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Canadian Real Estate Trends Are More Important Than "The Numbers"Sometimes it's more important to look at the Canadian real estate trends instead of just focusing on "the numbers" of an investment property. Let me explain in a kinda round about way... There's a pretty commonly held belief system amongst most of the people around me who have achieved their goals. It's even occasionally discussed "out in the open" - but it's rarely followed by the masses. And for most people who don't want anything more than being "comfortable" with their lives it's often ignored. Ready for it? Alright then, here we go... Instead of me wasting thousands of keystrokes trying to explain it let me use a quote from Earl Nightingale that sums up what I'm referring to perfectly: "If no given model for success exists in your chosen field of endeavor, then just do the opposite to the masses, and you'll win every time" Read that one more time, and read it slowly, let it sink in. From being exposed to the construction industry, software, sales, engineering, farming, raising kids (still in process) and real estate investing I'm willing to go out on a limb and conclude that from my experiences this statement is universally applicable to everything. Yes, everything. If you just look around and watch what the majority of your friends and neighbors are doing...and then do the opposite...you'll likely end up closer to your goals. Even professionals that should know better get infected with a "herd mentality". I'll give ya an example: Years ago I was reading every book, every article, every email, every thing on real estate investing and Canadian real estate trends that I could get my paws on. My journey ultimately lead me to a mortgage broker that handled an amazing amount of investment property financing. As I was picking her brain in her office she said something to me that I took as law. She was the expert right? "Tom, I don't need to see the property, just show me the numbers. If the cap rate is right then you should make a deal. That's how all real investors work". Really? For a few years afterwards I kinda lived by that philosophy. If the income minus the expenses looked good, then it was a good deal, end of story. I basically ignored all the larger Canadian real estate trends that surrounded the property. I even repeated that to others. "Just show me the numbers, if the numbers look good lets make an offer". I was analyzing small apartment buildings and looking at the cap rates. Nothing looked too good in the Greater Toronto Area so I began looking out of the big city. I even had the mortgage broker start emailing me properties that were for sale with "good cap rates". Well the properties with decent cap rates were hours out of the city and they were in nasty condition. Real nasty. And it finally hit me, these things have good returns because they're cheap. And they're cheap because they're dumps. And these dumps were in the middle of no where! So although the numbers looked good, these properties had vacancies that had to be dealt with, the location was not in a desired market and for my name to be on the property I was going to have to invest in badly needed improvements.
This idea of "just show me the numbers" is flawed...I no longer cared that "all real investors do it".Remember, do the opposite of the masses. There's more to investing than the numbers on the property. You need to focus on the Canadian real estate trends that surround your investment. And then look at the numbers within the context of those trends. Ultimately, the big trends in rates, transportation, employment, neighborhood redevelopments, zoning can have huge impacts on your investment. And then "the numbers" on your one specific property don't matter much. A big trend can turn them upside down and spit them out. On top of the big Canadian real estate trends, there are neighborhood trends, street trends and building trends. There's a whole boat load of questions to ask yourself: Is the property a winner? How will financing work? Is there demand for it? Can you increase rents because of poor management and poor marketing? What is the town planning department up to? Any businesses moving in/moving out? Are they are improvements necessary within five years? I forgot all about this whole way of thinking until over the weekend a beginner real estate investor told me they had made an offer on a triplex outside because the cap rate was good. Upon further interrogation I found that the wiring of the building would have to be replaced for a cost of $8,000-$12,000. So they were about to buy this property because "the numbers looked good" but were immediately going to put in $8,000+ of their own cash to bring the wiring up to snuff. They didn't seem able to connect the dots. The cap rate was good because the property needed work. And they were ignoring any Canadian real estate trends all together. They were so blinded by the cap rate on the building that they were overlooking the big picture. They were going to have to spend over $10,000 on it within months of taking ownership. Just like everyone else. Well, not quite everyone ;) The more I think about it, the more I realize I constantly see people investing into properties with this way of thinking...completely ignoring Canadian real estate trends. Not the best way to do things. So how would I look at the property? I would want to look at the numbers within the context of the bigger picture:
The next time a bunch of investors tell you to just look at the numbers make sure you don't forget about the big picture. You don't want to do what everyone else does. And if you have been following the herd, now is the time to break from it. Oh yeah, I forgot to mention. I've made this exact same mistake myself. If I hadn't spent $20,000 a few years after purchasing a property to renovate the kitchen and bath I could have bought another property! Too bad at the time "the numbers" looked good and I was following the herd. Focus on the long term Canadian real estate trends, use them to pick investments that will benefit from them.
Here are some choices for you:
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