By John Paul McDonald CPA, CA – Partner – Campanella McDonald LLP
I have to admit, real estate has been a ride for me. My wife, Andrea, and I bought our first property in 2007, I was 27 years old at the time. It was the biggest purchase of our lives at the time and little did we know it would lead to a long obsession with real estate investment, sales, and renovations.
Fast forward 13 year and since our first purchase we’ve:
- Purchased, renovated, and sold 3 residential properties
- Purchased, built out, and sold a commercial property
- Purchased 4 condos
- Purchased and sold 6 investment properties
At the time I’m writing this blog post we are currently sitting on:
- 2 commercial properties
- 3 residential condos
- 1 joint-venture residential home investment
- 1 cottage rental property
- 1 duplex rental property
- 1 principal residence that we intend to tear down and build our dream home
So ya, it’s been quite a ride. You would think that being a CPA/CA and a realtor, along with a wife who’s an experienced realtor, we’d have it all figured out right? Wrong.
The real estate game is a dynamic, quickly changing, and complicated game. But we’ve achieved success along with hundreds of our clients. The experience we’ve gained since 2007 has been amazing. But what if I had a time-machine? If I could go back in time and talk to my younger self what would be the top 3 tips I’d give myself with respect to real estate?
Tip 1: Do not overspend on your principal residence
I can’t emphasize this enough, when it comes to your personal home, if you also want to build a portfolio of income properties, DO NOT over do it. Andrea and I went way overboard on our second principal residence in Burlington and this had a massive effect on our overall ability to build a proper portfolio of investment properties. We bought a home on a beautiful lot, in a nice area, with great bones. We gutted the entire home and did a huge renovation, and I have to admit, it was absolutely amazing. I loved it, Andrea loved it, the kids loved it, guests loved coming over for parties. The problem? Our end goal wasn't to just have a beautiful home, we wanted to continue investing in properties as well. We went financially overboard. We spent a large amount of cash to renovate and we were mortgaged at 80%. The result was an inability to access any capital or leverage to invest any further.
My recommendation is actually simple. Find out what the limit is for your family (mortgage with 20% down-payment) and try to buy something at about 80-85% of that. This will leave you with wiggle room in the budget to save and access leverage for your rental portfolio.
Tip 2: Hold on to a good investment for the long term
I’ve been kicking myself for years for selling some great properties that we bought a decade ago. These properties, had we held onto them, would have continued to generate positive cash-flow and appreciate in value. Instead, we sold a few because they had appreciated and we wanted to re-invest the funds elsewhere.
In reality, the result was simply additional transaction costs, time out of the market, and wasted effort. If you have a good property just hold on for the long term. Don’t sell if you don’t have to.
Tip 3: Starting sooner
The earlier you start the better. I know it’s scary because it’s such a big purchase but you need to make your first move as soon as you can. The earlier the better. Investment takes time to compound results, it’s not an overnight thing. It doesn’t take a genius to understand that the longer you’re in the market with a quality property the better you will do in the end.
Think of it like this, if you put 20% down on a property and all you do is break even for 25 years, at the end of it all you’ll have paid off the mortgage and quintupled your money. That’s without any capital appreciation on the property which would be highly unlikely.
And that’s it, those are my top three tips. If you’re interested in learning about real estate investing feel free to contact me anytime at firstname.lastname@example.org.