Control is a very, very important part of wealth-building. There are lessons all over right now about what happens when you don't control your investments. We all read or have heard of different Ponzi schemes and Bay and Wall Street ‘hand in your pocket’ plans.

Let’s start out with my definition of control:

Investing Control: The ability to influence or impact the future value and net income of your investment.

Investing control is important for almost any type of investment.

For the stock market, this means controlling a majority of a company’s shares. Now, this is extremely difficult for average people, like you and me. This is why we should invest a smaller portion of our money into the stock market.

For real estate, the best investors want active control over their properties. Active control can be obtained in partnerships and individual investments alike. Most people would rather be passive real estate investors. The tiny few who grow wealthy prefer to be active investors.

The majority of families focus their investments into assets they do not control. This is why they struggle to accumulate “real” wealth. This is also why many people will not have enough money accumulated when they retire.

In fact, it boggles my mind that most people prefer not to be in control of their investments. They would much rather have mutual fund planners, stockbroker or someone else control their money. “Done for you” wealth is not available. You are going to have to do much of it yourself. You do it by controlling assets.

It is perfectly fine to invest a small portion of your money into investments you do not control. But I would be very careful investing large sums of your money into uncontrollable investments.

If you study wealthy people, you’ll quickly see that they do the exact opposite of everyone else. They desire, fight for and cherish control. Everyone else desires, cherishes and pays big money to have no control. Notice the difference.

I remember reading a biography on Kirk Kerkorian, a billionaire. In every single investment Kerkorian made, he fought for control. When he didn’t have control over an investment, he quickly divested himself of the investment. Same goes for Wayne Huzienga, who built three separate billion-dollar companies (Waste Management, Blockbuster and Republic Industries).

I believe most people prefer passive investments because they are easier. Passive investments allow the investor to invest without having to take any responsibility. Passive investments do not require the investor to be decisive. Passive investments do not require the investor get his hands dirty.

Control requires that you take responsibility for your investments. Control requires you to be active. Control requires that you pay attention. Control requires that you be decisive. Control requires you to roll up your sleeves and get dirty every once in awhile. Some believe control is risky. I believe lack of control is risky.

Once you have control of your investment, you should work hard to increase its value. You increase value by increasing its income.

One of the most valuable wealth-building skills you can have in life is the ability to increase the net income of your investments. With this skill, you can literally write your own ticket.

You must strive for control over your investments. Control is critical for true wealth. Don’t be lazy. Don’t copy the masses and happily turn over control to your hard earned money.

Every so often I get calls and email from landlords who have had trouble with a property management company or new buyers who are looking for a property manager. Usually the complaints have to do with the property management company not having done the job the landlord was led to believe it would do.

I have responded to complaints such as, "he never checked references, he just rented to anybody,"  "he let the tenants get away with murder," "he says I have to evict the tenant."  After the landlord has started having these problems he or she reads the management agreement and finds out that, contrary to what he or she was led to believe, the management company is not responsible for anything. Too many agreements are written so all the management company is supposed to do is send the right amount of money.

After reviewing several property management agreements, actually 61 of them, I came up with a list of clauses and terms that should be in any property management agreement you sign with an outside management company.

Due Diligence
This is probably the most important clause you can have in a management agreement. In it the management company promises to do its best when managing your property.  It is a legal term, which, among other things is defined as "that amount of diligence which a reasonable and prudent man would exercise under the circumstances."

The professional property manager has an extra duty of diligence, since it has implied, by taking on a management contract, that it is expert in rental property management.

Communication and Notification
Here they are obligated to tell you what's going on in the management of your property, as necessary.

Accounting
Ask to see a copy of a spreadsheet or past client sample accounting for expenses and revenues, both monthly and year end one.

One thing to watch out for is when will they send the money? How? By cheque or direct deposit. By what day of the month will your cheque be mailed to you? Will the cheque be for that month, or will the management company hold back a month? What happens to the security deposit they collect from the tenant?

Termination of the Agreement
Every agreement will have a provision for its termination. The question is how long does it take to terminate and is there a cost or penalty to you if you do so before a certain date?

