10 Lessons in Building a Real Estate Portfolio of 12 Properties in 36/mo

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First off…

Congratulations!

Coming to this page proves that you are serious about changing the course of your life, and the future of your family.

The 10 lessons outlined in this article are absolutely the most valuable experiences I’ve had during my time with real estate investing since 2007. In that time, I was able to grow a portfolio of 12 income properties in 36 months.

It’s my hope that these lessons will prepare you for success. Maybe they could even save you tens of thousands of dollars.

You have to stay focused, committed, and have a long-term approach. The real estate investing business can be very lucrative if you stick with it and learn and improve every day. Here are the 10 big lessons I learned…

1. Build the Right Team

Work with professionals who deal specifically with real estate investors. Not all realtors are alike. While most have a good knowledge of local areas and neighborhoods, very few understand the fundamentals of real estate investments.

Find the right professionals who focus on working with real estate investors.

Real estate investing is not a get rich scheme. If you’re going to succeed you need to think long-term success. In order to stand the test of time you’ll need to build yourself a team of real estate specific professionals:

A realtor that invests in real estate and owns several rental properties. They must understand the numbers, type of properties, and areas.
A mortgage broker that works primarily with investors so they can structure your portfolio the right way to allow for maximum future potential. The lowest rate is not always the best.
An insurance broker that understands investors and gives you the right coverage.

A lawyer that primarily deals with business and real estate.
An accountant that understands real estate structuring, tax implications and your vision.
A paralegal that can assist in Landlord Tenant Board paperwork, evictions and court representation.
Property Manager that has the experience, systems and team to handle issues in a timely manner.
Contractor and or Handyman that is reliable and trustworthy for big and small jobs.

2. Only Consider an Investment if its Numbers Add Up

Don’t simply buy a property that you speculate to go up in value. You’re investing for cash flow, so you need a property in the right area that will attract a good quality tenant.

I’ve known people who buy reconstruction condos wait 3 years to flip it and hope to make a profit. Although some people have done well for themselves in this hot market, to me, this strategy is risky and unsustainable.

Another classic example is when a property is overpriced but it has attractive looking finishes and features that you become infatuated with. You have to keep your emotions out of your decision to buy an investment property.

You have to do your research on the property, like the economic fundamentals in the area and whether or not you will be able to cover all your expenses with the rent you will be charging. Do not allow your emotions to blind you.

Ultimately, the numbers have to make sense and that you are buying an investment, not a place for you to live in.

3. Keep Good Records

Keeping current and accurate records will save you a lot of frustration. Whether it is for mortgage approval or accounting purposes, keeping track of all your income, expenses, and documents is crucial to your business. You need to monitor the performance of each property, look at how you can reduce your expenses and increase your income to maximize the potential of your investment. I recommend reviewing and inputting your numbers on a simple excel file on a monthly basis.

Whether you are renting a unit to a tenant or having a property management company or leasing agent do it for you, make sure you have written agreements in place and scan a copy as backup. Even when you are qualifying for a new mortgage or refinancing an existing property, keeping your paperwork in order is very important in building a sustainable business.

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4. Assessing the Risk and Managing Expectations

There is no such thing as a risk free business or investment. Do not be unrealistic about the risks involved in owning a property. There will be unexpected repairs and maintenance that will creep up together with a tenant not paying rent in the same month. I am speaking from personal experience; you will lose money on some properties over a period of time, there will be some properties that look very good on paper however all your cash flow will be gone towards maintenance. Your job is to minimize the risks and losses by making informed decisions and not letting issues slip by. My advice is to try to be as proactive as possible in controlling your investment (especially when starting out); do not delay in handling issues as in the end it will end up costing you more money.

5. Managing your Cash

When you first purchase a property, you will need funds for your down payment and closing costs. Most investors don’t realize that you will need to set aside a reserve fund for each property as well, in case of renovations, repairs, maintenance, vacancy, carrying costs, and leasing fees (if applicable). There may be some major expenses such as the roof, furnace, or plumbing that may need to get done either right away or a few years down the line.

Here are all the costs related to buying real estate:

Down payment
Cash for reserve fund
Legal costs
Miscellaneous closing costs
Renovations
Pre-move in maintenance
Marketing costs to find great tenants
Property management

There are also indirect costs related to being in this business. It may not be as significant financially, however, it should be tracked.

Phone
Vehicle and Gas
Office supplies
Banking fees
Computer hardware and software
Accounting and/or Bookkeeping

6. Treating it like a Real Business

Buying an investment property is just like buying a business. If you do not treat it like a business, you will likely lose money fast. When you first begin in real estate, it is difficult to know whom to trust. There are a lot of unethical and dishonest people out there trying to make a quick buck off you. You need to surround yourself with like-minded individuals and attend networking groups. I can guarantee you that you will come across some tough times and you will need some advice to move on.

