Investing in Real Estate: Advice from an Experienced Real Estate Broker
I’ve spoken before about the idea of homes as investments. In this market, we have woken up from the American – and Canadian – dream of home ownership as a source of wealth. A home is where the heart is, but it’s not necessarily where the money is. That being said, real estate can be a great investment. Recently, I sat down with Bob McKean, owner and broker of record of Re/Max in Kingston, Ontario to hear what he has to say about investing in property.
Question: Diversification is important in anyone’s portfolio, and my economic planning model also calls for part of that overall portfolio to be invested in real estate. You’ve been very successful on both the business end and the personal end, having owned income-producing properties. What real estate strategy have you used over your career to build wealth?
Answer: I invested in my first investment property, a triplex, in 1973, re-financed and added more down payment. I bought several others in the next 5 years, including a 10-unit that I still own, and a 7-unit which I owned for 7 years. I sold it and bought a residential and commercial property, which I still own. Over the next few years, I also bought several single family residentials, which I rented out. I bought real estate in Dallas, Texas and in Edmonton. I realized that it was better to own properties closer to home where I could keep an eye on them.
Question: Part of your strategy has also meant helping other people build wealth. Could you explain that?
Answer: I used to manage about 100 units for other clients. I would sell them a property and then manage it for a number of years and those clients have all since sold their investments.
I have many clients who I have sold investment properties to that have been very successful in building their investment portfolio. I have always put my clients’ interest ahead of mine and hence they have made some great investment. I sometimes think,” I should have bought that for myself!” I have been very lucky with my own investments, though, and I cannot complain.
Question: Is there an average age at which people tend to invest in real estate?
Answer: I have had clients who in mid-age invested, and I have had clients in their twenties. I had a client who, at age 25, bought a triplex, lived in one unit and rented out the other two. She has done extremely well with this property. She has since moved out, got married, bought their own home and still own the investment.
Question: What is the most important factor in real estate investment success?
Answer: My strategy has also always been and always will be – do not get over extended and only buy what you can afford. Many people get way over extended, and if and when the interest rates change or they have some vacancy, they get into trouble.
Question: Can you give us a few tips for managing rental properties effectively and avoiding overextension?
Answer: Always set at least 10% of your gross income aside for general maintenance and up keep. Many years you will only spend 3% or 4% but then you need a new furnace, a new roof (major capital items) Where do you get the money?
When buying, allow at least 5% for property management. Even though you may want to manage yourself, there may be a time when you want a manager and you have yourself so highly financed that you have no place to move.
Don’t buy something that has no chance of making a profit within the next 3 years.
Also, I have always thought one should have some diversification. I have always had stock, mutual fund investments, and, of course, real estate.
Question: In this economy, do you still think real estate is a good investment?
Answer: I personally feel if you follow those ideas and be careful what you buy, you will be very successful investing in real estate.
As always, diversify your portfolio, research any market you are considering entering, and invest carefully. You won’t get anywhere unless you play the game, but you have to remember your helmet.
