The question itself can be daunting. Don’t get me wrong. Buying rental property and letting the tenants pay off the mortgage is time tested and proven to work. The concept itself is very simple. However, devoting your entire life to buying as many properties as humanly possible with no end in sight is likely going to produce unhealthy results in your social life, family life and personal health. Let’s be realistic here. After all, who wants to deal with 100 tenants for 25 long years?

How do we realistically ensure a solid retirement and know when enough is enough? My perspective is this. Buy long term hold properties as soon as you can with a realistic target of how many you actually need. In order to determine how many you need, simply determine how much income you’ll need in retirement. It’s not an exact science and you have to make some general assumptions in order to make your calculations.

Assumption #1 – In 25 years your principal residence should be mortgage free therefore you won’t have that payment anymore.

Assumption #2 – Children have typically left the nest after 25 years so you won’t have that expense either.

Assumption #3 – No kids equals a smaller personal residence with smaller maintenance and smaller utility bills.

Assumption #4 – Expenses will increase over time and so will rents. A $1,900 property tax bill could be $4,000 in 25 years. Today’s rent of $1,900 could also be $4,000 in 25 years. It’s all relative. So, we’ll use today’s dollar amounts for our calculations.

Let assume that your total family household expenses including a mortgage or rent are currently around $5,000/mo or $60,000/yr. Without a mortgage, kids or a large home, that number could be closer to $3,000/mo or $36,000/yr. How do we replace $3,000/mo or $36,000/yr in retirement with real estate?

Here’s a simple, quick and easy calculation to use. First, add up the total gross rents on all your rental properties. Then deduct 30%-35%% of the gross income for ongoing expenses that will still need to be paid even after the mortgages are paid off and the property is free and clear. These include property taxes, insurance, repairs and maintenance, and property management. That leaves 65%-70% of the total gross income left over which has been going towards mortgage financing payments. Since the mortgage will be paid off in 25 years, you will no longer have the financing expense leaving 65%-70% of the total gross income in positive cash flow every month. If the 65%-70% is equal to or greater than your current income, then you don’t need any more long term rentals or tenants. You’ll be fine in retirement.

Assuming that each of your rental properties produces gross rents of $2,000/mo and the tenants pay all the utilities, then 65% of $2,000 equals $1,300/mo or $15,600/yr. In order to replace $36,000 you will need exactly 2.3 rental properties that currently produce $2,000/mo in gross rents. Yes – you read that right – you only need 2.3 rental properties to retire!

Formula: Retirement Income ($36,000) Divided by Cashflow ($15,600) = 2.3 Properties

If you want to be safer and assume that you will still have a mortgage, kids and a large home in retirement or you want to travel more and require $60,000/yr, then you will need 3.8 rental properties earning $2,000/mo in gross rent. Every rental property beyond these numbers is gravy.

Formula: Retirement Income ($60,000) Divided by Cashflow ($15,600) = 3.8 Properties

So before you go on a major buying spree to acquire your empire, first consider how many rental properties you really need. 3.8 properties is a much easier goal to achieve than struggling to acquire 100 properties or more. Once you have acquired your 3.8 properties then consider re-setting your goals higher, if you want. Don’t get overwhelmed and fall into the trap that you need to build an empire of 100 properties or more in order to secure your retirement. Figure out your own number first. Then get out there, buy the first one and accomplish 24% of your retirement goal instantly.

What will you do with all your free time if you no longer need 100 properties or more? Simple – enjoy a balanced life and sleep well at night knowing that you’ll be fine in retirement.

For those who may get bored waiting while your tenants are busy paying off your mortgages, you may want to consider combining mid term investment strategies for large sums of cash while you wait. Stay tuned as I’ll discuss my personal favourites in the next blog.

Until then, let me know what you think below. Did you believe that you needed 100 properties to retire?

Paul M. Hecht is an investor, seminar leader, mentor, real estate agent and author of Everyday Real Estate Millionaires: How Average People REALLY Do It. Visit www.PaulMHecht.com for Wealth-Building Tips and Strategies for today’s market.

Consider adding $350 to $1,400 per month to your income by adding a legal suite in the basement, loft or unused portion of your property. One of the challenges with this scenario is that a suite costs money. However, because you will be making money by spending money, you are actually investing, not spending. Spending money is when you buy something and the money never comes back to you. Investing is buying something that will return more money back to you than it initially cost.

So where do you get the money to renovate or build a suite? With an existing property you can borrow the money from your bank or through a mortgage broker using the equity in your property. If you are in the process of buying a property, it is possible to borrow additional money called a Renovation Allowance which is then added to your mortgage. Since you will be receiving rent from the suite, lenders will consider a portion of this rent as additional income when qualifying for the loan. More income means that you can borrow more money.