Take a moment and look deeper when you buy an investment property. You have income or revenue from rent, you have operating expenses like mortgage, property taxes, insurance, marketing, property management, maintenance and repairs etc. The Canada Revenue Agency also wants to know the details of this business and you are required to submit an annual financial statement. Your intention is to make a profit and create financial gain through positive cash flow and equity appreciation. This is definitely a business!

7. Having a Plan or Exit Strategy

Unless you want to wander aimlessly down a highway, you need to know where your exit is before you get on the highway. When you enter into a real estate investment, you also need to know how you plan to exit. Novice and veteran investors alike sometimes get caught up in the excitement of finding a great deal. However, a veteran will be more likely to think through it. Finding a property with exceptional equity is only good if you have a way and a plan to realize the gain.

There are so many strategies that a person could employ and ways to make money in real estate. By strategies I mean, buy, fix and sell (often referred to as flipping), buy and hold long-term, single versus multi-family properties, rent to own, or combinations of all the above.

First and foremost, you have get to know your market and key economic drivers in the area, what are the prices like, what people are willing to pay in rent to live there. To do that, requires consulting with a real estate agent that knows and does research on the neighborhoods.

8. Hire but Verify Everything

A few years ago, my partner and I had bought some properties 3-4 hours driving distance away. The prices were much better and the opportunity to get under market property was available. We were quite comfortable buying properties there as we had owned some there for about a year and gained a lot of equity quickly.

We had hired a property manager, which also handled the renovations. The company and person in charge was referred to us by our Real Estate Agent who had never used him before but we didn’t know at the time. His renovation prices and property management rates were the best we could find. He was hired! We had several renovation projects and units that had to be rented at one time. We would go to check and verify the renovations every 2 weeks. The progress was slow however things were getting done. We got complacent and didn’t go for over a month. The property manager turned out to be a scam artist. He had taken several thousand dollars in deposit and on the phone told us that things were getting done and units were being rented. All of this was a lie. We had discovered items we had paid for but were never fixed. He had done that to several people and was nowhere to be found.

Besides the fact that you should never hire someone because their rate is the best you can find, you also should only hire based on a referral from someone you trust. No matter whom you hire, it is very important to stay actively involved in your property so something similar doesn’t happen to you. It’s not a full time job but it’s also not a passive investment. Make sure you have copies of every lease agreement and statements of income and expenses to cross check against actual bills.

The bottom line is, whomever you hire to do work for you, whether a contractor or property manager, they will not care to save you money or time as much as you will. You must verify and not always take their word for it.

9. Keep Learning but Always Take Action

Before I first started investing back in 2007, I attended a lot of Real Estate Seminars. As a beginner in this business, it was very easy to get lured into making large amounts of money fast. Most of them were taught by Professional American Salesman that were claiming to be making a lot of money in real estate very fast and of course they made it sound very easy as their objective was to sell you more expensive advanced seminars or training ranging from $1000 – $25,000. They told us in order for us to be really wealthy and succeed, there is an advanced training class which gives away all of the secrets to getting rich fast.

I am not opposed to education at all; however you must apply the basic course and make money from it first. The advanced course may be good however you may not be ready for it as a newbie and you will be very overwhelmed and confused with the knowledge. Take it step by step and do not be focused on making money fast as that will cause you to make some very silly decisions causing you to lose money fast. Trust me, this has happened to me a few times.

10. Don’t Spend Too Much on Renovations

My very first property I purchased was a power of sale, which I was trying to flip. I had watched a lot of episodes of the TV show Flip This House, so I considered myself well informed and ready to do this with my own money at stake. After searching for about two months for power of sale properties with an agent, I was getting pretty frustrated. I finally found a decent property in Brampton, which was about a 20-minute drive from me. I paid $5000 over asking just to make sure I would get an accepted offer from the bank. I had turned into a motivated buyer and I decided to make this property look as best as it can be without paying attention to my budget and the local market. I ended up spending money on items that I really didn’t need to such as changing the basic ceramic white tiles to newer looking ceramic tiles, spending money on new sod in the backyard, choosing higher end appliances etc.

In other words, I was not aware that the neighborhood really did not support the types of upgrades that I was spending money on. At the end, those items did not add any more value to the house. Since my budget was way over, I also made the mistake of over pricing my house for sale just to recover my money. My agent at the time did not advise me otherwise and just went with my emotional decision. It took over 3 months to sell after a few price reductions and at the end, I lost money after many months and countless hours of hard work.

There you have it. Those are the 10 most vital lessons I learned over the several years I’ve been investing in real estate. I hope each lesson has given you something to think about in your own investing.

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About the Author

Jose has successfully acquired a large portfolio of investment properties in Ontario and the USA. With work experience in Construction Management, Jose took on renovation projects for most of his properties. He says “I don’t like waiting for the market to appreciate, I like creating instant equity by increasing the value through strategic acquisition and renovation”. Together with joint venture partners, he has acquired 30 + units over the last few years.

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