Gord Lemon, Author at REM https://realestatemagazine.ca/author/gord-lemon/ Canada’s premier magazine for real estate professionals. Wed, 04 Jan 2023 19:06:26 +0000 en-US hourly 1 https://wordpress.org/?v=6.6.2 https://realestatemagazine.ca/wp-content/uploads/2022/09/cropped-REM-Fav-32x32.png Gord Lemon, Author at REM https://realestatemagazine.ca/author/gord-lemon/ 32 32 Working with investors and maximizing your market share in 2023 https://realestatemagazine.ca/working-with-investors-and-maximizing-your-market-share-in-2023/ https://realestatemagazine.ca/working-with-investors-and-maximizing-your-market-share-in-2023/#respond Tue, 03 Jan 2023 05:03:05 +0000 https://realestatemagazine.ca/?p=19981 While residential buyers may be apprehensive about making moves, cash-rich investors are ready to take advantage of a soft market

The post Working with investors and maximizing your market share in 2023 appeared first on REM.

]]>
Any business needs to measure whether it is growing or contracting to make key decisions on its future trajectory.

As a realtor, it is wise to adopt a similar procedure to evaluate your business, and the best time to assess your business is once per year. 

So, the two questions you must ask are: a) how did your business do in 2022, and b) what you will do to increase your business in 2023?

Let’s tackle the first question. You may have made more money in 2022 than in 2021, but did you actually grow your business? In other words, did you increase your market share?

 

Market share

 

Think of it this way. If the market prices appreciate as we saw in 2022, it is not unreasonable to see individual agents’ revenue growth increase at a similar rate. For example, if the market appreciation was 30 per cent, and your revenue increased by 30 per cent, this would equate to an even ‘trade-off’ between the market and your revenue growth. 

In 2022, should you have maintained similar work routines as in 2021 by working hard, putting in similar hours, and your revenue growth equalled the market growth, you maintained your market share. You did ok! 

Did your revenue growth result in less than the market growth? Then you lost market share. This is NOT great! 

Why is this so important? 

Most realtors have had record earnings in the past three years, but it had nothing to do with their efforts and everything to do with the market

In other words, 10 deals in 2022 at an average of $1,000,000 per transaction makes you more commission than 10 deals in 2021 at $850,000 per transaction. 

 

The year ahead

 

We all know the market has been changing. 2023 is going to be a drastically different market environment. No one has the crystal ball on interest rate increases, but inflationary moves need to be kept in check, so rate increases are certainly possible.

Additionally, prices in many areas are declining, and public confidence continues to decrease, leading to fewer real estate transactions. 

Unpredictability in the marketplace often leads to very stressful times for many agents, resulting in many exiting the business. BUT…some agents can thrive during these times.

 How are these agents able to thrive? The answer is this: they pivot to the segment of the public who will be transacting more than ever in 2023: investors. 

Working with investors

 

Why investors? The rental housing supply is at an all-time low which is why rents are at an all-time high. Rental rates in Canada have increased double-digit, year over year.

 Many investors have been waiting and have prepared for this time. Many years of price increases have seen savvy investors sell their investment properties to more rookie investors and are now sitting cash rich. 

 The end of 2022 has seen prices softening in many areas, rental rates increasing, and consumer/personal debt increasing, leading to a perfect storm (some would say) for investors to (finally) acquire good deals. 

 As investor Warren Buffet so eloquently stated: “be fearful when people are greedy (reflects the last few years) and greedy when people are fearful (reflects what is happening now). 

 A few known facts regarding investors: 

  • Investors typically do multiple transactions per year 
  • Investors are not emotional about their buying decisions
  • Investors often look to close quickly
  • Investors often buy larger deals
  • Investors will become loyal clients when you supply them with properties that meet their investment criteria

 

Be the smartest person in the room

 

The question is, are you ready to work with this sophisticated clientele? Your investor client should NOT be the smartest person in the room…. you should.