Some suites may take as little as $6,000 for used kitchen cabinets and appliances if a bathroom and bedroom(s) are already in place. If not and depending on the quality and complexity of a new suite, it can easily run upwards of $50,000 or more. Depending on the city, neighbourhood, number of bedrooms and quality of the suite, you will be able to collect from $350 to $1,400 per month in additional income.

If you borrow $30,000 as a Renovation Allowance from your bank or mortgage broker at 4% interest with a 25 year amortization to build a suite, your monthly payment will only be around $158/mo. You may also want to increase your home insurance to cover the new improvements.

Assuming you could now generate $800/mo in rent minus your loan payment of $158/ mo, you would have an extra $642/mo or $7,700 annually. If you earn $65,000 per year at your current job, $7,700 is the equivalent of a 12% raise in a time when people are taking pay cuts and losing their jobs. This way you’re in control of your income.

In regards to income tax, rental income is not treated the same as job income. With rental income in Canada, you are allowed to write off all expenses related to building, maintaining and running the new suite including the interest costs on the $30,000 loan. Any income tax paid on the rental income will be much less than income tax paid on job income, therefore putting even more money in your pocket.

The first step in adding or building a suite is to confirm that your property has the correct zoning for a legal suite. If it doesn’t, you may be able to purchase a license to operate a suite or even change your existing zoning. Each municipality views suites and zoning differently and any new construction will need to comply with the current building code. You can find out all the details through a quick trip or phone call to your local City Hall’s Planning and Development Department.

The second step is to call your bank or mortgage broker to ensure that you can borrow the money. If you are in the process of buying a home, ensure that the property you buy has the correct zoning prior to the purchase.

If you cannot get proper zoning or a license for a legal suite, then consider opening up a room in your home (maybe your basement, unused bedroom or loft) for a roommate, border, exchange student or local student via a homestay program through your local college or university. The benefit with this scenario is that in most cases you won’t have to make major alterations to the home nor will you require a loan or specific zoning.

So before you tighten your belt, pinch pennies and cut all spending, consider taking control of your own income by creating your very own money maker. Then sit back and start cashing those cheques.

Let me know if you have done this already below and or checked into actually doing it?

Paul M. Hecht is an Investor, Speaker, Mentor, Real Estate Agent and Best Selling Author of Everyday Real Estate Millionaires™: How Average People REALLY Do It. Visit www.PaulMHecht.com for more Tips and Strategies for today’s Real Estate market.

Rule No. 1 – Invest, Don’t Speculate

Perhaps the costliest mistake novice investors make is thinking that they are investing when what they are actually doing is speculating. Speculating is like driving a car with a blindfold on and expecting to arrive safely. Investing is knowing how to get to your destination before you get into the car, fueling up the night before, having a charged cell phone and first aid kit for emergencies. So, how can you tell if you are investing or speculating with real estate?

Any time you are guessing or counting on unknown variables, you are speculating. Investing is based on concrete facts like mortgage pay down. The mortgage balance can be calculated to the penny five years from today. Rent and expenses can be established ahead of time. Price appreciation cannot. Price appreciation is an unknown variable. Yet, many people buy real estate with the sole intention of price appreciation as seen by the speculators who got caught with pre-construction condo flips. They were hoping that prices would continue upwards allowing them to cash out higher. They based their buying decision on an unknown variable.

To avoid these speculative variables from the start, ask yourself how you are making money with the investment. If the investment is based solely on making money through variables such as price appreciation or simply guessing on any cost or expense without verification, then you are speculating, not investing.

Rule No. 2 – Buy Real Estate Investments that Support Themselves

Any investment that you purchase must be able to support itself on an ongoing basis and not be dependant upon your financial support, even if your accountant says it’s a good tax write off. For example, if you borrow money for the investment, then the investment must generate enough income to cover the loan payment.

Consider what would happen if your situation changed and you were no longer able to support your investment. How would you continue to support it? Not only could you lose your investment, you could risk jeopardizing your own home as well as your entire financial future.

Rule #2 is very simple. If there isn’t enough income from the investment to support itself then don’t buy it. You don’t want needy investments.

Rule No. 3 – Buy on Facts, Not Emotions

Keep your emotions in check. This is perhaps the trickiest of the three rules. Even seasoned investors get caught here. So how do you know if you are basing your investment decision on facts and not on emotion?

Emotions are something that is felt which often makes it difficult to walk away. Facts don’t possess any emotion. They are neutral and allow you to objectively analyze any deal making it easy to decide whether an investment is worth your time, effort and money.

Falling in love with a property that you just have to have at any cost, fear of being left behind or dying broke or feeling that the deal in front of you might be the last deal on earth, are all emotions.

