Looking to get into real estate investing (tenants, recommendation, investment)

[Sosimple]

So, here is my situation, I've been toying with ideas of my future now that I've graduated and am working.

I'm in a job that pays well, i'm 25, and 5 years from now want to move back home, where there is a high traffic of university students. International, and average local student comes from Middle/Mid-Upper class income. Population density is low, of 340,000 people in the greater municipality (I'm from Canada eh) and the real estate 'boom' hasn't really affected this area, as the economy there is notorious for being ****ty. It is a service city though, and has lots of traffic passing through with money, there are a lot of DIY property managers (charlatans from most i've met, horrible people person skills, but I digress).

Plans and Figures:

Within the 5 years i'm working abroad. I can realistically save up around 300-400 thousand dollars (after tax).
I've been stewing over the idea of getting property in Calgary (where i'm currently residing), but I'm renting for a very good rate of 10,000 dollars a year.

Now, I did simple calculations, and if I purchased a 240,000 dollar home at 15,000 down-payment and a closed mortgage of 3.5% for five years, it works out where I pay around $30-$40,000 on interest over a 20 year period, given I cover my monthly costs and interest is compounded bi monthly (did quick Excel calculation a couple days ago, numbers are rough figures). So before I keep going and confuse the hell out of anyone taking the time to read this. I ask:

1. Take the sunk cost of rent, avoid the hassle of getting property for 4-5 years, and wait until I have the time to deal with property management (i'm not in the city often, so if something went south, I couldn't fix it myself, hire someone)
i) If the answer is, 'buy! buy! buy!'. Why? Condo or Home? Condos I think are a scam. You carry a mortgage plus inflated maintenance fees. Development of newer condos are constantly going up, bringing down the growth of your property down significantly. I'd much rather buy property because I see it having a better return, but more work would be involved).

2. Given the city I mentioned at the beginning of my query, I'd be prone to taking getting licenced as a realtor and cutting out the middle man, taking it on as a career path, but what challenges and things should I consider before doing this? With respect to that nest's egg I've saved up should I:

i) Dump it into one property in prime location, cut the mortgage payment down as much as possible to counter-act interest accumulation. Live in it, and rent out the basement + top floor, then flip after 10-15 years?

ii) Split the savings, take a smaller home I live in, rent to one tenant, and purchase another house, carry two mortgages and have tenants pay off one, myself + other tenant pay off the other?

iii) Just flip flip flip them houses like they're pancakes! Make a quick 5,000-10,000 when the price is right and hustle.


Lots of questions to feel free to answer selectively, I'm just getting a fresh look at my thoughts.

My current options after this work is to go into food (i know i know, but I welcome the challenge and think I have a good idea which would ACTUALLY have a return in five years). Get into construction, become a contractor eventually, or get into real-estate. The last one seems like the safest route with good return. And no, I wouldn't blow 400,000 in dumping it into a food business if that's what some of you were thinking. Only a naive dumbass would do that. They'd fail miserably too 99% sure of it. So as you can see, i'm realistic, but one can still dream .

I know i'm more of an entrepreneur at heart, both sides of my family have extensive history in building mini-empires (Grand-father built a pharmaceutical company from scratch, started as a dish washer, and my father built a small empire of clothing stores in Toronto, but couldn't hold onto them all, still has one, but deals with antique furniture now and is doing okay). So I know that I have the blood for taking risks and putting in the work. Just testing the water by asking those who've jumped in before me.



Advice, comments, criticism welcomed.

Also, any recommendation for books on realty?

Thanks for the time guys and gals!
Ryan A.

Also, my question to the realtors; Is it necessary in building profit to have a chunk of money like 300,000+ for working real-estate. Or, when getting started in flipping, 50-60K is all one needs?

[MrRational]

Originally Posted by Sosimple

I've been toying with ideas of my future...
Advice, comments, criticism welcomed.

