I’ve spent the better part of the spring and summer improving one of my properties, and I’m now just getting to the point where I thought I’d post about this little maneuver I’d like to call the Canuck Landlord Shuffle. This has probably be done before, but I’ll give it a name now just in case no one else has.
The property in question was first built a while ago, by someone else. I can’t be sure exactly when, because it was built in stages and has had many different uses in its day. Suffice it to say that whether or not all building codes were followed along the way, it had some variances according to today’s standards. The major variance was that not all the bedrooms had two means of egress, or ways to escape a fire. Back in the day, no one really cared, but people take it seriously today. Serious enough that the room cannot be called a bedroom. So, I was left with units that have dens or studies instead of a second bedroom, which is what most people want.
The solution was simple… in theory: Convert a living room that has a window into a bedroom with a window, and convert the non-conforming bedroom with no window into a living room.
Why do this? In this market, a one bedroom unit with a den, living room, kitchen and bathroom can rent for around $600. However, a two bedroom unit with a living room, kitchen and bathroom can rent for around $725. The square footage is the same, but arranged different. That change nets an extra $125/month, or $1500/year.
This building had three units that were setup with a bedroom on an inside corner and a living room on the outside corner. The plan was to remodel each unit so that the living room was on the inside corner and the bedrooms were on the outside walls. The beauty of this plan is that I don’t have to lose any tenants. Read more…
A couple of weeks ago, I got an email from a friend of mine who was thinking about buying a condo in Las Vegas. Naturally, this excited me as it would mean a place where I could couch surf when I eventually go down there.
This friend has been to Vegas several times, and has even rented condos there short term, so he already has a good handle on the local market from that point of view, but he was looking for some feedback on his assumptions, and also wanted to make sure he wasn’t missing anything.
I wasn’t the only one who turned to for advice, but here are the questions he sent me and my answers (I’ve added additional notes for you readers in italics): Read more…
Many times I’ve been to a unit for one reason or another and the tenant will have a maintenance request for something that is an easy fix, however, I didn’t have the right tool with me. This meant that I had to make a second trip to the unit to fix something that might only take 5 mins. Being able to take care of these little items quickly is the first step to becoming a stellar landlord. To avoid this, I bought a tool kit from one of the big box stores, and I leave it behind the seat of my truck.
When getting started, buy a tool kit with as many tools as you can reasonably afford. You probably won’t be using these everyday, so you don’t need to buy the most expensive kit in the store. Professionals can afford to buy the big names tools or the specialty, but for occasional use, the low to mid-range tools are fine. It should also be small enough that you can keep it in your vehicle at all times.
There are many kits that I would find useless. I see that Canadian Tire now sells a home plumbing kit and a home electrical kit. Both look great and I would recommend picking each one up. On sale, of course. Since a landlord has to be a jack-of-all-trades, you want a kit that will allow you to tackle the most common repairs that come up. Your kit should include the following:
- Hammer – should be sturdy enough to actually use. I’ve broken several cheap hammers and flying hammer heads ain’t fun.
- Tape Measure – 25′ if you buy your own. Only engineers and Europeans use metric.
- Level – many kits come with a small torpedo level, but you’ll also want a 24″ one.
- Screwdrivers – there should be several sizes of each type, or just buy a multi-bit version.
- Pliers – more the better, but I use channel locks and vise grips a lot.
- Wrenches – the more variety the better, but you need a basin wrench.
- Utility Knife – to cut things.
- Saws – you’ll need a multipurpose wood saw and a hack saw, to cut things.
- Electrical Tester – if you plan on doing anything with electricity, you want to know the juice ain’t flowing.
Many kits include a bunch of sockets, but they’re more for mechanical repairs. I rarely use them for routine repairs and maintenance in my units, so don’t be afraid to buy a kit without them.
Watch the weekly flyers for these kits to go on sale, because they often do. These generic tool kits are often used as loss leaders for the big chain retailers like Sears and Canadian Tire. Big name retailers offer lifetime exchange warranties on their store brand tools. So, if you wear them out, or in some cases, break them, you can bring them back to the store for a replacement. One time I brought a screwdriver in and was just handed a new one, but you might want to keep that receipt handy just in case.
In the movie Gran Torino, Clint Eastwood’s character says to the neighbour boy “Take these three items, some WD-40, a vise grip, and a roll of duct tape. Any man worth his salt can fix almost any problem with this stuff alone.” Make sure those are in your kit too.
