Hello, and welcome to this month’s reading edition of the KRPOA Blog!
In this month’s post we explore how to break into the industry as a landlord. It can be quite overwhelming to know where or how to start investing in real estate. Questions and doubts come up about profitability, working hours, metrics, or even just basic valuation. It is okay! We have all been there, and we want to help you achieve your goals in the Kingston market. This step-by-step guide can be used as an outline for your own operations, whether you have been in the industry for years or are just getting started to increase productivity and set you up for success.
11 Steps to Success in Rental Property Investing:
1. Write out your business plan
This step is crucial because it will establish what steps are needed to be successful to achieve both short and long-term goals. There are several resources and templates online that you can use to help craft your plan. It is important to consider how this investment will work for you. Will you share the space and “house-hack” a legal duplex? Will you purchase an apartment building? Who is your clientele? How long do you plan to hold your investment? Will this be your full-time job? Take this planning phase seriously. When you have a plan, it is easier to bring people on to work with and will help you grow faster. Strategy is key!
2. Seek education and apply it practically
Join associations like the KRPOA with information sharing and network opportunities. Read books, enrol in courses, listen to podcasts and videos – supplement your experience and be open to learning through multiple different mediums. I have linked a few great resources at the end of this post.
3. Build a network/team
Use networking opportunities to make real relationships in the industry – not just another connection on LinkedIn - and build your team from there. Outsource operations that you do not enjoy or are simply not good at (ie. Leasing, accounting, legal work etc.). Not only will this increase your productivity, but it will also decrease your stress and allow you to thrive and focus on what you love. So much about being successful is having passion for what you do, so if you have zero passion for accounting, why struggle through it and risk the consequences if you do it incorrectly when you could be focusing your energy on other aspects of your business?
4. Create personal value
Anyone in marketing will know the term unique selling point – something used to define the product being sold or introduced to a customer base. Take this same principle and apply it to yourself. Determine your role in your business and ask yourself, “how do I provide value?”. This applies to your business, and your partners. Ensure that you are carrying your weight and working hard to learn new things.
5. Get preapproval from a lender
Establishing a total loan amount gives you availability to compare rates and options. Look into borrowing from banks or a mortgage agent, as this number can vary! It helps to be proactive here, so you have an outline for what kind of capital you are working with. This should also be able to add to your market analysis when scoping out a location and client base (see step 6). Be careful about the caveats of shopping around! Most agents expect to help you through the process once you reach out to them. It is important to be respectful of the agent’s time - especially if you are not actually interested in purchasing or actively ready to go in on a property (at the right price of course).
6. Market research
Establish your target client base and scope out your location of operations. We are lucky here in Kingston as we are a hub for students coming from around the world to study at one of our 3 top post-secondary schools. Renting to students is lucrative but can be difficult to get into when you are just starting out and do not have the capital or leverage to afford a prime location. Pick your market and consider leaving room for growth. Know the demographic and think about development around your location. Know the why behind your choice of location.
7. Understand what you are buying
Do the number work. Even if it is using basic metrics, figure it out. Revenue estimates based on comparable markets and units, Expenses (property tax, mortgage, insurance policy, utilities, repairs, and maintenance), Net operating income etc. Be realistic with your estimates to determine profitability and secure financing.
8. Put it on paper
Figure out your good, better, and best offers, then get your realtor to draft up the deal. Do not give up if your offer is rejected!
9. Negotiate it
Use metrics and physical proof to present to the vendor why your offer makes sense. Use the inspection to your advantage. Consider options that would increase the value of what you are getting such as vendor take back mortgage and vacant possession.
Ensure that you get the proper insurance and understand the policy well. This can avoid a lot of future headaches. You can never ask too many questions when it comes to insurance, so get familiar with what you are covered for and factor this expense into your underwriting process. After you have owned a property for 7-10 years, you may want to consider having the rental appraised. The appraisal will ensure that you are covered for the appropriate amount, as the value of your property will likely increase over time.
11. Consider property management
Weigh the pros and cons of a property management service. Does it make sense for you to have it? Though it cuts into profits, having a management company look over your rental, may not be a bad idea. It will save you the time and effort on things such as maintenance, leasing, and accounting. Especially if you are larger scale or looking to retire soon, this may be an appropriate avenue for you to take, while still making passive income on your investment.
You can always build on these basic steps but remember to revisit them to solidify re-align your goals and evaluate your operations every once in a while. So often (especially for new investors), it can be challenging to know where to start with real estate investing. That is what we are here for - Take advantage of your KRPOA membership and the wealth of information that comes with it to maximize your opportunities through our networking events and resources.
Dear KRPOA member, what was your experience like when you started real estate investing? Did you find this month’s post insightful?
Do you have any ideas you want discussed in the future? Please let us know by leaving a comment below!