in an open market.  The market always tells the truth, that is why houses that are over-priced will never sell, while other homes that are priced competitively for the market will receive multiple offers.  If the key is to price your home as close to market value as possible, determining market price is critical.

Remember the list price of a home is not always the price that the home sold for. The price could be much lower of higher than the list price, which would affect what price you decide to list your house for. Market value can be estimated by looking at comparables of houses that have recently sold in your area. For an active market there shouldn’t be any problem finding comparables, however in less active markets some adjustments will have to be made. Comparables should also be the same location, style of house, age, within close proximity and have similar feature.Take your time looking at all the comparables it will help you determine a price that is closest to market value and net you top dollar.

Author: Raine Laing, MBA | Sales Representative

Royal Lepage Estate Realty
rlaing@royallepage.com
Direct:416-399-7867

Five things you should do to prepare your house for a quick sale

Properly preparing your home for sale can make the difference between a quick

sale at full price, and a home that sits unsold for months. The first order of business is to forget your emotional attachment to your home and look at it through the eyes of a potential buyer. Be impartial, and recognize the

weaknesses of your home. How does it stack up? Remember, potential buyers are going to be viewing lots of other homes, and if yours doesn't stand out, it will be much more difficult to sell...

Buyers buy what they see. Here are five easy and effective tips to help you sell your home quickly and for full price.

1. Clean and Declutter

A messy and cluttered home may sell, but it’s likely not going to command top dollar and you can forget about a bidding war.  Buyers want to be able to picture themselves living in the home. A messy home just isn't inviting. Set aside some time for you (and the family) to clear up the mess around the house. For example: excess personal photos, most throw rugs and children’s toys should be set aside. Items other than small appliances should be kept off the counter, just as items other than computers should be removed from desks in home offices. Once the major clutter is cleared away, do as much cleaning as possible. This means washing and polishing the floors as needed and making sure windows, mirrors and fixtures are squeaky clean.

2. Don’t forget to take care of the outside of your house

 Well-groomed, healthy looking lawn, trees, shrubs, and flower beds. Check your driveway and clean any oil stains with cleaning solutions, and move any old vehicles, trailers, or boats off the premises to a storage facility. Replace or repair any loose or missing roof shingles or tiles. If needed, replace or repaint the mailbox.Your front door is a focal point of potential buyers. Make sure it is scrubbed clean or completely refinished if necessary. Fix any broken windows or screens. Completely repainting the exterior of your home may be necessary if it is peeling or blistering, but often simply doing the trim, window sashes, shutters, and garage door is sufficient. Remove any political or other signs. Now do the same to the side and rear yards. Remove all debris, junk, and

clutter. Clean and neatly arrange any lawn furniture, barbecues, etc.

 3.  Paint the interior and clean the carpets

If the interior hasn't been painted in several years, you should probably do it.

A fresh coat of white or off-white paint will make the place look

bigger and lighter, and give it a "new" smell. Be sure to pick a neutral colour that will appeal o most buyers.

 It doesn't cost that much, and makes a big difference in buyer perception. If not, do a thorough job of touch-up painting. Have the carpet cleaned. If it is worn, replace it. This is a fairly big cost, but it

makes a huge difference in how the home shows. You should more than make up

for the expense with a faster sale at a higher price.

 

4.  Leave pets at a neighbours house or pet sitter

 If you have pets, you may have pet odours, whether you notice them or not.  About 25% of prospective buyers will not consider a home with pets in it - either because they have allergies, or simply think it is dirty. Plus, a dog barking, sniffing, and scratching makes a potential buyer feel uncomfortable and cause them to leave the showing early which would decrease the likelihood of them putting in an offer.

 5.  Depersonalize your home

Remove personal  pictures from the walls and clean off the magnets from the refrigerator, and box up any other personal nick-knacks. Remember the goal is to create a blank canvass so that they buyer can picture themselves in the home. Clean out the closets to make them look bigger. Store out of season clothes and neatly arrange what's left.

Author: Raine Laing, MBA | Sales Representative

Royal Lepage Estate Realty
rlaing@royallepage.com
Direct:416-399-7867