I see nothing in your post about ANY capacity w/r/t mechanical or construction ability.
Stick to financial investment models.

[Sosimple]

I've worked in construction on and off for three years while in university. I've replaced the flooring in current apartment for landlord (laid self leveling cement + put in simple laminate). Have done some fine finishing carpentry and some framing, but overall have mostly done demo, dry walling and interior/exterior painting (three summer jobs worth). I'm not unfamiliar to construction. I don't think the Holmes on Homes approach is practical though unless thoroughly experienced.

[Sosimple]

Wow a day and no responses? I hope I didn't come off the wrong way. I've just been thinking about this for a while, and thought providing as much relevant detail as possible would help aid anyone in providing worthwhile advice.

Seeing as how this post has gotten over 100 views and no response, I'm guessing I'm asking all the wrong questions.

[399083453]

Originally Posted by Sosimple

(I'm from Canada eh) and the real estate 'boom' hasn't really affected this area, as the economy there is notorious for being ****ty.

I dont know your area, but from what I've heard Canada is in a peak real estate market. So you would be buying at a time where its the most expensive time to buy. Not a good investment strategy.

Originally Posted by Sosimple

Now, I did simple calculations, and if I purchased a 240,000 dollar home at 15,000 down-payment and a closed mortgage of 3.5% for five years, it works out where I pay around $30-$40,000 on interest over a 20 year period

If your going to make $400k, why would you spend $40k paying interest to a bank, making them rich, not you. Just wait until you get home and buy the house with cash. No interest. Being a landlord, overseas no less is not a good plan, especially because you have no experience. Renters and property mgmt are going to take you for all your worth.

Success is not hereditary. Your familys' success has no influence on the business decisions that you make.

[Crotchety Old Man]

You have many possibilities, and good on you for thinking 5 years ahead.

I've been following Ray Lucia for several years. Most of his material is saving and investing for retirement through many, many vehicles. While you may not find direct advice in his material, he has for years owned all sorts of property, both individually, and in partnerships. He is and has been an absentee owner (as you are thinking of becoming) and his experiences may shed some light on your thought process.

I think you underestimate ($400k) needed to get started in food. I've spent over 8 years in the restaurant and supermarket construction industry, I can speak to at least the building side with some authority. So, to get any significant return, depending on what you do in food, you will need enormous capital. That, or partners, which may again reduce your return. Here, in the U.S., the number one failed business category is restaurant/food. Canada is closer to Europe (eco-friendly wise), so you may have more opportunity in a niche organic/holistic/sustainable approach. You will need to commit serious research time to this.

If you can, start a career in RE now, even if at least a few hours a week. I don't know why it seems so to me, but you come off as having good people skills. Network until you find a successful broker or investor you can be an asset to. It's true that so many RE brokers are arrogant and self-serving, but there are still good people in the trade, and many of them on this forum . In fact, I got into being a broker through one of those rare quality people. The guy sells $25 million-plus a year (WA state, for price reference), but still took the time and patience to show me the ropes. If you can find someone like that to work for or with, it will give you a much better foundation when you strike out alone.

Another thing you may consider, what with your entrepreneurial spirit, is being a financier behind small operations. Cultivate your relationships with skilled people, and when the time comes (it will come) you can provide unconventional financing. Several hard money lenders I have worked with before charge upwards of 16% interest, typically for 6-18 month periods, secured by property, in addition to points, and equity shares. Sounds steep, but for them, business is-a-booming.

Anyway, congratulations on your wherewithal to think so seriously about your finances rather than blowing it on "higher education". Pffft.

[Sosimple]

Thank you 399083453 and C.O.M. nice to get some constructive feed back and advice.

Your advice on cutting out the interest is much appreciated 399083453. I felt the same way, but was debating whether passing the buck off to tenants was worth it. Personally, I hate the idea of loans, and sadly we (North Americans), on a whole, have a very bad grasp of handling our own finances. I myself, will be the first to admit it. Only recently I have been deconstructing my spending habits, and seeing where I fault in spending habits. I'm not saying be a penny pincher, but understand the value of the dollar you make, and know what you want to get out of it.

