10-Point Checklist for Your First or Next Rental Property

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate the market and provide the tools and insights to build your real estate portfolio. Picture this, during the verge of a grand adventure, the first few steps of a new journey.

[00:00:21] The keys to your own rental property are within region. Those keys won't only unlock the doors to your new property, but to a whole world of investing and wealth and the life that you've always wanted, the life that you deserve.

[00:00:37] The allure of that consistent passive income, substantial appreciation and the pride of property ownership back in you forward. But before you take that leap, there's one crucial question you need to ask yourself. Do I truly want to be a landlord?

[00:00:57] The journey of owning a rental property is filled with promising rewards and constant challenges. There's the goal of financial freedom and the potential for substantial returns, but it's intertwined with tenant management, market fluctuations and unforeseen issues. Are you ready for the Balancing Act that real estate investment?

[00:01:19] We're going to explore the 10 questions and 10 things that you need to remember before buying your first or your next rental property. So consider this a guide to help you navigate the tough and many decisions you are going to have to make.

[00:01:36] This includes everything from scouting those prime locations and picking a market to understanding financial options and then mastering the legal details.

[00:01:46] And of course, honing in property management skills, the things that we go over today, these points will arm you with the knowledge you need to enter the market or reenter the market with confidence.

[00:01:59] So whether you are a hopeful first time or a cautious would be landlord or even an existing landlord who wants to make sure you understand this list. Stay with us because maybe learn something for your next acquisitions that you wish you did on your first one.

[00:02:14] We will navigate the thrilling yet extremely complex journey together ensuring every step you take brings you closer to real estate success with this volatile Canadian market. That's exactly right Dan, welcome back to the Canadian real estate investor podcast and thank you so much for tuning in today.

[00:02:32] My name is Nick Hill. I am a mortgage agent in a real estate investor. I'm joined today every Tuesday and Friday by my good friend and partner Daniel Foosh.

[00:02:42] And in this episode we aim to answer some questions such as how do I know if it's the right time to invest? But what type of finances are required and what type of financing can I even get?

[00:03:00] Well, also going to look at the true cost of owning real estate investments. We're going to be doing that by including an analyzing things like cap X and opx.

[00:03:10] Of course, we're going to be looking at tenants, power teams, return metrics, and more of the essential things that you need to know before buying your next investment property.

[00:03:21] Before we do that, before we dive into this episode. Let's take a quick second year Dan and pump our tires as we like to do it. And we'll do that by reading another review from one of our amazing listeners.

[00:03:35] So this one says five stars best info for Canadians. Can't get better info on the Canadian real estate scene anywhere better than on here.

[00:03:44] I've learned a ton and I'm actively pursuing how to apply it in my investing career. And that comes from Canadian in Courgis Dan, which is a country that we mentioned actually when we're contrasting home ownership rates in a recent episode between

[00:03:58] Communists and capitalist countries, but I think it was an ironic discussion. But we actually got another note from somebody who lived in Poland and they were mentioning that you know we

[00:04:09] I hope we didn't miss any facts, but it says that we kind of didn't include that there are at least two if not three generations living in a small

[00:04:18] person, all apart and Poland currently. So I'm sure that may count as home ownership, but it's certainly not the conditions that we are used to here in Canada.

[00:04:24] I totally agree and did not mean to conflate that I think like the point of our discussion was that a high and homo ownership rate isn't necessarily a good thing.

[00:04:33] I'm not trying to say a 90% homo ownership rate in all of these post-oviet states, etc. is a good thing because in Canada we have a more renter focused economy and if that means higher quality of life and higher quality of housing for people than I would consider that a good thing.

[00:04:53] It says they mentioned don't equate homo ownership to communist countries to the Canadian reality. I don't think we did that, but I apologize if we did. If you haven't lived the communist reality my my opi actually lived in communism and Romania and mentioned a lot of this stuff to me.

[00:05:11] They lost property during that regime that you just grew regime which ended in the 90s I believe. I guess what the state just took everything from people and I visited there since and totally understand with what this person's saying so interesting

[00:05:33] I guess we added that discussion and also interesting that we have listeners in Kurgistan. I love it. I appreciate the comments where you're telling us that we left something out. We appreciate that as well because it helps us to develop the show.