There are two principles necessary to work with these investors successfully:

  1. You need to learn the language of investing and 
  2. You need to provide your investors with profitable properties 

These two simple principles will help grow your investor’s businesses, enabling you to grow your business. There is no better way to increase your business than by helping others increase their net worth.  

Zig Ziglar, a well-known motivational guru, always said that to get what you want, you have to help others get what they want. 

There is no better way to increase your business in 2023 than to invest in education and sharpen your skills to help others get what they want.

 

The investor is transacting more

 

One last thing to consider: Most agents work in the retail homebuyer space. 

If you consider how many agents work in your area, you’ll find there is a considerable amount of competition, all vying for the same client. And this client is transacting less in 2023.

If you then consider how few are working outside of the retail homebuyer space (by working with investors), there is considerably less competition. And this client is ramping up to purchase more property in 2023.  

 

Conclusion

 

For many agents, 2023 may be the year they exit the business as they have no database looking to transact. Let’s face it, people are scared, and when they are scared, they do nothing. 

Conversely, 2023 could be the year you scale up and reap the rewards of learning to work with a clientele who are cash-rich and need someone like you to help them build their wealth in real estate. 

 

The post Working with investors and maximizing your market share in 2023 appeared first on REM.

]]>
https://realestatemagazine.ca/working-with-investors-and-maximizing-your-market-share-in-2023/feed/ 0
Investing in real estate with retirement in mind https://realestatemagazine.ca/investing-in-real-estate-with-retirement-in-mind/ https://realestatemagazine.ca/investing-in-real-estate-with-retirement-in-mind/#comments Fri, 02 Dec 2022 05:03:10 +0000 https://realestatemagazine.ca/?p=19559 Realtors know the importance of planning for retirement; making plans now could ease your transition in the future

The post Investing in real estate with retirement in mind appeared first on REM.

]]>
The latest statistics show fewer people than ever are failing to plan adequately for retirement. With more people being part of the ‘gig’ economy, planning for a comfortable retirement is more heavily weighted on the individual than ever before. 

Creating a healthy, stress-free retirement that you can count on is the key, but is there a sure way to a secure retirement? Although there are no ‘for sures’ in life, a safe and reliable solution is available to generate a potential seven-figure nest egg with some passive income along the way. This is not financial advice, and as always, it is important to do your own research.

 

Three properties in three years

 

Here is one possible retirement plan using investment properties as the vehicle. The best part of this theoretical plan is that it is simple; it requires purchasing three properties, ideally one income property per year for the next three years. 

As a note, I chose three properties as many lenders cap their mortgage qualification criteria for an individual borrower at four properties: one principal residence and three investment properties. The individual borrower’s ability to mortgage qualify is also a factor and is a topic for another article. 

To clearly explain this program, we will use easy numbers that will remain consistent for each property. 

In this example, we will consider the purchase of a duplex (which could be a single family with a suite) at $750,000. We will consider a down payment of 20 per cent loan-to-value (investor deal), making the initial mortgage balance roughly $600,000 and let’s say the gross monthly rental income is $5715 per month for the two units. 

Expenses are property taxes of $450/ month; property insurance of $150/month; heating (gas) of $625/month; water/sewer of $75/month, and let’s say the tenants pay for electricity, internet etc. We will also consider a five per cent vacancy allowance of $275 per month. Our total monthly expenses (not including the mortgage) are $1,575.

 

The biggest expense we pay is an expense the banks want us to ignore

 

The mortgage is at a five-year fixed rate of 6.19 per cent with a 30-year amortization. This results in a monthly payment of $3,640.49. For ease of numbers, let’s use $3,640. When we add the mortgage amount to the expenses, we get a total of $5,215. Subtracting this from our rental income, we have a $500 positive cash flow (passive income).

The second part of the program concentrates on mortgage paydown. The biggest expense we pay in our real estate investing careers is an expense the banks want us to ignore because this is where they make huge profits. This expense is mortgage interest. At the beginning of any mortgage, the interest portion far outweighs the principal. 