Repairs
Just about every management agreement will provide for the management company to handle repairs. Usually they hire contractors or other companies to handle them. What you will find in the agreement is a "hold-harmless" clause, saying that the management company is not responsible for the "acts, defaults and negligence" of the people they hire. What you also want to see in the agreement is a statement that they will use "reasonable care" when they hire anyone to work on the property. 

Certainly they are not responsible for people over whom they have no control. But they are responsible if they hired someone who has a history of shoddy or dangerous work and they knew or should have known that he did.

Evictions and Terminations of Tenancy
Believe it or not, some agreements don't provide for the management company to handle evictions. What are you hiring them for if not for their ability to deal with problems in the property? And what bigger problem is there than a tenant who must be evicted?

What you want is their expertise and their willingness to use it. Always make sure that the property management company will use due diligence in terminating the tenancy of any tenant who must be removed.

Will having all these clauses in a management agreement guarantee a smooth relationship with the property management company you hire? Absolutely not. You need to interview and get references from several before you commit to anyone. But not having these clauses in the agreement will almost guarantee you problems.

In conclusion, some of you will know why I roll my eyes when you ask about a certain management company or why I am very selective in whom I work with. I still limit myself to working with only 4 investor clients per month and there is 1 spot left in April 2012.

The biggest advantage in small residential income properties (duplexes, Triplexes and Fourplexes) or investing in multi-family units is the most obvious reason: the monthly cost if any units are vacant to the owner/investor. Here is an example:

    Owner "A" has a Single Family home with 3 bedrooms and 2 baths that rents for $1500 with mortgage of $1700 per month. A slight negative, but one that the owner is able to afford each month. Now the property goes vacant for one month. Thus, Owner "A" must now come up with $1700 out of his own pocket to make the mortgage payment. Ouch.

     Whereas, Owner "B" has a duplex, each unit has 3 bedrooms, 2 baths that’s rents for $1300 each unit ($1300 + $1300 = $2600) with a monthly mortgage amount of $2000. If one unit goes vacant for one month, Owner "B’ still receives $1300 from the occupied unit and now must come up with only $700 to make his monthly mortgage payment. A MUCH Smaller problem than what Owner "A" has to deal with. Plus, if you noticed, Owner "B" also had a monthly positive cash flow!

    Both of these properties are real life examples; located in London and show why investing in a Duplex, Triplex or Fourplex is a MUCH BETTER way to go in creating wealth though Real Estate investing, along with good real estate education. The numbers may change, but the finally results will be the same.

So why put your money in one residential unit like a single family dwelling if you’re an investor, when you can spread the risk among 4 units like in a fourplex and create a better CASH FLOW for yourself and create future wealth.

Anyway, that is just one reason why investing in multi-family units (duplex, triplex or fourplex) is a faster way to Real Estate wealth then simply buying a single family home.

The Cost Per Unit Typically here in the London market, on average a single family home goes for about $228,000 a nice duplex will go for $170-225,000, like wise a triplex for $250-$300,000 and a four plex around $350-$400,000.

Yes, the monthly mortgage will be higher for the fourplex then the single family dwelling, BUT you will have FOUR FAMILIES paying you rent towards that mortgage payment. The "Per Unit Mortgage" amount is less with the fourplex and the opportunity in collecting rents to cover the monthly mortgage is much greater then the single family dwelling.

Owner verses an Investor As an owner/buyer of a duplex, triplex or even a fourplex who lives in one of the units; you have many advantages over the ownership of a single family home. For example if you buy a duplex. Banks like to loan on owner occupied duplexes because they know that part of the mortgage payment will be coming from the other unit (the rental unit) and part from the owner (owner occupied unit) thus reducing the amount that the owner would need each month.

Also, you can write off some or large portions of your repairs. Like for example if you installed a new roof on a owner occupied home, the homeowner gets NO immediate TAX benefits (the benefit kicks in at time of selling as an "adjustment to the cost basis" of the home). Whereas, the owner occupied duplex can write 1/2 of the roof installation on his/her taxes that year.

With a 20% down on a duplex you may still have a small negative cash flow (some areas with 20% down you can have positive cash flow) but the time it takes to go from a negative to positive cash flow is much shorter then the time it will take you with a single family home.