[00:05:49] We love to have these discussions, so thank you to Agnes who sent us that and also to Canadian and Kurgistan who sent us the review. Please if you have the time really appreciate it if you leave us a review we like reading them on the show and it makes nice smile.

[00:06:04] Let's start unpack these questions that you said that we need to ask Nick the things that you need to know ideally before you buy or at the very least think about buying your next investment property.

[00:06:18] What drives you? Understanding your motivation is the compass that will guide your journey through the highs and lows of real estate investing.

[00:06:27] Again we talk about this a lot in and you know take out a page of your book and say that you and I aren't traditionally the the woo woo type of type of guys

[00:06:37] But what you're mentioning here is your why right and this is very very important because it is going to essentially have an impact and almost shape every decision from the properties you choose to

[00:06:52] Estratages that you employ to either buy or manage those properties. Yeah, I think you know I had talked I kind of like rag on mindset people a little bit and I'm really I probably shouldn't because I think I do a lot of that stuff.

[00:07:07] I think I just did it really early in my life like you know when I was like you know going through mental health issues or whatever when I was younger as a teenager and I think I got into like listening to podcasts and absorbing self help stuff and whatever like really early in life.

[00:07:23] And I think a lot of like it seems to become like a really popular form of personal development in present day so I think I kind of like as you know some maybe like have that hipster mentality it's like I did this first you know this way.

[00:07:36] Yeah, yeah, yeah, yeah, yeah, I was in touch with my feelings and meditating way way before all of you. It's like but but I think the point is you know like I mentioned this to you and I was like, yeah, I don't really do any of that stuff and you're like well it's because you're like you do, but you just don't like realize it because you've done been doing it for so long has become like kind of a part of your being.

[00:08:00] And I think that's the point of like this whole thing it's like a lot of it is you know taking that moment to ask yourself figuring out what is feeling your desire to invest in real estate but then it's also like letting that become part of your being so answering that question is kind of the first step on the path to success because it kind of puts you on the path and then I think staying on that path is really like.

[00:08:20] What just turns you like you know it's like you want to quit smoking after I identify somebody who doesn't smoke right you want to be a you want to invite you want to make good real estate investments you have to identify as a good real estate investor and do what it takes to like become a good real estate investor.

[00:08:33] Exactly, and I love that so so you mentioned that kind of first step on the path to success.

[00:08:39] Well, let's start there imagine this as motivation on your roadmap your business plan your north star and then the next part that you're going to talk about here is something that.

[00:08:52] We really drill into anybody whether a client or community member this is this is where it all really starts and before you have an understanding of this it's hard to really accomplish your goals because.

[00:09:06] For anyone that doesn't have this next piece of things going to talk about figure out you are likely to get stuck in analysis paralysis the only way out of that is by really figuring out this next piece.

[00:09:21] What is that next piece then yeah the next piece is the investment thesis and I think that's that's really just coming up with a an actual framework for how you want to invest and what is based on.

[00:09:34] Obviously some logic and math and fundamentals what is going to get you to accomplish the goals that you've set out. So, you know you can't do anything until you've put thought in time into this and one of the ways that we like to think about it is.

[00:09:49] It's like a staircase right like the goal the end goal what you've accomplished is at the top of the staircase and there are so many steps to get there and it's so easy to think about the top and say oh this is overwhelming or to think about the top and get really fired up and be motivated.

[00:10:04] But what is what is the 100 steps that you need to take one by one to get there then you can fix it right yeah most of them are extremely boring yeah and so.

[00:10:15] If you if you haven't like you don't have that goal in mind and you're you're not staring at that staircase then you you might as well not even start right I mean and for me it's that's the whole thing it's like reverse engineering from from a goal to an approximate set of like oh what's the next right thing for me.

[00:10:33] And next right thing for me to do you kind of just go one step at a time right like yeah and I think that that's staircase where the steps exist on is sort of this set of principles.

[00:10:45] And criteria that you use to guide your decision making process when evaluating potential investment opportunities then you just go through that framework go through those steps one by one. And it's easy to kind of pull oh this is the next deal for me and then okay you know.