If you are an investor with the thought of holding on to your property for a number of years, you can increase your profits on the property by paying the mortgage off as fast as possible. In our example, the interest expense is $36,470 in the first year or $3,039 per month on average. You’ll notice the bank is making over six times your profit, but not to worry; we will curtail that expense somewhat, so keep reading.

If everything remained the same and we held the property for 30 years, the interest paid over that time would be $533,054.74. Our strategy here is to pay a lump sum yearly, which goes directly toward the principal. This reduces the interest paid over time and decreases the time it takes to pay off the mortgage. But we are not done. We are going to super-charge this process. 

 

Prioritize paying down the mortgages

 

In year two, a second property gets purchased. For ease of this example, let’s say it is the same property makeup with the same numbers, which includes $500 per month in cash flow. The strategy here is to gang up on the mortgage of property one. This means instead of a $6000 lump sum (which we made at the beginning of year two on property one using the extra cash flow), we make a $12,000 lump sum towards property one’s mortgage at the beginning of year three. This reduces the principal amount of property one’s mortgage. 

At the beginning of year three, a third property gets purchased. For ease, we will assume the same numbers, which include a $500 per month cash flow. We’ll continue this strategy of paying down the mortgage on property one. Using the extra cash flow from all three properties, we can put an $18,000 lump sum payment in year four towards the principal of property one’s mortgage. We continue to do this until year 17, when property one’s mortgage is fully paid off. Now things can scale rapidly. 

With no mortgage on property one, the monthly cash flow is $500 plus $3,640 (the previous mortgage payment), totalling $4,140 plus another $1,000 from properties one and two. You now have $61,680 annually, which can go towards property two’s mortgage. 

If you have been keeping track, property two has been owned for 16 years, and this mortgage has been paid down to $410,336. Now we are paying an annual lump sum of $61,680 toward property two’s mortgage. This gets paid down to zero in only four years. 

Let’s look at the totals with no mortgage payments on properties one and two:

  • Property one: $500/month cash flow plus a former mortgage payment of $3,640/month
  • Property two: $500/month cash flow plus a former mortgage payment of $3,640/month
  • Property three: $500/month 
This totals $8,780 per month or $105,360 annually.

Now it’s property three’s turn. Property 3 has been owned for 20 years at this point and has an outstanding mortgage balance of approximately $326,260. With annual lump sum payments of $105,360 on top of the regular mortgage payment, it takes under three years for this property to become mortgage free. 

Let’s go over the results of what approximately 22 years have brought us, starting with the downside. 

Our total out-of-pocket expenses for down payments and closing costs on three properties will be approximately $450,000. Using joint venture partners with the same philosophy can be the best solution if you don’t have all the money or mortgage-qualifying capabilities.

The other downside, if you can call it that, is the program takes over 22 years to complete. For most of us, 22 years will come and go anyway, so you might as well be creating this retirement plan for yourself and your family. 

 

What about the income?

 

Let’s look at the upside of the plan. In 22 years, you now have three paid-off properties, once worth $2,250,000 in total. In 22 years, these properties will have more than doubled in value, so owning $6,000,000 in free and clear real estate is feasible. 

What about the income? Without inflation, you are making $12,420.00 per month with no mortgage payments (and even assuming the same numbers 22 years later). That’s almost $150,000 annually! Not a bad nest egg coming in each year, not to mention by using this program, you have also saved hundreds of thousands in interest payments! 

Will the numbers program fluctuate? Of course, they will. Expenses will go up with inflation, but so will your rents. Will you have vacancies? Yes, but you have allotted for that in your vacancy reserve fund. Will you have repairs? Naturally, things will happen that will alter this example. Still, you have seen that utilizing this program can eliminate many interest payments and build equity much faster than in a regular amortization schedule. 

Here’s the bonus to this strategy: should you have the mortgage qualification ability…this strategy works even faster the more properties you acquire and dedicate to this program.

I wish you a happy and prosperous retirement! Are you in?

The post Investing in real estate with retirement in mind appeared first on REM.