I hope the holiday season was good to everyone, and everyone had a great time ringing in the new year.
This is the time of year when many of us look back on the past year and take stock on what we were able to accomplish and what we need to improve on. 2011 was a good year for me on many levels. On the business level, I was able to finish an ongoing renovation that was causing me headaches and bring my units up to 100% occupancy. As a result, 2011 should be, financially speaking, my best year yet.
On a personal level, I got married. In addition to being a smart and beautiful woman, she is my best friend. Most importantly, she makes me a better person. That sounds mushy, I know, but it’s true. She has a knack with people that I don’t have, and she is able to view situations in a way that I can’t. She wants me to do better, so she’s willing to help me work through problems. With her, my success is assured. That will make 2011, personally speaking, my best year yet.
There’s always room for improvement, and my business is no different. That’s why I’m so excited for 2012, because 2011 is going to be hard to improve upon and I can’t wait to try.
I’d be interested in hearing what some of my readers are planning for 2012. Please feel free to comment on this post or drop me a line.
I was doing some research and I came across a CBC article from August 2010 that I hadn’t seen before. The article is titled Tenants need more protection: legal aid, and it talks about how the Nova Scotia Residential Tenancy Act is “the landlord’s act.” I had to laugh at that quote from Dalhousie legal aid worker, Cole Webber.
Cole went on to say “It (the Act) protects landlords and their interests, and it doesn’t provide basic rights that all tenants should have. It doesn’t acknowledge that housing is a fundamental human right that all people should enjoy.”
I suppose there will always be people who read only what they want to read and ignore the facts that hurt their argument. My hope is that all legislation protects the interests of all parties, and if it can’t, it should provide a fair middle ground. I feel the Nova Scotia Residential Tenancy Act is more of the latter, where both sides, landlords and tenants, feel that their interests are not being fully protected.
As usual, this summer has flown by and it’s just getting started for those of us on the East Coast. This is a good time to check on the progress of the tasks you outlined for your properties for the summer. Our weather here has been very wet. We didn’t get three sunny days in a row until last week and August is over. This has made it difficult to make any significant progress on outside work, and has made it very humid to do many things inside. If you were planning to paint or replace a roof, forget it.
Expect The Unexpected
Another thing that delayed me this summer had to do with building permit issues. It seems one of the previous owners of one of my properties neglected to get permission to change a commercial space into a residential apartment. The result is that I was unable to get an occupancy permit for an apartment I had recently renovated, and rented. The occupancy permit says that the building/unit was built to code or better. I couldn’t take out any more permits until I went through the process of getting a development agreement, which takes months.
Review Your List & Prioritize
A quick look at your list of things to do will give you an idea of whether you need to step up your efforts or if you’re going to have to defer that maintenance until next year. I was planning to pressure wash and paint one of my properties, and I probably won’t be able to get to it even though there’s plenty of summer left since the building has to dry out for awhile after it’s washed. I still have to repair a deck and now I might have to replace a roof. Those take priority because (1) they relate to safety, and (2) it could cause more damage if it’s not taken care of. Since both time and money are tight, some things can’t always get done right away.
Reap Your Reward
Your ability to get things done so you don’t have to defer them will set your properties apart from other properties, and you apart from other landlords.
Do you have any chores you were planning to do, but couldn’t because of the weather?
I got myself involved in a discussion in the comments section of an article over at Landlord Rescue the other day and it gave me the inspiration to expand on it over here. The article began with a question from a reader, one that’s been asked many times, “how can I hire a decent contractor/handyman without being ripped off?” I talked about working with trades people before, but a point was brought up in the comments that is worth noting: once you own the property, repairs and maintenance have to be dealt with regardless of how much cash you have sitting in the bank. Believe me, I know this lesson and I’m still learning it. Read more…
Recent data from the Bank of Canada shows that inflation is rising higher, and that means that we can expect interest rates to rise sooner rather than later. The most recent inflation rate of 3.7% is the highest it’s been in eight years, and is well above the 2% level that the Bank of Canada is required to keep inflation at.
This key indicator effects nearly the entire economy, and is especially important to landlords for several reasons:
The Bottom Line Takes a Hit
If you have a variable rate mortgage or plan to refinance any of your properties in the near future, then you may face higher debt burdens, which means nothing more than less money for you and more for your lender.