[00:11:00] Yeah 100% I mean it's it's something that I think it's gets lost with so many people and I think that I'm going to give an example of what investment thesis is right now just so there's there's no confusion left here because.

[00:11:13] Damn how many people that you and I speak to are like I want to invest in real estate we're both like great that's great what are you going to do well. You know I've got Airbnb student rentals like pretty cool I'm like you know for the seams interesting.

[00:11:26] The multifamily stuff and basement sweets and they're like okay well you just listed like six different really great ways to. to make money in real estate.

[00:11:36] But guess what each one of those each one of those criteria or so each one of those paths has totally different criteria you're going to need different people they're going to be in different markets.

[00:11:46] So here's a quick example just for anyone that's really trying to figure out what that investment thesis is instead of same.

[00:11:53] I'm going to invest in real estate first of all is damn the same thing what you want okay so let's say you're one year or five year goals to have some cash flow in real estate properties. And cash flow is really, really important for you.

[00:12:05] And you've gone to pick to market you've done all the exercises that we're going to go through here but.

[00:12:11] In investment thesis is not saying I want to invest in real estate and if I see thesis as saying I'm going to buy cash flowing student rentals in London Ontario close to Western University on the bus line.

[00:12:24] Ideally that I can add another bedroom into the basement and I'm going to buy them for between 600 and 750 thousand dollars because that is going to equal x cap rate which is going to help me get me close from my goals.

[00:12:36] Whoa now does that sound to help a lot different than I'm going to invest in real estate.

[00:12:40] Well of course it does because that what I just laid out is an investment thesis that is your actual plan and basically what you can do with that one run on long sentence I had there as you turn that into a business plan.

[00:12:53] And and that gives you that clarity so anything else they're doing.

[00:12:58] Yeah I mean I think you know I think you really hit it all but if you you know you examine like how businesses run and you may you may have come here from listening to the Canadian investor podcast.

[00:13:09] Our podfathers they examine businesses like they you know the public markets you people who trade stocks there's thousands millions billions of people analyzing what companies do and follow and following and understanding their vision.

[00:13:27] And if you ever want to attract capital and it's so funny right like there's a lot of gurus on the internet you know you probably see their ads if you listen to our show you're probably in that avatar of Facebook ads that's getting or met ads or what a Google that's getting like the other people's money.

[00:13:44] You know well you just got a raised capital and blah blah blah it's like go into the bank and getting a mortgage is raising capital by the way like that's a capital source.

[00:13:53] So and a bank you know go to let's look at BDC as an example BDC is called the business development bank we've mentioned them a couple times show their goal their mandate is literally to help businesses growing Canada.

[00:14:04] They're not going to lend you money because you're like oh you know I want to be a business owner.

[00:14:09] I have no idea what business it is. I and they're like oh do you have a can you send us like a business plan for the business that you're acquiring and you're like no.

[00:14:17] No, I can't do that sorry right. Oh can you set can you give us a pro for more and like why this business is going to make money? No, no, you just just trust me bro. Right. So the pros of Red BDC are going to love that.

[00:14:30] Yeah so so the. The sooner you think about your real estate investment as a property business and treat it that way the better off you're going to be as a investor the more successful your career will be as an investor.

[00:14:49] So and it comes back to like that that why that definition treat yourself as a somebody who owns a business and I guess I'll use that to segue to the financials have you looked at the financials of the building like. You know it's so funny.

[00:15:05] We're we're in a market where you know you're seeing record supply and in a lot of especially the GTA condos right I mean, GTA condos perfect example. I would hazard a guess that the people who purchased those didn't look at the financials.

[00:15:23] And I would hazard that guess because they are losing money month over month they're cash flow negative and they are now equity negative and a lot of people who are closing on pre construction condos are equity negative.

[00:15:40] And you see it look at the numbers it was probably the number that the the person selling the Macondo was saying oh this is going to go up and prices went up 20% last year so they must go up 20% this year right.

[00:15:51] Because apparently past returns are indicative of future results and and so. Financials are probably the most one of the most important. And so the most important thing is that you can get things in this list of 10 questions what can you actually afford does it cash flow.