Starting with facts such as mortgage pay down, market rents and associated costs on each property before you view a property doesn’t allow emotion to interfere. The investment decision is made before you look at the property. When you physically view the property you are prepared ahead of time and simply confirming your facts based on the actual physical condition and location of the property. If the numbers still make sense and the property is in good condition, now you are basing your investment decision on facts, not emotion.

Before you sign on the dotted line, ensure that you are investing not speculating, that your investment will support itself and that your investment decision is based on facts, not emotion. If so, then commit to the deal and sleep like a baby.

Have you broken any of these investment rules. I know I have in the past – that’s why I created them. Let me know your thoughts below.

Paul M. Hecht is an Investor, Speaker, Mentor, Real Estate Agent and Best Selling Author of Everyday Real Estate Millionaires™: How Average People REALLY Do It. Visit www.PaulMHecht.com for more Tips and Strategies for today’s Real Estate market.

Researchers have found that 80% of new years resolutions fail by February and 95% fail by April.

Did you set a new years resolution?

Did you do it?

Did you just “not bother” setting them this year since they don’t work?

Don’t worry – recent research shows that most resolutions fail anyways.

Resolutions are really nothing more than weak goals.

And most “goal setting” audios and workshops are too complex and take an entire day.

Who has an entire day to sit around?

Typically you set 100 goals, never achieve them and then feel like a failure.

In mine, you establish 3 in less than 20 minutes and have a clear outcome.

This is a great way to start your new year and be successful at it. In fact, you can do this ANYTIME of the year.

Every year around this time my wife and I sit down with a bottle of wine, talk about what we achieved this past year, where we fell short, what we’d like to change and what we want to see happen this year.

We figure it out and then put it on a calendar.

It’s very simple, takes less than 20 minutes and creates your life, instead of letting life create you.

Life is really is as simple as you want to make it, or as difficult as you make it.

Anyone who wants to throw away their old methods of setting goals or new years resolutions and receive my audio on Creating Your Life In 20 Minutes or Less, can do so by posting a book review this week on Amazon for Everyday Real Estate Millionaires: How Average People Really Do It, through the links below.

Amazon.ca »

OR

Amazon.com »

The book review should take no more than 2 minutes, must be honest and does not have to be a 5 star rating to receive the complimentary audio.

You’ll see that most people, especially the seasoned investors really enjoyed the book and gave it a great rating while others did not. The ones who did not had a common thread in that they wanted it be a technical book, which it’s not.

Either way, I want to hear from you.

As long as you participate – I’ll send the audio to you at no cost.

Just post what you thought of the book, then send an email to paul@paulmhecht.com saying you did it and I will send your audio on Creating Your Life In 20 Minutes or Less – at no charge.

No shipping either. It’s a downloadable MP3 – I’ll send you the link.

Create your life now by going to the either link below.

Amazon.ca »

OR

Amazon.com »

If you’ve already posted a review and want the audio – no problem – just send me an email requesting it.

By the way – men achieved their goals 22% more often when they engaged in goal setting, a system where small measurable goals (ie. a pound a week, instead of saying “lose weight.”)

Women succeeded 10% more when they made their goals public and got support from their friends.

Women – tell others what you want. Men – focus on exactly what you want.

A great quote by Ralph Waldo Emerson says “The world makes way for the man who knows where he is going.”

As Rent-To-Owns gain popularity, I posted an article written by my mortgage broker on the basics.

After attending our Live 3 Day Training last year and learning the in’s and out’s of how they really work; Scott’s business has grown from his better understanding and insight on what investors are trying to achieve.

This also helps him explain it to his underwriters in order to get your deal approved.

Here’s Scott Peckford’s (Mortgage Architects) article re-posted on my blog.

A Rent-To-Own is very similar to a car lease.

With a car lease you put down a deposit and make payments for a specified period of time at the end of the lease you have the option (not the obligation) to purchase the car for a predetermined price.

A rent to own works in much the same way. A buyer puts down a deposit, usually much less than the traditional 5% and makes a monthly payment. A portion of the rent is a credit towards the future down payment.

Here’s An Example:

Bob cannot get a mortgage because of a low credit score and a small down payment. He has reliable income and a plan to build his credit over the next 24 months.

He decides to do a rent to own with the following details.

Purchase Price $350,000

Initial Deposit $5,500

Monthly Payments $2000 (Rent $1500 Credit $500)

Term 24 months

Repairs and maintenance – Any repairs under $500 Bob pays for himself.

At the end of the 24 months Bob will have a full 5% down. ($500 x 24 = $12,000 + $5,500 = $17,500)

The important point in Bob’s case is he needs a plan to build his credit.

If a potential buyer is not able to qualify for a mortgage today it is important to determine what steps need to be taken in order to be in the best possible position in the future.

What Are The Benefits to the Seller?

The seller is able to have someone pay higher than market rents and take care of any minor repairs and maintenance.

