Pick your Customers/Tenants/Buyers

OK - Back in classes so, oddly, I have time to blog!

Today on my mind: PICK YOUR CUSTOMERS!

We're in the middle of a moderately interesting strategy class, but one point that relates quite well to Real Estate is that you cannot be all things to all people in business. Sometimes, you don't want someone's money. Sounds bizarre, but read on!

You can be:

Everything some of the time,

Some things all of the time,

But never all things all of the time.

*This quote was said quite eloquantly in class by my friend, Harley.

This is the concept of pick your customers, don't necessarilky let them pick you. By all means, allow customers (tenants, buyers, etc...) access to your services, but it is neither profitable nor good strategy to just accept all business. Define your product offering around your skills and what you or your organization is great at. You also have to LIKE doing it. If you are a smooth talking elitist with great taste in decorating, you should be renting or selling property to customers that desire your skills and the value you can create for them - ie: upscale properties to yuppies. Don't try to get into low-rent areas or cottages, or buying up land just because it looks attractive. 

This would be a bad choice of customer. Pick the segment of the market you want to be in and offer the product to those customers. Do not feel afraid to turn away those customers that fall outside the parameters you have defined for your company. This would be like buying a baseball bat and trying it out in a football field; you can try and hit as many home runs as you want, but all you'll get is tackled to the ground by some really confused linebackers.

What else? I'll be switching to a video blog (vlog) format soon, with a few youtube posts, followed by a registered channel if there appears to be enough support over the next few months. For the 3.6 people that actually read this - I haven't forgotten about it and would love it if you could tell all your friends. I'm trying to create a community/centre of excellence, not trying to get rich. I've already done that :)

AIML

More coming!

Hi everyone, 

I'm in the middle of a brutally intensive period in an MBA - think classes Sat + Sunday. Fantastic learning experience, but most definitely upsets the work-life balance. OK, there is no balance.

Stay tuned for more updates in a wek or two, 

AIML

Do I buy a House or a Condo?

Best use of your capital is to find the best risk-return ratio to park it in. I like condos for that reason. You put down, say,50K on the Condo, you have NO maintenance, it has all the amenities, and you dont have to shovel an Fing driveway. The downside is that only land holds true value, as it is the only good on the planet that has a fixed supply (ok, maybe natural resources, but ignore that). Condos are fantastic, but DO NOT buy one that is approaching 40 years of age; the useful lifespan of such a structure is 40-60 years. If your stuck at the end, you basically end up paying twice. But thats an extreme case. 

With the house, you can still put down the 50K, and you get the land, but you assume 100% liability for all major systems in the house: electrical, plumbing, roof, furnace, foundation... With the condo, you assume a small portion of joint liability.If both places will appreciate by 3% this year, then the condo wins. You typically need to put in 2%recapilization costs into a house every year. Not to mention: if the roof suddenly needs replacing, guess who pays for it. Houses are great as a medium term investment, but if you can - in a city - your first place should be a condo. Ensure it has a good number of bedrooms for the price you pay, as rents dont always follow ownership prices. God damned socialist rent controls in this country.

Long story short. Its your first place, you dont want to assume a large liability. Buy the condo.

AIML

How to Figure out Rent Rates

OK: The golden question: "How much do I charge?"

The simplest way to tell is if you have a very similar unit to something you have a comparative value for. Condos and townhomes are easiest in this respect. Houses are a little different, because you can't always just charge by the room, as there are people out there renting whole houses at fixed rates.

Finding comparisons is easy: go to www.househunting.ca and check the local listings in the area. Househunting.ca is a national ammalgamation of all newspaper and online listings and is a fantastic resource for any peoperty baron(ette).

Obviously, you need to figure out how much you need to cover your costs, which should be projected before you even buy the place! Essentially, factor in:

Mortgage

Taxes

Utilities (if any - often tenants pay)

Condo Fees (if in condo)

Insurance (if you own a condo, it is usually already covered, but check the policy!)