[00:16:05] What kind of numbers are important for you? Is it going to cost you money on a monthly basis if so can you afford that. Is that a good idea should it do that what what would happen if interest rates went up because apparently that does happen.

[00:16:20] That's what we really be a high know I know what would happen if they can see rates went up what would happen if rents went down what would happen if your tenant loss their job and couldn't pay for six months.

[00:16:30] What's the cash on cash return what's the IRR the internal rate of return which is actually going to be the probably the most common metric that that the other people's money folks are going to want to see if they're investing in your in your deal.

[00:16:42] A lot of questions do you have a best case in worst case model do you know what your TMI is taxes maintenance and insurance again. Lenders are getting more and more scrutinists.

[00:16:53] We're in a low liquidity environment people are just throwing money at bad deals you got to know these numbers so that your lenders. You show you can answer these questions for your lender so they can know it's a good deal to give you the money.

[00:17:06] Yeah exactly Dan I think I think you really hit the nail on the head there I think the main thing that I'll take away from financials before we turn to the next one here is what can you actually afford right?

[00:17:17] I mean people I think and we'll come back to this as we continue the discussion when we touch on mortgage and operating costs but what you can actually afford to buy and we can actually afford to own can change drastically from your napkin math to reality.

[00:17:35] And that again kind of goes back to this next piece here which is ask yourself about timing right why now are you buying for the right reasons or are you kind of being forced into buying due to.

[00:17:52] I think it's a little bit more than a year ago that I think I said I'm going to butcher this but I think it was like 45% or something like that of people they had bought within.

[00:18:02] The last year of only did that episode which I believe is 2021 or 22 headbot for FOMO.

[00:18:09] The fear of missing out is a horrible reason to go and buy a massive asset if you're going to go buy like a fidget spinner or like concert take it or something like that then sure to go to that.

[00:18:21] But to go buy a piece of real estate because you think that it's the cool thing to do or there's not committing a left or or you know whatever whatever you've convinced yourself then literally do not do that.

[00:18:33] The timing can play such an important role it can either be real estate's best friend or it can be real estate's worst enemy.

[00:18:41] So you have to really ask yourself why am I buying now my buying for the right reason if not now then when right just because you're not buying the next month or two or six doesn't mean that you can't buy and doesn't mean you can't start to plan to buy a great investment.

[00:18:58] So build a plan to buy that first property or that next property and that goes back to you know two things your investment thesis in your financials.

[00:19:07] You know not to be cliche here but I got to say it time in the market versus time in the market do not try to time the market every major economists and every major bank can't figure out how to time the market and guess what I hate to break it to you.

[00:19:21] Neither can you and ale neither can we.

[00:19:25] As I said time in the market can be your investment's best friend so if you're going to do that make sure that lines up and then what is your investment horizon that's another really important question what are you expecting out of this.

[00:19:40] Is this something that you're like I'm going to sit on this for the next decade and you know just just wait and then I'll cash out or is this and hey I I kind of need these returns ASAP.

[00:19:51] So really know that and have those honest and tough discussions with yourself that what are you expecting from that what's your investment horizon the last thing that I'll say right there from a timing perspective is and this kind of blends in the financials that you were talking with in is your saving rate.

[00:20:06] Right that is that is absolutely crucial as well if you have trouble saving money if you have a job or you aren't making a lot of money. Maybe that is a barrier you need to overcome before moving on anything out there day on timing no not really.

[00:20:24] I think we're good okay well let's use this to jump into the next piece here which is mortgages.

[00:20:32] Right then you just talked about financials let's talk about mortgages right these are another bunch of questions that you need to ask yourself not only yourself but your lender your mortgage agent and that is you know all about the product in the term.

[00:20:49] So are you going fix for a variable what's the term like what kind of product do you need what options are included in this product like.

[00:20:58] Like a penalty for breaking early or maybe you've got pre payment privileges this is all stuff that the changes from lender to lender changes from product to product and depending on your investment thesis and won't type of investments you're looking at.

