Real estate investing guru’s always tell us to ‘buy low and sell high’ in order to maximize profits. That the only way to make money is ‘break the seller down’ and get the lowest price possible. If this is true, then why would I ever over pay on Kitchener rental properties?
Why I OVER PAY For Kitchener Rental Properties
After working with hundreds of investor’s and being a full time real estate investor myself, I can tell you that there are times when over paying on Kitchener rental properties definitely makes sense.
The biggest problem I see with investor’s (especially first time and unsophisticated investor’s), is that they’re short sighted.
All they care about and focus on is “how much money can I make NOW”, rather than treating they’re real estate business as the long term game that it is.
Don’t get me wrong, I definitely want and try to get the best price I can on properties. But you can’t ALWAYS hit home runs.
There’s nothing wrong with hitting a few ‘singles’ and ‘doubles’ in between the homers.
The problem is, most people snuff their noses and walk away from decent opportunities all because they don’t fit with the expected profits that they’re used to seeing on HGTV.
Here’s four simple reasons why I’ll continue to over pay on Kitchener rental properties and why I’ll likely make more money in the long run.
1 – Does It Fit My System?
If you’ve been following me for a while now (especially on my YouTube Channel), you’ll know that I always talk about specializing in a specific niche. That the key to success in real estate is to be an expert and to know your business better than anyone else!
For example, I specialize mainly in Single Family Kitchener rental properties as well as Cambridge. This has allowed me to build a really ‘boring’ business that makes money on autopilot because I have so many systems in place.
For example, I know exactly how I’m going to renovate every single one of my properties (right down to paint colour and trim style), as well as WHICH type of tenant I’m going to attract.
As you can tell, my focus is fairly narrow. This is exactly what you want!
Too many “investor’s” are running around like maniacs trying to find the next ‘deal.’ Or the next cash flowing property – whatever it is!
Because of this lack of focus, they’re wearing themselves out, wasting time that could have been spent with their families and wasting a ton of money – both in mistakes and lost opportunities!
If you want to ‘feel busy’ by running from deal to deal, by all means, be my guest and stop reading now. This blog isn’t for you.
On the flip side, if you want a boring and predictable business where your tenants pay rent every month, then keep reading! 🙂
Because my focus is so narrow and I know EXACTLY what I want to buy with my partners (for more info on how you can partner with me, click here), I don’t want to lose a deal when it pops up.
For example, if a Semi-Detached property that needs some cosmetic work in Forest Heights comes up for sale (now you know a bit of my criteria!), I’ll do what I can to scoop it – without EXCESSIVELY over paying of course!
If the seller is out to lunch and wants WAY over market value, then of course I won’t play ball.
However, if I have to pay $3,000 – $5,000 over ask or market value (more typically in multiple offer situations), I don’t mind doing that.
Why, you ask?
Because it FITS my EXACT system!
I already know that my Kitchener rental properties will likely appreciate 4-6% every year!
I already know exactly HOW I’m going to renovate the property right down to the paint colour.
I already know what kind of tenant will be living in that property and how long they’re likely going to stay (3-5 years by the way!).
And I already know that I’ll be able to achieve TOP rent for the area.
How do I know all of this, you ask?
No, I don’t have a crystal ball. But what I do have is a system that I’ve done over, and over, and over again – so I know it works. And I know I’ll make money on it.
And not just ‘money.’ BORING money – which is easily the best kind!
2 – More Mortgage Pay Down For Me!
Now that you know that I like buying Semi detached properties in Forest Heights, let’s get into the REAL numbers!
These properties are going for $270,000 – fair market value for a home in good condition.
So let’s assume that I over paid by $5,000 to get this property because there was a multiple offer situation. Most investor’s would have run from this deal and called me an “idiot.” Let’s see if they were right …
in 5 years, which is the minimum length of my Real Estate Investing Apprenticeship partnerships, this property will be paid down $24,670 (based on 20% down, a 2.8% interest rate amortized over 30 years – a standard financing deal in 2016).
So that’s $24,670 my lovely tenants just gave me by paying down my mortgage. But that’s not all …
3 – More Appreciation For Me!
The property is likely to appreciate 4-6% every single year. But let’s be conservative and let’s say it doesn’t (even though properties appreciated 10% in ONE year alone in KW in 2015-2016).
Let’s say I was wrong and the property only appreciated a measly 3% every year for the next 5 years.
In 5 years, the same property is now worth $313,000 (calculated using $270,000 as fair market value – not the $275,000 that I paid for it)
So after a 5% commission to my realtor and $2,000 for closing costs, I made a profit of $20,000.
That’s cool, but that’s not it …
4 – More Cash Flow For Me!
Because I specialize and know my system so well, I know that this property will cash flow roughly $200 a month for the next 5 years. So that’s $12,000 in cash flow.
But let’s again be conservative and say I had some tenant troubles a few times – I’ll subtract $3,000 just cause … so $9,000 in positive cash flow.
After adding everything up, after selling the property that I overpaid on 5 years ago, I now made $53,670.
If I had a partner on this deal, divide that by 2 and I’m left with $26,835.
Not bad for a “bad deal” am I right?
If a property FITS the system you’re going after, sometimes it certainly makes sense to over pay on a property.
Now this only works when you’re investing in LONG term real estate when buying Kitchener rental properties.
If you’re looking to flip or do rent to owns, you really have to be careful because in these strategies, you make your money on the buy (another reason why I like long term real estate more – it’s boring!!)
Now imagine if I held the property I just broke down for 10 years instead of 5 … BOOM!
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