20% of rent for repairs and possible vacancies.

Make sure that these will be covered by your projected rent. If a unit is in excellent shape or is in an area that rents well, or there is a noted shortage of them in the community. For example, in Ottawa there is a shortage of Single family townhomes for rent. Therefore, I buy them and rent them at a premium. Finding a discrepancy between sale demand and rental demand is great! Seems there are tons of these townhomes on the market and they turnover quickly,  but they also happen to be 95% owner occupied because they make great starter homes. Renters desire them too, but often cannot buy them. I am therefore making money by absorbing the risk associated with owning the townhome and providing that service to tenants. That's my competitive advantage: access to capital and knowledge of the system.

There are certain time of the year when it is best to rent a unit. Typically it's May and September, as the demand for rental units is enormous, often outstripping supply. This is because many people in the academic and government sectors will shift around in may, before the summer, and most private sector individuals or people will children in school will move for September. I have had nothing but good luck renting for may and sept, and generally had headaches trying for midwinter.

Ensure that your property is in good shape for when prospective tenants come to see it. Making it look as neutral and open as possible will help. A fresh coat of paint, a fantastic cleaning, and some fabreeze will make them that much more willing to sign. For determining rent based on 'niceness' or the quality of the interior, you can charge a premium if the place is indeed quite nice. Conversely, you will need to lower it a bit if it's in poor condition.

There is a certain unique advantage to pricing your unit high and making it a little nicer than others: You don't have to deal with questionable tenants. Harsh but true! A few quick rules for pricing:

1. Always make the unit nicer inside than the competition

2. Always start at the higher end of the price scale, work backwards if you need to.

3. Write the most descriptive rental ad you can. Include a picture online

4. Don't use newspapers; too expensive, readership is declining, and there are plenty of reputable online sites and even free ones like kijiji and craigslist.

5. Never haggle over rents. Your price is your price.

6. ALWAYS sign a lease, typically for at least a year

7. Always collect first and last month's rent, no exceptions.

8. You actually need a license to rent by the room - so you must rent the whole unit to a group of people, not one by one.

I will post more on dealing with tenants later,

AIML.

How to accumulate capital early on

I had this bang-on question from a military friend of mine.

"Hey Alex, how do I accumulate capital early on?"

I'll tell ya, I wish I'd asked someone that question early on, as it's not as simple as it sounds. Here are some points - I'll try not to write a novel this time.

1. Capital is just a sum of small amounts of saved expenditures. Stupid but true. Live below your means, save it.

2. Pay off credit card bills first. Pay off consumer debt in the order of highest interest rate. You'd be amazed how quickly this adds up.

3. Live as far below your means for as long as you can. Tip: A CAR SHOULD NOT BE THE FIRST DAMN THING YOU BUY.

4. If you are saving to build capital, invest in lower risk assets. Stocks are great, but not if you are intending on buying a house. Consider this: average stock return over the last 10 years (given the recent market correction) is 1%. That sucks. Now is likely the time to buy, but technically the market could still go down. I'm not entirely sure why everyone is wondering where the bottom of the market is; I'm pretty sure it's 0.

4.a. all that to say: invest it in laddered GIC's in an RRSP. This is because the RRSP's return is your marginal tax rate. it's a tax savings. If your tax rate is 45%, your rate of return on your RRSP investment is automatcially 45%. Beat that Dow Jones.

4.b. In Canada, your RRSPs can now be used to put on your first downpayment for a house, and you have 10 years to 'pay yourself' back. That's a pretty fantastic deal: 30-50% tax savings when you put it in, AND you can use it to buy a property, that will ALSO appreciate over time.

5. When you buy your house, suck it up and get room mates. As long as they are paying off the mortgage interest, taxes, and some of the utilities, you are living for free. I STILL have room mates, and I own 5 properties.

I will refine some of these ideas later, but I hope this helps anyone wishing to save some capital for a house.

AIML