[00:21:12] Fixing flip purchase plus improvements large-scale multi-family student rental these will all change.

[00:21:19] So that's where you start looking at a lender's be lenders private financing mix it all depends on your strategy and then of course are you using a mortgage agent a bank and and are you planning to build relationships with said people maybe.

[00:21:33] You should be building a relationship with the credit you need to leave banks and mortgage brokers behind so really understand not only the financials from the part of what you can actually afford of what your return metrics and maybe what your investors return metrics are looking for.

[00:21:50] But the mortgages can play an absolutely crucial role in what you can afford how you can afford it and what those return metrics will look like. Yeah, love it the next one I think most people probably know this one right.

[00:22:08] I hope so kind of synonymous with the real estate. Yeah location location location I think people people tend to use that terminology. Where is it how long do you plan on on owning this what's happening in that area are you buying it.

[00:22:29] You know are you an end user who's buying it as a wrong on the property ladder do you plan on growing a portfolio here is a close to amenities is a growing a growth area by in a city with a future right not just a past.

[00:22:41] And I mean I think it would it's probably argueable that I can't as current growth rate every city has a future but you know there's areas where paper mills close as an example is a big theme over the last little bit in Canada.

[00:22:53] Ten's have a pretty negative impact on local employment and then property valuations so what are the. The push and pull factors in that location or the demographics look like right is it is a place that's going to age well or I yet risk of.

[00:23:09] And I mean I know this is one of the biggest themes for newfound land right as a province is that it's a very old population and not being replaced efficiently enough I think immigration is doing a good job it seems based on the last couple of.

[00:23:22] Census data points but think about these things I think that's it yeah I know totally I mean I don't think there's too much more to say for location you know there's a couple things maybe.

[00:23:33] You should be looking for the worst house you know the diamond in the rough in the best neighborhood but you're usually not looking for the best neighbor or best house in the worst neighborhood.

[00:23:44] So these are things that you're going to have to figure out yourself and that's going to be part of your investment thesis that location really makes up a large portion of.

[00:23:54] Where you're deciding to put your money because you're essentially saying hey I believe in this town or this city and I'm going to put. Tens of hundreds of thousands of dollars in here but you can't do all of that alone.

[00:24:06] So the next piece that you need to think about is who is going to help you accomplish your real estate goals now.

[00:24:13] Then we are just talking about location well how about this do you know anyone in the location that you've chosen literally like anyone like a warm body or familiar face can go a very long way and an unfamiliar market.

[00:24:29] So this is where we start to look at and discuss things like your power team so who do you have that's very important but it's also just as important as who do you need.

[00:24:40] You need on your power team and how are you going to find these people and we do that with the who not how principle that damn you and I operate on these days where we've gone and sought out other people to do things that they are much better at doing than you and I are.

[00:24:58] Now the question with that let's just say let's use a handyman or real estate agent as example in one of these markets.

[00:25:04] The next question you've got to ask yourself is do those people take me seriously right one of the main things and here's another real estate example so this is something that you do not do that I literally see happen.

[00:25:16] All the time if you are in the process of going and building at your investment thesis and picking that location and trying to build that power team the one thing that I will.

[00:25:26] Please ask you not to do because you will alienate and piss people off is do not reach out to these local market experts whether it is a contractor who's going to redo your basement for you or agent to has been.

[00:25:40] Fine and selling real estate there for a long time don't reach out and start asking them for a deal asking them for an off market property asking them for something that unfortunately you haven't deserved.

[00:25:50] The earned to sort of earn the right to ask for so keep in mind that all these all these who's all these people that your building these relationships with they need to take you seriously and they need to like you so.

[00:26:04] You know approach those relationships with with strategy and diplomacy because that power team is really going to be important to whether you succeed or not in that market the next piece.

[00:26:18] I think would be thinking about future proving and future potential of the deal can you add units can you redevelop.

[00:26:27] You know the best deal is a deal that makes money today and makes money tomorrow right so you know does it does it cash flow today but does it also have upside potential can you add units can you redevelop I mean I would say the majority of areas are now having that potential in Canada.

