Tips for real estate

BY JAY BRIJPAUL

Louis J. Glickman, a widely known as a  real estate investor and philanthropist, said that “the best investment on earth is earth.” For many, owning a home is the heart’s desire. A home is more than a shelter and over time becomes one of the best investments.

John has been renting for ten years. He stacked a pile of rental receipts that tallied to about two hundred and fifty thousand dollars. John got caught in a rental trap. The first thing is to set a realistic goal. Joanne wants to buy her first home in five years and plans to save one hundred thousand dollars for the down payment. She paid herself first by transferring twenty percent of her paycheque to a savings account. She contributed to an RRSP and took advantage of the tax break. For her, success is moving confidently towards a worthy goal.

Daniel and Diego celebrated their first marriage anniversary in their new home. They reviewed their mortgage statement and noticed that most of their mortgage payments were interest. They met Jan, a financial planner, who advised them that instead of making monthly payments on their mortgage, choose “bi -weekly accelerated payments.” She explained that with a monthly payment plan, they are making twelve payments every year, but with bi-weekly accelerated payments, they will make payments every two weeks. Since there are fifty-two weeks in a year, then, they would have paid twenty-six payments equivalent to thirteen months in one year. With that strategy alone, they can pay off for their home in twenty years instead of twenty-five. Daniel and Diego, instead of saving money to pay down their principal on the anniversary date, chose to pay the extra on every payment date and in doing so paid less interest.

Philip bought his first home in 2010. Since then, the price doubled. His plan was to sell the smaller home and buy his dream home. Mrs. Smart, his realtor, advised him to increase the mortgage on his current home and use the equity to buy his dream home. With this idea, he saved on real estate commissions, lawyer fees and mortgage penalties. The income from his rental property carries the increased mortgage. Mrs. Smart explained that the increase in equity from a property can be used to buy another property in seven years. At retirement, if Philip has just four rental properties with an average rental of twenty-five hundred dollars per month, it adds up to a retirement income of one hundred and twenty thousand dollars yearly and that sure beats an RRSP.

Over the span of thirty-one years in the field, I met many individuals who became mortgage free but were afraid to invest in rental properties because of bad tenants. Choosing good tenants is easy. Start by finding a realtor who has investment properties. It’s best to buy a rental property where there is a strong rental pool. Out of town properties are cheaper and have poor quality tenants. Always meet with the tenant before committing to gage their personality. Choose a small working family because the property gets to rest when no one is at home. Some investors hire a management company instead.

Investing in second mortgages is profitable. Most people have one mortgage, called a first mortgage. If someone needs to borrow more money against their home and the lender refuses to lend, they will turn to a private secondary lender. The secondary lender will lend at a higher interest rate because of higher risk.  Mr. Money Lender took a line of credit against his home. The interest paid on the line was 4%. He lent it to Bonney Burrow at 13%, making a profit of 9%. In addition to that, he charged Bonney a lender fee of 4% of the mortgage amount plus legal fees.  Mr. Lender made sure that the first and second mortgage when tallied did not exceed 85% of the property value. He also stipulated that the money can only be used to pay off Miss Bonney Burrow’s credit cards. His lawyer will take care of that. Investing in second mortgages is lucrative. A good mortgage broker can help. Keep the second mortgages under $50,000 and do not lend to investors or on out of town properties.

I met Mr. Money Lender at the auto dealer. He bought a new car for Christmas and took a loan from the dealer. He told me that a car is a depreciating asset and instead of paying cash, he can lend the money at a higher interest rate.  The interest earned on his investment will pay the car loan.

Most successful people never make instant decisions. They think through the process and then commit after twenty-four hours. Happy Holidays.