I'll look into all pointers you gave me C.O.M and than you again for taking the time to look into your advice. It sounds like you've had a life of substance and many experiences, which I like. Always good to keep yourself busy in a variety of interests.

I agree with you on the food business. Profit margin can be tight and a lot of people take the leap in before really spending the long hours crunching numbers and doing the research. The city I'm talking about is Halifax NS and I was looking at real estate just recently and due to a recent ship building contract, it's shot up a little bit over the past couple years. Personally, I see a lot of promise in this location due to high university traffic from overseas, along with the major cities of Canada (Toronto, Montreal etc). Predominant number of students who study at Dalhousie University are from upper-middle/upper class so a lot of money passes through the food & bar district there. No New Orleans Mardi Gras, but steady throughout the year, and the tourists pick up where the students left off. I believe that Halifax is a little gem that not many people realize, lots focus on Vancouver, Toronto, Calgary, but I see Halifax in 10-20 years down the road picking up. More so a gut feeling and a combination of observations of no specific relevance.

*Last paragraph on my food idea, not necessary to read but there if you want to*

As for the food idea I had, I worked for over 20 different restaurants in Halifax while studying. Boss, smart man, took over the delivery business for restaurants that didn't warrant hiring full time drivers. Charged them a base + we got tips, he took a cut from each driver. Halifax has a very high 'foodie' demographic, predominantly focusing and promoting local business and foods. I myself love to cook from scratch and appreciate quality food.

Now, I looked into it and you'll probably laugh at my idea but I wanted to combine a lunch rush quick serve style restaurant for the business crowd, and then cater to a middle/high style dinner crowd. It would be based off of Italian cuisine, everything fresh. Pasta fresh, tomatoes, herbs, bread, and specialty pastas such as Gnocchi and Ravioli. Keep the menu diverse but not too many things, with key perfected dishes. So develop loyal customers based off of these dishes and make sure to do them right every time. Businesses I've seen succeed in Halifax are those that made quality food, with a lot of effort and time put into it. They also took cheap ingredients (Bone Heads BBQ specialty BBQ pulled pork/brisket ~4.00) and did it well. The problem with some of these places are:

-They start small with no room to grow, example: Salvatores pizzeria has been around for I think 15 years. People wait 2-2.5 hrs (calling ahead of time too) for their delivery knowing it will be cold when it gets there. I know this for a fact because I was their delivery driver. Its not that they were slow, they just would get extremely busy, and the owner had no room for a second oven let alone the space. I seriously thought of saving up to open a second one in Halifax, and talked to the owner about it. Thinking about it, franchising wouldn't feel as gratifying and I've seen just as many, if not more, head aches that come along with it.

- Most importantly, they don't have their process down efficient enough, which I believe is the one of the three pillars to success in that business (other two being quality food, service).


So, I know, it has NIGHTMARE written all over it. As you said though, research research research. One of the great bits about fresh pasta is it can cook rapidly, 2-3 minutes. Material costs for producing are low, rapid cooking pasta reduces utility, and i'd develop an efficient method of boiling pasta (minimum heat loss with maximum BTU efficiency). Also, it tastes ****ing amazing (pardon the language) and there is only two other restaurants in Halifax that doe it, not to any grand scale, and one place is over priced, the other is in a poor location with a really poor atmosphere (extremely dark, and outdated style but the food is decent). Problems i'd encounter with this type of restaurant would be training and implementing the process flow. The people will make or break this business, so I would heavily invest in time and money in selecting and training the people.