[00:26:42] How big is the lot what about the zoning and policy changes coming is the roads transit and amenities to support your growth plan for the asset. Is this structural capable of accommodating more units as is because on a square footage basis that could probably.

[00:27:02] Saviour money right I mean we're having some conversations with people who are asking oh like how are people even doing these multiplexes like they really only financially work right now where you're capitalizing on existing square footage right because construction costs are so expensive.

[00:27:16] Is there potential for any government you know benefits from the government from municipal level or provincial and federal like what even with the green energy rebates can you electrify sweets and get some some green energy rebates stuff like that what's the long-term plan.

[00:27:31] I think that's an important question to you even have a long-term plan right. Yeah, I mean Dan we talk about investing horizons and what your expected returns are well.

[00:27:41] You need to be modeling that out right I mean that's like five ten and fifteen years and it gets actually gets much more exciting the further it goes because obviously ideally that asset has not only appreciate it but you've been able to pay down the principle now speaking of paying down principle.

[00:27:59] The people that are probably going to do that are known as tenants now most real estate investing comes with tenants whether you're a multi-family single family retail industrial commercial. Investor guess what you own a building and someone else has in it paid you to use it.

[00:28:17] Whatever use case that may be so you need to think about things like what type of tenants I am I looking for right that example used for the investment pieces you be looking for students.

[00:28:29] But there's several different types of students do you want the party animals do you want the mature 50 year students or the rowdy first year students who are you going to attract.

[00:28:40] What is the existing tenant pool in that neighborhood that you've chosen going back to location location location what does the existing temple on that exact neighborhood within that town or city look like.

[00:28:53] And only that but once you've maybe identified who your ideal tenant is how do you find them and then how do you screen them.

[00:29:02] And then what do you do if you have a bad tenant that is going to cause you nightmares and be laid on rent or ruin your unit.

[00:29:11] Do you have a property manager that's going to go deal with that or are you self managing these are all things that are hard to answer because the answer changes from location to tenant to landlord.

[00:29:24] And the ability to deal with these changes as well across the country depending on which province you're listening to this it's either.

[00:29:34] landlord friendly or tenant friendly province and that can make a very big difference so real estate in every comes with tenants there are a lot of questions that you got to ask yourself when it comes to tenants because as Dan and I've said on the show several times before tenants are the real asset.

[00:29:54] Yeah, I think that that segues nicely to the discussion of property management and asset management right like who who is going to do the relationship side of your business right to go back to the idea that this is a business and it's very much a relationship business are you going to be the one running the relationship.

[00:30:14] And of your business tenants play a big role in because they're their customer right you know and if you go back to our episode of with chip loss and he talks about it's like the oldest business is the original subscription model second all this business technically I see you some working but.

[00:30:33] The original the original subscription model where all you have to do is provide somebody with.

[00:30:40] That unit that you've committed them committed to providing to them and to do a good job at that but then there's also the relationship management of you still have to collect money from them et cetera and make sure they're happy and understand their customer so understand their needs and meet those needs are you going to do that or is a property manager going to do that it's not a super complex question but there are their property managers have you thought about that and then then on top of that.

[00:31:02] Does that make you the asset manager right and then we need to think a little bit about asset management who's responsible for things who are your partners in the deal. Who is your property manager who is your your power team right that handyman your realtor like who's helping when your acquisition side what role does everyone play.

[00:31:18] Do you as a business have standard operating procedures or best practices for this side of the business.

[00:31:25] No where you can operate well where you can allocate capital where you can cut costs where you can't afford to cut costs right and how to spend the money and at the end of the day if you want to do this well and you want to be become one of the best and have and make life changing money like a lot of people think real estate can be a life changing asset but it probably change it probably is it just changes their life.

[00:31:46] And then they get it because they're self managing running around honestly right and it's really like you know we talk with us a lot in the course it's so easy for real estate to become a very lucrative job.

[00:32:03] Right and not an investment and if you don't if you're not thinking about.

[00:32:08] How the difference between a lucrative job and a business or an investment then that's where people end up having really negative experiences with real estate investing which I think a lot of people are having right now. Yeah yeah very very unfortunate but very true.

