Beware the alligators when real estate investing!

How to make money real estate investing

I know what you’re wondering. What exactly do alligators have to do with real estate investing and property management?

Well, the simple answer is that they have everything to do with real estate investing. To be a successful real estate investor, you can;

  1. time the market
  2. avoid the alligators

Timing the market is not impossible, but it can be very, very difficult to do. Sure, when everything is going up it’s easy to look like a genius, but the market doesn’t always go up in a straight line. Just look at Vancouver’s market today. If you had bought in May of 2016, and were trying to sell today, you would probably be taking a loss of 10-15%.

What exactly is a real estate alligator?

Having said that, it’s probably easiest just to avoid the alligators. What exactly is an alligator? Well, just like in the classic video game Donkey Kong Junior, alligators are always trying to eat you. They are negative cash flowing properties that will swallow you whole if you let them. A negative cash flow property is one that the rent is less than your costs, which include;

  1. monthly mortgage payment
  2. insurance
  3. property taxes
  4. strata or condo fees if applicable
  5. maintenance costs
  6. property management service fees

As an example, if you are renting out a 1 bedroom condo in downtown Vancouver, for say $1500, and your costs were $2000 per month, you would be negative $500 per month. This is an alligator.

Sure, you can justify this alligator by telling yourself things such as; “I can afford to subsidize this property the $500 per month.” Besides, the value is likely going to go up sometime, right? Now ask yourself, how many $500 payments on negative cash flowing properties per month can you afford? 2? 3? 5? Eventually the numbers add up, and if you start getting a vacancy or two they can be really consuming. Alligators will hinder your ability to grow your real estate portfolio because at some point you will max out and not be able to afford to subsidize them.

Instead of buying alligator that just love to gobble up your cash flow on the hopes that they will increase in value, instead focus on positive cash flow rental properties. They may not exist in downtown Vancouver, but I guarantee you that they are all over the place if you look hard enough. The last time I checked, no one with a portfolio of positive cash flowing properties went bankrupt…

If you’re looking for help with your property management needs in Vancouver and area, please check out our services here; Vancouver Property Management Services

Chris Stepchuk, March 5 2017

GET STARTED TODAY. CALL 604.447.7275

YOU MIGHT ALSO LIKE

This is a question that all Strata Corporations and Strata Management Companies should be asking themselves… Read more »

READ MORE >

How much should we have in our CRF? This is a question that we get asked… Read more »

READ MORE >

As strata agents who manage multiple strata buildings in BC, this is a question that we… Read more »

READ MORE >