What I want to offer with this restaurant is a flexible business which can cater to the lunch rush of the downtown district and offer competitive prices, with the speed of a fast food restaurant (which is possible if its strictly pasta and high end salad bar, yet can immediately switch over to a classier 'come one come all' casual fine dining. I fully realize though that this would be a love of labor, not so much get rich scheme. Yet, if I were to do it, ample research and definitely a smaller farmer's market booth would be the initial steps ad contribute to advertise/gauge consumer's reaction.


Now....the idea even goes further, and reflects the final steps of this business plan. This idea is stylized to where I see myself 10-20 years down the road, future (potential lifestyle) and is something not many people would want to do. That would be, cutting out all the middle men in terms of food suppliers for at least 50% of material costs regarding main ingredients. That would be the tomatoes fresh herbs (which would greatly increase profit margin of dishes)'. This idea requires a partner, which I believe could cause more headaches and likelihood of 'getting screwed over'. But again, for the love of it, not the money. Yet, if all went according to plan, say I hired some loyal employees who truly enjoyed what they were doing. Essentially pass off the business end of it to them, supply them with the food and live a simple life in the country. By then, no other restaurant could compete and turn the same profit. Why?

-Profit margins would be extremely high due to the method of producing food

-Always fresh, and a basis of loyal clientele would ensure a steady stream of business

-Partner by then wouldn't screw me over, because who would he go to? Switching from a locally produced heavily discounted supplier would only lead to the ruin of the business, which was built on that very idea.

That is more of my romanticist's view on life, I'd like to believe it would be a good model, but again, lack of experience is filled in with lots of naivety. Who knows though, one can but only dream no? Estimated cost for setting up the 'farm' would be roughly 250,000 minimum. That's not including restaurant start-up. Downtown rental is shooting up in Halifax, so my guess as to initial investment for restaurant equipment + renovation is around roughly 100,000 not including staff pay, rental, licensing, inspections etc. Just equipment and implementing the space. If replacing an old restaurant..... maybe save 10-15,000. Just estimating, did numbers before but not too in depth. I wouldn't be surprised if this was around a 500,000 dollar investment overall. Yet, could be done in stages. I.E ~100-120,000 initial for starting the restaurant. Then working towards purchasing land in the Annapolis Valley (one of the top 3 solar exposed areas in all of Canada) and building multiple greenhouses for yearly growing.

Wow, mouthful, but for those of you who actually made it through that short essay on "what I want to be when I grow up" that's it. Likely? Probably not, but it was an idea I cooked up when seriously dissecting my likes and future endeavors.

Also, to whomever said entrepreneurial character isn't hereditary, I agree. What I believe makes a great entrepreneur is one that has a keen eye to new ideas, will rely on instincts but always be guarded and most importantly takes a certain spirit to be able to forge their own path, and I definitely have it. I know it, I can feel it, and right now I'm working towards a trail in life that will lead me one of two ways.

[399083453]

I've been around many restaurant owners over the years. Its a hard, hard life. Just because a restaurant has a 2 hour wait, doesn't mean its successful. It's just busy.

Come back in 5 years and tell us if running a restaurant is still your dream. I'm willing to bet, it wont be.

[Crotchety Old Man]

Let me apologize in advance for peeing in your punch bowl and calling the cops to your party

Originally Posted by Sosimple

Predominant number of students who study at Dalhousie University are from upper-middle/upper class so a lot of money passes through the food & bar district there.

Originally Posted by Sosimple

cater to a middle/high style dinner crowd.

I honestly don't think students, even upper class, care much for high style dining. Maybe, Canadian students are different from Amurican, but in any case, it seems you are thinking of running two restaurants at once.

Originally Posted by Sosimple

More so a gut feeling and a combination of observations of no specific relevance.

Whooooo! How many people took this approach and succeeded?

Originally Posted by Sosimple

Salvatores pizzeria has been around for I think 15 years...they just would get extremely busy, and the owner had no room for a second oven let alone the space.

All that business and no money to expand, even after 15 years?