[00:32:27] And and well we're on the asset management and the kind of the struggles and and perils that come with that let's talk about it and I we'd mentioned this kind of back at the top of the show but.

[00:32:37] Capx and opx so so these are these are line items that are for the most part you know we see a lot of investors overlook these or maybe not add enough as.

[00:32:51] Capitol allocated to something like this so capital expenditures otherwise known as Capx or major purchases that you make right which are used over the long term but operating expenses all packs on the other hand.

[00:33:03] Are the day to day or month to month expensive you occur when running a business or an RK's.

[00:33:11] A real estate investing business each one and you can look at each one of your investment properties it's own little business right and you can put but the Capx and opx for each rental property individually and as you start to build a portfolio you can.

[00:33:24] So you start to build a bit more of an intense model where you'll have different capx and opx and from a portfolio standpoint but.

[00:33:32] You don't you need to know what these companies are before you purchase and you can do that with Capx is easy you can go and have an inspection done please do that and then you know the inspection is essentially.

[00:33:45] A guide to the next few years of major capital expenses that you have to endure so you know the inspector comes say hey you got five years left in the roof and three years left in the furnace and you know okay well.

[00:33:58] I'm spending 50 grand in the next five years on those two major things and opx thing is just as important I think right well how much money is just going to cost you on a month to month basis how much money is it going to cost you.

[00:34:12] In the winter if you know snow removal is a big thing so these are just the numbers that I think we've seen a lot of people ignore.

[00:34:22] I'm blissfully ignorant of some of these and and these are the ones that can come back and bite you or that can come back and you know eat up an entire years worth of profits if you haven't figured out.

[00:34:38] I think the proper way to not only predict prepare for these as well so really make sure that another question ask yourself how much is it actually in cost me from a capx and an opx standpoint to. I think that's a rental property.

[00:34:54] Yeah I think when you look at capx and opx really accounting questions right yeah the difference between you know okay.

[00:35:03] Is the money that I'm spending here for the operation of the business or is it for capital improvement on the business but and I think that's a nice kind of nice segue to. The nuts and bolts of accounting is like how are you looking at the deal to.

[00:35:18] Analyze whether or not it's even successful like you know I mean in most other industries is like kpi's right keep performance indicators that's the answer.

[00:35:28] I'm working on my buzzwords for other industries to try and make this a relatable podcast you know finally two to use and in real estate we call those you know return metrics what are your kpi's what are your key performance indicators for your property how are you going to tell if your property is performing right that's what a performance indicator would do.

[00:35:51] I just learned this so this is pretty profound for me you know what what are your lenders looking at as kpi's what are your investors looking at.

[00:35:59] You know a lot of people think about cash flow or a lot of people think about capital appreciation but what about cash on cash or but your cap rate that's an easy way to compare properties side by side.

[00:36:08] What about probably the most important one in today's market which is killing deals left right in center is the debt service coverage ratio.

[00:36:18] Right if the if you can't hit the debt service coverage ratio that your lender requires which like CMAJ think is like in the one point one range right one point one said I don't know one point one five most.

[00:36:31] You know conventional lenders are looking for like a 1.2 1.25 which means you know it's pretty easy math I just I just did a presentation presentation like a slide deck on this for the real estate C.A. course, but just to visualize it but like.

[00:36:45] One point one is 110% right so that's means you're 10% cash flow positive after your debt service coverage. Which is you know your mortgage payment and then principal interest taxes insurance etc. PITI another other acronym for Nick there pity. Is that what they call it?

[00:37:07] Yeah, so I mean if you don't know how to use any of these go complete the five day challenge that we have on our free course for refresher go to realist.ca sign up you can we literally have five days worth of free videos for you to consume.

[00:37:21] And I'll teach you how to do a quick spreadsheet to analyze a bunch of things and we use some amazing examples and you can even see all of the podcast listeners who were listening in and contributing to the discussion along the way.

[00:37:32] Yeah, exactly the answer what you're referencing is the five day challenge where we go through cap rate that service coverage cash on cash and other really great return evaluation metrics there so.

[00:37:47] I think we've given everybody listening a lot to think about we probably have missed a few of the questions that you need to be asking yourself to be honest because there are there are a lot but we're just going to do a quick recap just so.

