REAL VALUE » property management

Managing Risk in your Real Estate Investments

Isabella Woods — Wed, 01 Feb 2012 23:53:49 +0000

Protecting Your Property Investment

Landlords take a lot of risks. All those benefits of your real estate investments must be safeguarded with good management and protection strategies. If your portfolio offers you wealth, security and a retirement in comfort then surely it’s worth safeguarding. In the blink of an eye a profitable portfolio with five properties all fully tenanted can suffer from vacancies, higher mortgage rates, and difficult credit markets and become a noose around the landlord’s neck. It doesn’t have to be that way, let’s look at how easy it is to protect your investment.

Safety From Tenant Arrears

When bad times come, landlords are often hit with rent arrears. Tenants struggling to feed themselves also know that evicting them will take time, whereas starvation will not. The rent is often paid only if there is sufficient money left after that weeks ASDA shop. It’s extremely important for landlords to plan for this eventuality either through having sufficient ready cash to ride the storm or through suitable insurance or tenant management products. Missing a mortgage payment is like hammering the first nail into the coffin of your investment business.

Adverse credit makes it close to impossible to secure favorable financing. An inability to access finance and remortgage away from uncompetitive deals will exacerbate problems for a landlord already struggling under the weight of tenants in rent arrears and a lack of cash reserves. It’s therefore essential that an amount of cash more than sufficient to cover not only the mortgage during the period of rent arrears but also to cover the legal costs of eviction and repairs to damage caused by disgruntled tenants is available. Think about whether your cash on hand would be sufficient if these problems hit multiple properties in your portfolio at the same time?

In the U.K., it is exactly this concern that leads landlords to take out either rent guarantee insurance or take advantage of rent collection and guarantee services such as Rent On Time. Instead of relaxing on their leather sleeper hoping their dwindling cash pile will last, these landlords have ensured their cash flow is uninterrupted in the face of tenants falling behind. On top of this, they often will have the funds required for eviction included in their product.

Be Afraid Of Surviving

There’s a common saying in the critical illness insurance world – one should be afraid of surviving sick, not afraid of death. A landlord with a huge, complex portfolio needs to consider seriously the implications of a bout of cancer or other similarly nasty affliction on family – especially if one of the family would be required to manage the portfolio during any treatment and hopefully eventual recovery process.

It might not make sense in all cases to fully insure all the debt balances as one would with a residential mortgage in most cases; it does make sense to ensure sufficient protection is in place to ensure the profitable running and management of the portfolio continues during the period of illness. This is especially important to those landlords who have chosen property investment as an alternative to pension. The loss of the portfolio combined with a partial recovery that leaves the landlord unable to work would result in survival into a life of poverty followed by a retirement of destitution. A shame when the exact opposite – a life of plenty and a retirement in comfort was within reach.

Watch With Interest!

Landlords need to keep a keen eye on mortgage interest rates. Many new property investors overlook the impact that small changes in rates might have on their portfolio. Analysing this is difficult as landlords might simply look at a rate increase of 1% and see that at current rent and their current variable rate they would be fine. They overlook the threat that lurks in the shadows. It’s a hidden threat because the current product won’t exist at that future time – I’ll explain now how mortgage rates work and how this hidden trap is sprung.

Once a current mortgage deal expires – imagine being on a two year fixed rate at 4% there is usually a follow on rate which will be described as a standard variable rate or some kind of tracker rate. Imagine this rate is currently 5%. When imagining whether a mortgage in the future would be profitable, our landlord thought 5% was reasonable after a 1% rate rise. However, in reality, our landlord could face a standard variable rate of 6% if when the current deal finishes rates have increased by 1%. If the mortgage is on interest only, as many buy-to-let mortgages are, then the landlord will face mortgage payments that have increased by 50%.

Facing these higher interest rates, the rent may no longer cover the mortgage by a sufficient margin to refinance the property to another lender – our landlord no longer meets criteria and is stuck with the current lender and an unaffordable mortgage. Taking a longer term product now, or considering which properties offer a sufficient yield to protect against this future situation is really important.

Protect What’s Yours

Hopefully this guide gives many landlords the tools they need to start investigating the protection they need to ensure the vast wealth and wonderful future they have planned through property purchase avoids becoming a nightmare. These really are some simple, cheap steps that keep the risk away and make sure you can focus on growing your land Empire!