Originally Posted by Sosimple

Most importantly, they don't have their process down efficient enough, which I believe is the one of the three pillars to success in that business (other two being quality food, service).

How much efficiency can you squeeze out of a place which can't afford space for an oven for so long?

Originally Posted by Sosimple

So, I know, it has NIGHTMARE written all over it.

Originally Posted by Sosimple

But again, for the love of it, not the money.

Well, if you love nightmares...

Originally Posted by Sosimple

By then, no other restaurant could compete and turn the same profit. Why?

Restaurants go in cycles. When is the last time you saw a Crispy Creme? Adaptation is paramount, and if the trend steers away from your business model and you don't follow, you will fade. If you do adapt, you abandon your original dream.

Originally Posted by Sosimple

Partner by then wouldn't screw me over, because who would he go to?

He would go to the guy who will help him ***** you over. Vendettas can drive a man to disregard his own financial interest.

Originally Posted by Sosimple

purchasing land in the Annapolis Valley (one of the top 3 solar exposed areas in all of Canada) and building multiple greenhouses for yearly growing.

Solar has an enormous future beyond calculators and roof panels. Overlooked technology like solar furnaces are making a slow comeback. The photo voltaic industry has immense money invested into cells and panels and, again, you can only squeeze so much efficiency out of the hardware.

Anyway, the point of my nitpicking is to perhaps nudge you to think ahead and beyond the status quo, in terms of your business approaches. Good luck!

[Sosimple]

One thing I really don't mind is criticism, no need to apologize, you're just pointing out things I haven't considered, or overlooked due to wishful thinking. You mentioned you are a broker? Is this something you accidentally got into? If so, what were you doing before, and why did you make the switch?


Thank you you two, nice little slap of reality there. I kind of knew it was a little overzealous, and mostly supported by hot air. Yet, you're right 5 years from now, I'll most likely not want to get into restaurants. My sister currently runs a government funded commercial kitchen/food specialty shop for small businesses and just hearing her headaches over it, I couldn't begin to imagine all the problems a restaurant would have.


As for your last comment on solar energy COM, that does happen to be another small interest of mine, the energy sector. I worked out a project in designing, implementing, and costing the equipment needed to make a house "off-grid" with the use of PV cells, solar panels and low-emissivity windows. Canadian weather takes it's toll on household heating bills, and I used the average Canadian stat's for energy consumption. It worked out, that if one didn't service or put any money into their previously invested equipment, it would take 20-25 years to pay back the investment (using the monthly sum as current gas prices x avg. energy used). To me, not feasible for the average Canadian. Mind you the study was a rough estimate (it was the basis for a technical writing course, so topic didn't have too much weight, just the writing). Things the model didn't account for; fluctuating gas prices, technology price fluctuation etc etc.


In my opinion, these homes are economically viable if the designs are considered when they're first being built, only problem for passive solar homes would be geographic restrictions. If done right, you can cut 50% of the heat one would use, which is huge for Canadians. I spent 230$ last month on utilities for my basement apartment. That's ridiculous! For a bungalow it was $450! Mind you, I told the landlord I think their furnace is f**** and they actually shaved $50 off but this isn't uncommon for Canucks. The draw backs of designing a home such as this, to really make it worthwhile is:

1: need the space, dense cities will reduce your potential gain. I.E large condo built right between your home and maximum gain from sun

2. Need to build the house from scratch..

In your opinion, do you see a viable future for smart design and living. I know it's a loaded question, but what I'm seeing is a condo craze which involves mediocre craftsmanship that cuts corners to cut costs. But im a Frank Lloyd Wright fan, and totally am an advocate for quality over quantity. You see them starting to do this with condos, but half the time the buildings I've seen in Canada end with a poorly designed 'green HVAC' system, and just a trendy new-age 'green' looking building. Halifax Seaport Market is the best example and a waste of money. Most of the problems that the passive solar home design faces are the bylaws/building codes, so its not quite logical to build them in a city.