Every day I receive calls from people who would like to invest or buy income properties in London Ontario. It could be from a duplex up to a strip plaza and one of my first questions is: "What dollar amount are you comfortable with and the purpose?"This is where it gets real interesting. From professional investors to the first time "thinking about it" or the "Trumpish investor", it is amazing what and why and how they perceive real estate values.

Is it:

• rental income
• minimum down payment
• appraised value (and from whom)
• comparable market values
• as a tax loss
• break even
• a flip(don't call me)
• a positive cash flow that in 12-15 years the building is either paid for or you can leverage it to buy another one, or three or ten.
• a deal (A deal for whom?) Who doesn't want a deal?

Investing in real estate can be very rewarding or it can be devastating, it will all depend on who you work with, the advice you accept or decline and your perceptions!

LICENCE NEEDED FOR DWELLINGS WITH FOUR OR LESS RENTAL UNITS

A by-law regarding the licensing of the residential rental units in the City of London is as follows.

- What is the purpose of this by-law?

The Residential Rental Units Licensing By-law was put into place to address sub-standard housing conditions in rental units and to protect the amenity, character and stability of residential areas.

By licensing rental units, the City will be better able to identify and remedy unsafe and/or unhealthy building conditions in smaller-scale residential rental properties.

- Which units require a licence?

Any building containing four, or less rental units - including single detached dwellings, semi-detached dwellings, duplexes, triplexes, fourplexes - and converted dwellings* in the city of London will need such a licence. Rental units in apartment and townhouse buildings are exempt.

* A converted dwelling is a building constructed prior to 1993 as either a single detached dwelling, a semi-detached dwelling or a triplex and has since been converted to add an additional unit(s) within the existing structure.

- When did the by-law come into effect?

The by-law came into effect March 1, 2010.

- What is the licence fee?

Each rental property will be subject to an annual $25 fee.

- What happens if a property owner does not apply for a licence?

Any person who contravenes any provision of this by-law is subject to a fine upon conviction. The maximum fine for a person upon first conviction is $25,000 and for a corporation is $50,000. The maximum fines for subsequent convictions are double the maximum initial conviction.

More information can be found at http://www.london.ca/d.aspx?s=/Planning_and_Development/Land_Use_Planning/rentallicensing.htm

When looking for income properties, there is more than the price of real estate you should be concerned about.

     If you own rental real estate, you probably have a few “war” stories to tell of tenants from you-know-where. Most investors have these war stories about problem tenants, and in most cases these stories involve the investor losing time and money.

  The 80/20 Rule, also known as Paretto’s Principle, states that for many events, roughly 80% of the effects come from 20% of the causes. In rental real estate, this means that the majority of our problems come from a very limited number of factors.

   I work with many real estate investors in London Ontario who still think they have to have a minimum  20-25% down payment when buying income residential properties such as duplexes tri-plexs or 4 or more units. Below is a CMHC features and benefits and if you go here, you can read all about it.

CMHC Mortgage Loan Insurance enables Approved Lenders to help borrowers purchase multi-unit properties with a minimum of 15% down. Borrowers can also access competitive interest rates for the life of the mortgage and enjoy reduced renewal risk.

FEATURES

 Purchase – Loan-to-Value ratios up to 85% of the “as is” or “as improved” value.

 Flexible financing terms available including extended amortization periods and fixed and floating interest rates.

 Available for first mortgages.

 With substantial capital improvements, projected rents may be used in valuation of “as improved” lending value.

 The loan during renovation / improvement can be the greater of 85% of “as is” value or 75% of “as improved” value.

BENEFITS

More Flexibility – Borrowers can obtain mortgage financing up to 85% of the lending value of the property.

Lower Interest Rates – CMHC insured financing provides access to competitive interest rates for the life of the mortgage.

Reduced Renewal Risk – CMHC Mortgage Loan Insurance offers product features that meet project financing needs and

facilitate renewals.

Availability – Available for new and existing multi-unit residential properties including rental, student housing, retirement and longterm care facilities located from coast-to-coast-to-coast. 

                           Tenant Turnover & Vacancies

This week I was asked by an out of town investor with 11 units if I could assist her in understanding why on paper she should be doing better financially , but in fact, her income was way down because of tenant turnover, vacancies and questionable property manager fees. (I was not her real estate agent when she purchased the income properties).