I read a great article over at milliondollarjourney.com written by Ed Rempel titled Avoid the 5-Year Fixed Mortgage Trap that discusses why you should use a variable rate loan to finance your properties. It specifically discusses how a variable rate mortgage is still cheaper than a fixed rate mortgage because the fixed rate mortgage often starts out higher. That said, you’ll still end up paying more than you used to once rates get hiked.
I would caution that if you’re highly leveraged on your property, as many beginning real estate investors are, then a variable rate mortgage could turn your positive cash flow negative.
Erosion of Market Value
Higher interest rates for loans mean investors require higher rates of return on their capital. To a real estate investor, this rate of return is the cap rate, and the cap rate, as we know determines the value of an investment property. If your property generates net operating income (NOI) of $30,000 per year, then the market value of your property at a cap rate of 10% would be $300,000. If interest rates were to rise, investors may begin to require a cap rate of 11%, making the value of your property $30,000 / 11% = $272,727. This might be an extreme example, and it probably wouldn’t happen overnight, but the potential is there for devaluation.
Your Tenants Stay Longer
As the cost of borrowing for real estate investors rises, so does the cost of borrowing for your tenants. Tenants that were saving to purchase their own home will have to save a little more, and stay a little longer, in order to afford that new mortgage. The downside to this is that their other debt will become more expensive also, and may lead to higher vacancy and delinquency expenses. The latter should not be as much of a problem if you’ve properly screened your tenants.
I think it’s safe to say that interest rates will rise, but it’s tougher to say when or how they will rise. Having an idea of what effects higher interests may have n you allows you to make a plan that makes rising interest rates take the smallest toll on you.
June 2011 marks two important milestones for me: (1) I bought my first investment property five years ago, and (2) I started canucklandlord.com one year ago.
Like most endeavors, I started out on both of these journeys with a set game plan that gradually evolved as I went along. As I started to implement my plans, situations came up that I didn’t foresee and I had to tweak my plans to compensate.
When I bought my first investment property, a three unit residential, I had the romantic notion I imagine every new real estate investor has: buy a property, do a few repairs and upgrades, get some low-maintenance tenants in there, and sit back and watch myself get rich. Reality, she is a bitch.
Being a landlord is not that easy, and I should have known better. After all, I read many books on how to be a landlord and manage rental property. The good ones all warn you of the pitfalls. I guess I thought that since I knew what the pitfalls were, I would easily avoid them. What you quickly learn once you buy an investment property, is that being a landlord is a job, and it’s not an easy one. Simply knowing what the pitfalls are is not enough. They are well hidden and only experience teaches you how to spot them.
You WILL have bad tenants despite your best efforts, and they WILL take advantage of you if given the chance. You WILL have emergencies, and they WILL NOT happen at convenient times. All of this WILL cost you money if you do not properly plan for these contingencies.
If you are cautious, frugal, and hardworking, you WILL be rewarded. The rewards are when your good tenants acknowledge your hard work. The best days are when one of your tenants refer to their apartment as ‘home’. I haven’t sold any of my own properties yet, but I imagine that will be another high point of my career. That’s the drug that keeps you coming back.
Similarly, when you start out creating a blog, you have these visions of thousands of people reading your daily posts, and sharing them with their friends. Perhaps even one of the other types of media picks up on it, and even solicits an opinion from you, citing you as an expert in your field. Alas, the reality is that there are few, if any, responses to your first few posts. But then, somehow someone finds your blog. Then a few more people start finding it, and one person even leaves a comment. You let your friends know what you’re doing and a few more people are reading it. Your Google Stats are getting better, then worse, then better. You watch them like a day trader.
As the excitement of the new venture begins to wane, and the constraints of having a full-time job and a part-time business begin to pile on you, it becomes harder to churn out the content you did at the beginning. Your daily posts start to be weekly posts. Some days you have to force yourself to write, other days are easy. Every now and then you become inspired to post something that gets big results and it renews your enthusiasm in it. When you check your Google Stats and it shows a big spike in hits… that’s the drug that keeps you coming back.
Most of you already have your spring cleaning finished, or almost finished, and all the things that were in your way all winter are gone. It’s time to freshen the place up and get ready for the warm weather and fresh air. This time of year, or even a little earlier, is also the best time to start planning your summer maintenance.
The winter can be cruel to a property, and most exterior maintenance items are weather dependent, which means you need good weather to do them. You can’t schedule good weather, and it can get very frustrating when you’re trying to get several things done in a summer and the weather isn’t cooperating. This makes it even more crucial to have a detailed plan in place for your exterior maintenance items. Read more…