Canadian Success - and lessons learned!

Here's my story.

It starts with a call from an old high school buddy in 2008. He wants business advice. He has an opportunity to buy an 8 unit rental property for 49k, but has no money an no job. This property is approx. 300kms away, in my home town. I offer to buy it for cash using a HELOC and let him manage it - property going into my name and sharing the profits (property #1). My thought was, I was doing this to help him get out of a bad place in his life, while increasing my net worth and income. He then finds a 6 plex for 40k in 2009 - bought it for cash (property #2). The place was known to be occupied by drug dealers. Time goes by and my high school friend has gone back to his old habits, participating in illegal activities. By 2012, both buildings are filled with drug dealers. So, I cut my ties with this old friend (can't save them all) and hire a property management company to manage my properties.

Meanwhile, I'm working full-time as a director for a national organization, putting in 80-100 hrs/wk. The company is struggling and without major change, I'm not seeing the light at the end of the tunnel. Given the situation, I might not have much time with this company. As the main bread winner, I need to figure out how to continue to bring in a decent salary. There aren't many jobs at this level in my area and I'm really not willing to go back to accounting.

I had been wanting to start up my own company for a few years, just not sure which one. I researched franchises as well as other opportunities. I have the experience and education to run a successful company, I just don't know the 'what'. In June 2012, I come to realize it's right in front of me, RE. I pick up a book from a RE 'guru'. The book said to attend seminars, so I did. They happened to be in the area offering a free seminar. I purchased their 2 day seminar for $200. Then, my mother, who just happened to be living at my house for about 1 year, received an invitation to attend a free seminar by DG. I asked her for the invitation and registered. I attended the free seminar in July 2012 and went as far as purchasing the platinum package of the DG Success Academy.

The following is a summary of year 1 following the education.

December 2012

I purchased 3 cash flow properties.

Property #3 - I was purchasing to rent to own after learning this stuff through the Success Academy. It had a cap rate of 9.4% and instant equity of 5k. Once I had possession, I figured out that it wasn't that easy to move people out of a rental unit. So, I couldn't get the new tenant in to do the rent to own. I therefore kept it for myself.

Lesson - know the Landlord and Tenants Act.

Properties #4 and #5 - The properties had CAP rates of 11% and 13% and instant equity of 9k on one of the properties - getting better at this!

At about the same time, my property manager takes on more than she can handle. She hires new staff, etc. Things start to go sour. No statements, deposits don't match up, rents aren't collected, vacant units in area where vacancy is 0-1.5%. I put the brakes on for new purchases. I ask around and I'm told there are no good property management companies in Timmins, other than this one. I give her time to get settled, but it just isn't getting any better. So, I give her my notice. Now what? I'm 3 hrs away and work full time++. I know I want to do RE full-time, but don't have enough CF from RE to do so. I'm the main bread winner and can't rely on anyone else to support us.

In chats with my RE agent about why the brakes are on, she mentioned her sister who used to manage the property next door for the 1st building I purchased in the fall - which is actually how I met my RE agent. I went to Timmins to interview her and offered her the opportunity to be my 1st employee and grow with the business. I incorporated White Water Property Management Inc.

Lesson - a property manager can make you or break you!

May 2013

I continued to purchase properties.

Properties #6 and #7 - I closed on two side by side 4 plexes at end of May, with instant equity of 38k and CAP rates of 11% (same seller).

June 2013

Running out of cash for downs, so I tried to finance property #1 which I had bought for cash. I found out the lawyer that had closed the deal didn't do his homework - very important to have a good lawyer! He stated it was zoned property, but per the appraiser, it wasn't. Finally managed to get a broker to get me some funds. The good thing is, the appraisal came in at 140k when I only paid 49k. Equity of 91k - very cool!

Lesson - a good lawyer will protect your investments.

Also found investors willing to put up cash for downs on properties. I set up another corp owned 50% by investor an 50% by my corp. So getting 50% of net income and equity. Pretty sweet for getting a deal together.

Lesson - don't stop just because you are out of cash. There are other solution.

Properties #8 and #9 - I then purchased another 2 triplexes (both triplexes) off a seller, which were to close at end of June.

Property #8 just happened to have an empty lot next door that the seller's lawyer stated had merged, so they threw in into the deal for free after the fact. At the end of the day, my lawyer figured out that the lots weren't merged. So got a lot for free worth approx. 20k! It caused a lot of headaches with the bank, but definitely worth the hassle.

Property #9 had 2 buildings on the property. My regular lender wouldn't mortgage it. Couldn't find a bank that would fund it. I mortgage broker was recommended, so I figured I would give that a shot. I gave him this deal and 2 others to give him a try. What a disaster. He messed up the deal multiple times - couldn't assign, wrong name on mortgage, didn't have all conditions met, etc. Seller and my lawyer were getting pretty '****y'; I thought I might lose the deal.

Lesson - Found out all about what the repercussions are to signing off on conditions and not closing. It finally closed in July.

Both were sweet deals, not to mention the CAP rates of 13% and 14.5%! I didn't need appraisals, so not sure what the equity is, but knowing the market, it's probably 10-20k per property + the lot, so total of about 40-60k of instant equity. And what I learned through the process was priceless - not too smart, should have called the academy hotline rather than learning this on my own.

July 2013

It only gets better. 6 more properties under contract.