Her buildings are in a decent part of London, have had major upgrades and her rents are a little below average. In a nutshell, here is what I discovered:

·         The property manager not properly screening prospective tenants with references, credit checks or a police check.

·         No For Rent Signs on property & upon researching past tenant prospecting, little or poor use of the internet (example: Kijiji), social media and other avenues where prospective tenants may search for apartments to rent.

·         The investor not setting and communicating her standards and or detailing exactly what and how she would pay for repairs and maintenance.

As you can see, poor tenants are very costly which is why I preach that I would rather have a unit vacant than a poor tenant. I realize it is a catch 22; mortgage payments, utilities, taxes & maintenance are due every month regardless if your units are full or not.

Yesterday I heard about a new tenant in a 4-plex that was causing loads of problems which in turn the other 3 long term tenants where threatening to move out. By the way, that tenant is 2 months behind on his rent! (The property manager gets paid, regardless!) Hmmmm!

I am not picking on property managers; there are some really great ones out there, as well as a few who are not. Whether you have a basement apartment or a duplex, 10 units or a 100, set tenant standards and live by them.

Do the math, tenant eviction, unit clean up & repairs, finder’s fee or commission fee for finding a tenant, one month free rent incentive, etc. It can be double or triple what one month’s rent is.

90+% of the time, it is less costly to find the right tenant than to rent to anyone who can breathe.

Sorry, Sold Out!

Most of you now know why I roll my eyes when you ask about a certain management company or why I am very selective in whom I work with. Or those who want to get rich quick in real estate after reading a book or watching some real estate guru spout off about stuff that only Hollywood could think of.  I still limit myself to working with only 4 investor clients per month and there is 1 spot left for February 2012.

If you are thinking of income properties in and around London Ontario, either as an investor or you wish to sell your holdings, sign up for some insightful articles and a 6 level course I am conducting this year. I have limited it to 100 clients and the course will be done by webinar, CDs and 9 manuals and 4 spreadsheets, plus 2 one on one phone consultations.

At present, there are no openings left, and the cost was only $279.00. I have started a waiting list and have asked a leading well known financial consultant to help do part of the course, plus add her insights and share her sold out seninar material with my clients.

Last year, I took on 150 and it was way too much for me, in time and energy. Of those 150, 126 have signed up so far for the advanced one on one e-course at  $631.00! You know I am a believer in a rock solid rate of return and utilizing resources carefully. Three of my more successful investors who took the first course I ever did, say they got a 5000% return from my 'stuff'.  I must add that they were driven, they worked  a tremendous amount of hours, applied diligence in choosing who they worked with and after questioning their math, they were close!

I can't guarantee the future but one thing I can guarantee, you will learn stuff they definitely do not teach in business schools and if you don't make money in real estate, you also won't lose any either( other than your original $279.00 you invested in the course). 

We all have heard about people making a killing (a lot of money) in buying and selling real estate and just lately (last 3 years) we hear of those who have lost everything!

Is it greed? Luck? Uninformed?Unprepared? Misinformed, or all of these?

I have seen some of these traits in some or all in people who should not even buy a lottery ticket with a 50/50 chance of losing!

On the other hand, and which brings me to the point of this blog, over the last 5 months I have worked with over 60 clients who have purchased or sold real estate.

Some were on the top of their profession but when it came to money, they were out of their comfort zone. And then, from the least expecting source, average income earners who were cautious yet wise in their spending habits, could buy twice the house they eventually did buy and most had no or little mortgage.

Regardless what the economy will be, these folks cannot get 'killed' with real estate or any other investment.Some owned  income producing properties and in a few years will be wealthy with tenants paying their mortgages.

We will get along real fine if you are in the latter group. If you want to make a killing in real estate, get away from me!I work too hard to get killed along with you!

In a recent CMHC (Canadian Mortgage and Housing Corporation) news release, the vacancy rate in London is down to 3.8% for rental apartments!

This is comforting news for those who are contemplating getting into the rental market for the first time or for those who wish to expand.

This is an area of income properties that I have been directing my clients to as I see a great opportunity for passive long term investors.

Here is the report.