Behr Premium Plus Primer & Sealer

Marcus Assalone — Tue, 22 Nov 2011 02:41:33 +0000

When you are painting, spend the extra money and buy good paints. The money you invest will save you time in having to put additional coats to the walls. If you are not sure if the paint is a good brand, ask friends about what brands have worked well for them. If you have heard of the name of the brand you are most likely safe. Brands like Behr, CIL, Benjamin Moore, are all safe bets. If the company has invested in their brand, they are less likely to put out an inferior product. If you see a brand called ‘Contractor Grade’ or something like that take care! If you are like me, you would think, ” Oh Contractor grade, that sounds like really good paint,” Don’t be fooled! It is most likely horrible paint.

A bad paint goes on like water, and you start second guessing yourself on how many coats you actually applied, as you can see right through it. One time I painted a room for a friend. She had bought paint at a re-use store at a really low price and thought she got a great deal. I started putting the paint on, and six coats later, we could still see the primer through the various coats of paint. If she had bought a high quality paint, we would have been finished earlier, and spend less on paint as well as labour. So, remember buying cheap paint costs money.

First coat applied to new drywall

I recently used Behr Premium Plus Primer & Sealer for a job. I knew Behr was a good brand so I was pretty comfortable with that purchase. In fact, I had gone to the store with that brand in mind ready to buy a big pail. When I got to the store a 7.5 litre can was $20 while a 19 litre was $65. I still don’t know why, maybe their marketing department had figured out if they price it like that, people like me buy more of the paint! So I bought more than I planned anyway and was pretty happy that I had found a good deal. When I got the worksite, I had a flashback to years earlier painting the wall six times with no success. “I got a good deal, maybe it’s because it’s bad paint’” . I put the first coat on and the drywall really sucked in the paint, it absorbed it pretty good, but I was getting nervous, I could still see the taping lines pretty well. I applied a second coat, and my fear disappeared. After applying the second coat, you could only see the drywall compound lines if you stood at certain angles or were looking for them. So I was relieved. It was really good paint.

I wasn’t sure if the final coat of paint was going to be a good brand or not, so I decided to apply a third coat of primer to the walls, and it worked wonderful, the whole wall was a seamless white colour, I couldn’t see any taping lines at all. It was really good at hiding, so I was happy, its great primer at a good price too!

Renting a Home?

cmhcauthor — Thu, 10 Nov 2011 02:31:11 +0000

CMHC Offers Range of Tips and Resources

Whether you are a first-time renter or a long-time tenant, there are many important decisions to make when evaluating potential rental accommodations. To help make these decisions easier, Canada Mortgage and Housing Corporation (CMHC) offers a number of resources, including worksheets and helpful hints, to help you make responsible and informed rental decisions.

Starting with tips for getting started and identifying rental needs, to evaluating rental options and meeting a landlord, to signing rental agreements and paying rental deposits, CMHC’s resources support renters throughout all stages of the rental process.

CMHC also offers resources designed specifically for recent immigrants to Canada in eight different languages. Renting in Canada: What Newcomers Need to Know includes a variety of relevant and appropriate tools, products and resources to make finding safe and affordable housing easier.

Taking the time to plan and determine what you need and how much you can afford will make the overall rental experience less stressful and the outcome more satisfying.

In the planning stage, it is important to identify things like the number of bedrooms and location requirements, establish a budget and evaluate an apartment’s affordability.

The tenant-landlord relationship is one of shared responsibility and CMHC’s resources provide guidance on the responsibilities of both. They also offer advice on dealing with issues such as regular and emergency repairs, rent increases and payment difficulties.

Because the law governing landlords and tenants in Canada varies among the different provinces and territories, CMHC also offers Provincial and Territorial Fact Sheets that include province-specific information.

Finally, moving can be a hectic time with a varied checklist of tasks. Once you have chosen a place to live, CMHC’s tools for renters provide helpful tips on selecting reputable movers as well as reminders to transfer or close your service accounts at your existing residence and arrange for services at your new home.

For more than 65 years, CMHC has shared a wealth of knowledge and housing expertise, as well as useful tools and guidance, to help Canadians enjoy an informed and assured housing experience. To consult or download copies of CMHC’s resources for renting a home visit www.cmhc.ca.

November is the first ever Financial Literacy Month. This is the first article in a series of four focusing on creating awareness of the various tools and resources that are available to help Canadians make informed and responsible housing decisions.