Today The Hudsucker welcomes Andrew MacDonald, a Toronto based investor, financial analyst and founder of Ownership Solutions. Persistent on a mission to help many potential home buyers realize their dreams of home ownership, MacDonald’s services hope to benefit those owning a piece of real estate.
Andrew MacDonald is a Toronto based investor who provides solutions that help to eliminate the common barriers to home ownership for clients who have had trouble qualifying for mortgage financing. Through the rent to own programs his company Ownership Solutions offers, MacDonald creates win-win deals that benefit aspiring homeowners, and other investors, while partnering with real estate professionals.
To contact Andrew and get more information on the services he provides, visit Ownership Solutions. To read and gain further insight into real estate investing, check out his website, Andrew MacDonald. Be sure to connect with him on Facebook, Twitter, and LinkedIn.
Maybe you know someone who has done really well with real estate investing, or maybe you’ve seen a couple of TV shows and thought to yourself “I could do that”. Well, the truth is simply that YOU CAN!
Real estate investing is one of the oldest proven business models in existence, and can be a fantastic way to create more wealth when executed well. Personally, investing in real estate has allowed me to go from purchasing my first property at the age of 24 with none of my own capital to leaving my full time job at the age of 26 to become a full-time real estate investor and reap the benefits of self-employment. In this post I will outline 5 critical things you should consider before you tackle your first investment property.
Consideration #1: Objective
The first important consideration to make before buying your first investment property is your objective. It is important to ask yourself “why” you want to invest in real estate in the first place.
Are you happy with your current career and just looking for a way to earn some extra money on the side? Are you nervous about being able to afford retirement and wanting to take your financial future into your own hands? Are you looking for a full-time career to replace a job you despise?
Knowing your reasons for wanting to invest in real estate will help you get clear on the best strategy for you to pursue. Even within real estate investing there are a number of different approaches, and the only way you’ll be able to narrow down the best fit for yourself is to be clear on what you want to achieve by investing in real estate.
Consideration #2: Level of Involvement
The second key consideration for investing in real estate is to know how involved you’d like to be. Depending on the strategy you decide to pursue, real estate investing can be as passive as trading stocks or as active as a full-time career.
There are very passive ways to invest in real estate such as purchasing shares in a publicly traded REIT (Real Estate Investment Trust), funding private mortgages, or simply being a money partner on another investor’s deal. On the other end of the spectrum there are very active ways to invest in real estate that will demand more of your time such as development, fix-and-flip projects, vacation rentals, or student rentals. Somewhere in the middle you have your plain vanilla rental properties, multi-family apartment buildings, and rent to own opportunities.
Knowing in advance how much time you’d like to dedicate to your real estate investments will also help you choose the appropriate strategy for your first deal. The nice part with investing in real estate is that you can always adjust your strategy over time as you decide you’d like to be more or less involved with your investments.
Consideration #3: Capital
The third very critical consideration is how you intend to finance your first real estate investment. Typically this can be broken down into 2 components:
- The amount of capital you have available
- Your ability to qualify for mortgage financing
Keep in mind, even if you have no capital and aren’t able to qualify for the mortgage, you may still be able to partner with someone who can handle that aspect if you’re willing to put in the time and effort to locate and manage a great deal. Joint venture partnerships are very common in real estate and can be a win-win for both parties. A simple analogy is that one person brings the peanut butter, and another brings the jelly. If you decide to go this route, just make sure to partner with someone who has the other ingredients you are missing so that it is a true win-win scenario for everyone involved.
Understanding your current financial circumstances will allow you to determine which strategies are actually feasible for your first deal. If your funds are limited and you haven’t got much time to invest in real estate then you may need to start off with a passive strategy like investing in a REIT where you can start off with a small amount to buy a few shares or units. If you have access to lots of capital and can qualify for a mortgage then you will have a wider variety of strategies to choose from.
Consideration #4: Strategy
Taking into account your objectives, desired level of involvement, and available investment capital, your next consideration will be which strategy you’d like to pursue.
There is no shortage of strategies for investing in real estate but here are a few common ones for you to look into:
- REITs (Real Estate Investment Trusts)
- Regular “buy-and-hold” rentals (single family, duplex, triplex, etc.)
- Student rentals
- Vacation rentals
- Multi-family apartment rentals
- Rent to own (my current focus)
Each strategy will have its own pros and cons, risks and rewards, capital requirements, and level of involvement. Only by being clear on what you want out of real estate investing can you choose the most appropriate strategy for yourself.
For example if cash flow today is a priority for you, then student rentals or rent to own investments may be a great fit. On the other hand if you’re looking for something to fund your retirement, imagine what the regular buy-and-hold or multi-family apartment rentals that you buy today could provide you once the mortgage is paid off in 25 years.
Keep in mind you can always adjust and make some course corrections as you build your portfolio, so don’t be too worried about picking the perfect investment strategy for deal #1. In the long run the more important thing is to just get started as soon as you can.
Consideration #5: Education
The next consideration you’ll need to make is to figure out how you’re going to learn your desired investment strategy. Here are the three best ways you can get started:
- Books – Since real estate investing is nothing new, there are plenty of books on the topic that will help you understand the basics of real estate investing, and there are also books to help you hone in on the specifics of your desired strategy.
- Real Estate Investment Groups – In just about every major city there are several real estate investment groups where you can network with other investors. This can be a fantastic source of learning and speaking with other people who are doing what you want to do will give you the confidence to get started. Best of all, successful investors are often much more willing to share info that you might think – they won’t bite.
- Other Investors – If you know someone, or are able to meet someone through a real estate investment group or investor Meetup, often the best way to learn is from other investors. See if someone who is doing what you want to do would be willing to take on an apprentice or otherwise show you the ropes. Sometimes you’ll be able to partner with them on your first deal or otherwise make some sort of win-win arrangement so you’ll have some support and guidance from an experienced investor while you learn the ropes.
As you start to get educated on real estate investing there are also a few things to stay away from. Try to avoid MLM (multi-level marketing), pressure selling, or expensive courses that promise to help you “get rich quick”. These courses or programs often have slick sales pitches and seem like the best way to get started, but you’ll find they just end up wasting your time and money that would be best spent on tackling your first deal.
How to Get Started Today
To get into your first investment property the most important thing you can do to ensure you have a positive experience is to get clear on why you want to invest in real estate. Next, you should consider the time commitment and how involved you’d like to be along with what financial resources you’re able to bring to the table. This will help you narrow down the best strategy for you to get started, and then you can seek out the appropriate education to tackle your first deal.
Here are the 2 more important lessons I can leave you with for buying your first investment property:
- Consider all you like but nothing will happen without action.
- Realize there is no perfect investment. Just focus on buying the next good deal that fits your objectives and then continue to adjust your course as you go.