Property #10 - Got a duplex under contract (again, 2 buildings on 1 property). This one is stuck with that same mortgage broker. Luckily the seller is easy to work with. It was to close end of June, got pushed out to July 28. We are now July 24 and my lawyer still doesn't have mortgage instructions. CAP rate is 14%. It didn't require an appraisal, but I'd say value is at least 10-15k above offer.

Lesson - a competent and reliable mortgage broker is extremely important.

Property #11 - Got a triplex under contract. This one's a bank repo. They accepted another offer on the initial round but it fell apart. It was accepted at the same time as #9 and #10, so I gave it to that same mortgage broker to see if he could get me better rates than the bank I regularly deal with. When I saw the issues we were dealing with in closing #9 and #10, I went back to my regular bank. Issue was, I had already signed off on all conditions, based on false info. I ended up having to get a couple of extensions because I had no appraisal, etc. Bank didn't want to let us back into the vacant building, stating we had already signed off on conditions. This one was to close mid July, got extended a few times and lawyer finally received mortgage instructions late yesterday (with wrong closing date - waiting for new instructions). Need to extend today's closing by a couple of days. CAP rate on this one is 16.5% - pretty sweet!

Lesson - if the grass is green, don't bother checking to see if it's greener on the other side - stick with what you know works. Otherwise, you risk losing the deal.

Property #12 - Another triplex under contract. Lawyer researched it and apparently the lot was split and part of it sold some time ago, but not legally. It was to close mid July, but we continue to extend to let the seller rectify. CAP rate is 13% with lots of potential to increase and instant equity of 24k! - which explains why we are so lenient on the extensions!

Lesson - a good lawyer that does his/her homework will keep you out of trouble in the future.

Property #13 - This one's a triplex - bank repo. It needs to be gutted and redone. All properties purchased need some work, but this one will be my first of this kind. Once fixed up, net equity on this deal will be 60k+. My bank wouldn't touch it, so I went to a credit union. They approved the loan, but the person that approved went on vacation. I was told I can't get the funds until mid August when he returns - go figure! So I had to figure out how to close on this one cash. Probably a good thing the others are taking so long to close! Then, my lawyer tells me there's a lean on it and that per the amendments the bank made to the offer, I'm responsible for them. He managed to get the bank to pay, but this could have eaten away at the profits as the lean was for 16k.

Lesson 1 - When financing, try to get a closing date that's far enough out to get the funds in place before closing.

Lesson 2 - When buying bank repos, get your lawyer to conduct the search for leans before signing off on conditions.

Property #14 - This is a SFD - bank repo. I've had my eye on this one for a while. Put in an offer that was refused. I waited a couple of months and put in another offer that was lower than my first offer. It was refused. I increased the offer by 5k firm and it was accepted. CAP rate based on current occupancy is 19.5%, instant equity I'm guessing 20-40k. Closing mid September.

Property #15 - A 4plex. Because of all the issues I was having with the mortgage broker and worries about finding the cash to close deals, I stopped looking. I had put an add on kijiji and totally forgot about it. Computer was in for repairs and so I was using a loaner that didn't have my gmail on it. I received a couple of responses to which one happened to be an awesome deal. By the time I responded, I was too late. She had listed the property. I got home after a trip to my RE area and decided to check the MLS listing. Found this same property, but someone had it under contract. I put in a back up offer which was accepted. CAP rate on this one is 17% and instant equity likely 40k - unbelievable deal!! Just found you 1/2 hour ago that the other offer fell apart and mine has been accepted.

Year 1 Summary

- Increased CF by approx. 150k/yr
- Instant equity over the past year of 186-231k
- 60k increase in equity on after repairs value for property #13

Not bad for 1 year of part-time work!

Future plans:

I took July and part of August off work to get my property management company set up, hire and train employees, do repairs on new purchases, etc. I'm now debating between doing this full-time now (not returning to work) or doing both for a while longer. Not sure how it'll affect my buying power at this point. That'll be the deciding factor.

Everyone that sees my RE portfolio is amazed (mortgage brokers, lawyer, lenders, etc) - that would be all except my husband - he actually hasn't even seen it. They all ask how I do it. I tell them it's my secret, but that I can help them build the same, for a fee of course. Some of them have asked me to start doing the leg work to get the deals under contract - they are prepared to pay the assignment fee. I have other investors who are hearing about me, approaching me stating they want in. It's nice when they come to you, vs you having to go to them.

My husband on the other hand really hasn't bought in - says I'm addicted to RE. He'd prefer that I just go to work every day and collect my pay check (keep working 80-100hrs/wk). That said, he's very handy and did come with me to help with repairs and maintenance on a few occasion. I think he's starting to come around. Issue is, even though I've more than doubled the money I bring in per year, I keep reinvesting, so he doesn't actually get to see any of it! I guess I'll have to break down and give him a taste of the money to get him onside. He wants to do some landscaping - could be a win-win as I can then get the property reappraised to get additional equity out of it to buy more RE!

Thanks to the DG Success Academy, I had the tools and confidence to get this done!! Gena, if you are reading this, we met in Ottawa (Dan's sister) - thanks for all that you shared! We bought our tickets for next year's Edge Event, so we'll see you there. Hoping I can make it onto the stage some day! If the DG team is looking for a Canadian to provide education, I'd be happy to join the team!

Looking forward to the next year!!

Cheers!!

Lyn