]]>
https://realestatemagazine.ca/investing-in-real-estate-with-retirement-in-mind/feed/ 6
Understanding the language of investors https://realestatemagazine.ca/understanding-the-language-of-investors/ https://realestatemagazine.ca/understanding-the-language-of-investors/#comments Tue, 15 Nov 2022 05:02:16 +0000 https://realestatemagazine.ca/?p=19290 Investors are not emotional buyers; they often purchase high-priced real estate and will become loyal clients when an agent speaks their language

The post Understanding the language of investors appeared first on REM.

]]>
Many agents in Canada are experiencing challenging times. Transactions are down significantly, consumer confidence is low, and the media only exacerbates these issues. Many experts expect a mass exodus of agents from the business throughout 2023.

From a consumer standpoint, poor retail clients don’t know how to interpret the wide range of data bombarding them. There are still multiple offers in some markets, prices are falling in some neighbourhoods, and we are experiencing one of the hottest rental markets on record. 

The problem is the consumer is actually scared of transacting in this market. On the selling side, there is confusion regarding the worth of a person’s house, and the buy side is even more daunting.

 Buyers are expecting the market to continue to fall; therefore, offer prices are trending down. At the same time, sellers are digging in their heels, not wanting to sell their house for a lower price. We are seeing lower inventory levels, and buyers are looking, but most people are scared of transacting right now. 

 The question is: who is transacting? The answer: The investor. 

Investors have been sitting on the edge of their seats, licking their chops. In fact, they have been waiting for many years for this current shift in the market cycle where the best opportunities present themselves.

Warren Buffet, a world-renowned investor famous for his insights, profoundly declared an investor’s motto: “Be fearful when people are greedy,” which typifies the last decade of mass purchasing and double-digit appreciation. Buffet finishes the quote, “Be greedy when people are fearful.”

Investors look for deals when the public is scared and sitting on their hands, which is an excellent time for liquid investor clients. The challenge for many agents is understanding how to work with an investor client. 

Investors are a sophisticated clientele as they are typically more educated than most realtors because they have invested in themselves to become educated, plus they have money in the game. Investors know rental rates and expenses and want details like the expected return on investment (ROI), the property’s net operating income (NOI), and cap rates.

Herein lies the issue for realtors. Investors can tell immediately whether a realtor possesses the knowledge and skillset to serve them adequately. A common scenario many investors experience is this: the investor provides the agent with their investment criteria consisting of property type, price point, cashflow expectations, ROI etc. The agent typically provides the investor prospective properties via the proverbial email drip campaign, which a) puts all the onus on the investor to crunch numbers and b) the properties provided often make no financial sense, completely missing the mark on any of the previously stated investment criteria. Once this happens, the investor is moving on to the next realtor. 

Agents fail to realize that the investor is not waiting for a life event like a death, divorce, or work transfer to transact. An investor is always looking for deals, often transacting multiple times per year. Investors are not emotional buyers; they often purchase high-priced real estate and will become loyal clients when the agent provides the investor properties which correspond to their criteria. 

Another benefit to understanding the language of investing and possessing the knowledge, skillsets, and tools to work with investors successfully is lead manifestation.

Lead manifestation fundamentally changes how agents interact with anyone they come into contact with. Agents are always looking for ways to maintain relationships with their existing databases. Instead of the latest market update, conversations can be centred around building wealth, which everyone is concerned with and eager to discuss. 

Agents can engage people by having conversations centred around retiring earlier, quitting their day jobs, going on more and better vacations, or simply building generational wealth. Agents can have these conversations with virtually everyone, including current and past clients. 

Consider this: past clients already know you; they trust you. Why not go back to them and get them excited about the idea of building wealth, which will only lead to more transactions for you and help them achieve higher success? 

Lastly, an agent must consider their retirement. Agents all know they don’t have a pension plan. When it comes to retirement, the day they stop selling is when the commissions stop flowing. This is why it’s so important for agents to invest in the industry they are in and purchase investment property themselves. Even one property can change a person’s life, and it’s no different for agents. 

The post Understanding the language of investors appeared first on REM.

]]>
https://realestatemagazine.ca/understanding-the-language-of-investors/feed/ 3