[00:38:02] And we know that you are familiar with everything we touched on from a high level and you can take these and maybe reach out to us and say hey we should probably asking this as well.

[00:38:11] So the first thing we wanted to look at is your thesis that is really what you're doing and why okay that is super super important that is where all starts don't do anything until you put some thought into that.

[00:38:24] This timing why now is now the right time for me if not now then when and let's build towards that and again of course with both thesis and timing that we need money so understanding your financials what you can actually afford is crucial.

[00:38:42] And you want to look at once you've once you've established your financials you want to present those financials to a capital partner right so here for most people their primary capital partner is their bank their lender so do you get a good mortgage.

[00:38:57] partners maybe mom and dad maybe friends and family you know maybe your private equity individual maybe a. And you're raising the public markets I don't know right lots people listen to the show so you have you raise money do you have equity do you have debt a mortgage.

[00:39:15] Because that's kind of really the only major advantage of real estate is the fact that it can hold leverage very well.

[00:39:21] And so you have a lot of people in that location who can help you execute your business model those are very important now once you have an our executing that business model.

[00:39:34] And so what kind of properties are you actually putting into that model are these properties good now and good later as damn was saying right can we make money from them now and later.

[00:39:45] And later we want to look at the future proof of each one of those properties are they development sites are they close to a major arterial roads.

[00:39:54] Are they in as much smaller example are they applicable for government rebates on green windows or low flesh toilets like all the stuff to look at and not only when you're future moving but who are you renting that place to your tenants.

[00:40:12] And as you go and manage that your asset management including your tenants and the properties and kind of the whole package who is doing that how are they doing it and what are your.

[00:40:24] KPI's right in exactly and then you understanding your cap X and optics so your expenses on both sides. And then the fact that you're going to be a lot of things that you're going to be doing is you're going to be doing that.

[00:40:43] on your power team, your account, your real estate professional, your mortgage professional. Do your research? Buying your first rental property is a huge amount of work, but it's also a huge accomplishment. So take a second to congratulate yourself. Congratulations, Nick.

[00:40:58] I never congratulated you for your first couple rental properties. Congrats. Good job. But only take a second because now that you purchase property, the work and fun is just starting. It's time for you to get some of that passive income.

[00:41:11] And I don't know what all comes with that. What were you doing over the weekend? Not chasing a bad side of addicts. This weekend, this weekend was a good one. But just passively chasing bads.

[00:41:24] Just passively actually I spent a few thousand dollars on contractors this weekend who are redoing a bathroom for me. But as they were doing that, I was out and joined some family time, which was, that's passive spending.

[00:41:39] Yes, which don't do that until you have passive income coming in. Anyways, thanks so much for listening to everybody. This was a list of things to remember, to ask and to research before buying your first or your next investment property. Laundry listed things there.

[00:42:00] Again, we probably missed a few because buying an investment property is a serious thing. And as Dan was just joking, congrats. You've purchased your first investment property. Take a second, graduate yourself.

[00:42:11] But then get back to work because buying the property is just one piece of building and owning a real estate portfolio. It really comes down to managing as well. And that's what all of this is about. So hope you got a ton of value. Thank you so much.

[00:42:27] Check the link in the show. Thanks for all the good stuff we've got multiplex event on August 22nd. Just about a month away. Second Tuesday of every month, meet up across the country. And tons of free information and amazing people on realist.ca. Go join that free group.

[00:42:45] And if you're interested in taking you your business to the next level, Boca console call with us and we can see if it'd be a good fit for you to join our premium membership. Anything else before we get out of your day? No, that's it for me.

[00:42:57] Awesome. Thanks so much everybody. I'm glad you're soon. The Canadian real estate investor podcast is for entertainment purposes only and it is not financial advice. Nick Hill is a mortgage agent with Premier Mortgage Center and a partner in the G and H mortgage group.

[00:43:15] Licent number 10317 agent license M21004037. Dinofotches a real estate broker licensed with rare real estate. A member of the Canadian Real Estate Association, the Toronto Real Estate Board and the Ontario Real Estate Association.