In today’s rental market rent doesn’t always cover the monthly expenses.

Also, since the deposit is generally non-refundable when a tenant puts down a money for a rent to own scenario they tend to be really good tenants.

Why Would a Renter Do This?

It allows them the benefit of homeownership without having to qualify at a traditional bank right away.

It also works as a forced savings plan. Since a portion of the rent is going to be used as a credit for the down payment every month that passes the buyer’s down payment increases.

What Makes Someone A Decent Rent to Own Candidate?

• Low or No Credit – Credit is certainly one. If a potential buyer has been turned down by a bank because of credit problems an RTO can work for them. However, it is important for the buyer to have a realistic plan to get their credit back on track. (We have a program designed specifically for this.)
• New to Canada – Another situation where an RTO can be useful when a buyer is new to Canada. Often when new immigrants come to Canada qualifying for a mortgage can be difficult. A RTO allows the new Canadian to get a foot on the property ladder earlier than would otherwise be possible.
• Newly Self-Employed – Buyers who have been self-employed for less than 2 years will find it difficult to qualify for a mortgage at a typical bank. Since most lenders require a history on your self-employment income an RTO can give the self-employed buyer a chance to get their business going while still working towards homeownership.

What Are the Risks for the Buyer?

If the buyer is unable to qualify for a mortgage at the end of the term they risk losing their deposit monies.

The biggest mistake buyers make is not having a realistic plan before entering into an RTO.

Speaking with an experienced mortgage broker or banker and developing a plan will help reduce but not entirely eliminate this risk.

What Are The Risks for the Seller?

The biggest risk is the buyer will not, or cannot buy your home at the end of the term. If this happens the seller would have to attempt to sell the home again or do another RTO.

If you have any questions about financing your Rent to Owns or need help with that hard to finance deal, give Scott Peckford a call at 250-762-7526, Mortgage Architects.

If you want to learn more about Investing with Rent-To-Own, simply attend our upcoming Live Training »

Have you been thinking about investing in a rent-to-own or are you a tenant looking into a rent-to-own?
What unanswered questions do you have? Let us now below and we’ll answer them.

With this in mind I want to pass on a few tips on how make your homes and investment properties safer so that you don’t get robbed.

I borrowed many of these great tips from Weiser.com who makes locks, deadbolts, keyless entry systems, etc.

1. Going on an extended trip? Leave a car parked in the driveway as it gives the appearance that someone is home. Always lock your car and consider take your garage door opener with you instead of leaving it in the vehicle. (cost = none)
2. Going away for the holidays? Don’t use your home address with your luggage tags. Use your office address or a cell number. (cost = none)
3. Don’t leave a message on your answering machine letting the world know that you’re not at home. Keep it to yourself. (cost = none)
4. Lock your doors 24/7. 50 percent of ALL break-ins are through unlocked doors! (cost = none)
5. Help the police help you! Make sure your address is visible. If affixing numbers to you house, they should be at least four inches high, reflective and visible from the street and have not been overgrown with bushes so that the police are wasting time confirming that they are at the right address. (cost = under $15)
6. Most burglaries are the result of forced entry. Make sure all exterior doors have deadbolts with at least a 1″ throwbolt. (approx $30 per set)
7. Been at the same house for a while? Replace your outside locks or re-key as you’ve probably given out your house key a lot through the years. (cost = under $50)
8. An intruder’s greatest fear is being seen. Good exterior lighting with motion detectors around your perimeter creates a psychological barrier (under $150 installed)
9. Working late? Have your house key ready so you won’t fumble at the door. Or, get a keyless entry. (under $200.00 installed)
10. DON’T keep an extra key outside your house. Burglars know all the hiding spots. Instead, leave a key with a trusted neighbor. (cost =
11. none)

By the way – if you do just one of these things for your tenants – they will appreciate the extra effort you provide them plus, its tax deductible for you.

Have a safe and secure holiday season!

Would $300 – $1,000 of extra income help every month?

Maybe you have an untapped goldmine right under your feet, literally!

In a downward or recessionary economy people tend to tighten their belts, watch their pennies and not spend.

If everyone’s doing it, then you likely want to go in the opposite direction.

(I don’t mean go out and stimulate the economy by buying a new car or taking a lavish holiday on your credit card.)

Look around and think how you could increase your own income so that that income can buy your car and pay for holiday, or maybe just buy groceries at this point.

Here’s a simple suggestion.

Consider adding a legal suite to your home.

Depending on the zoning, this will be easy for some homes and more difficult for other homes. Something to consider when buying.

Now, yes this takes money.

However, you can borrow the money from mortgage brokers or banks at cheap rates right now.

And, since you are making money from it, you are investing – not spending – big difference.

Sometime it can be as easy as $5K or $10K to make an additional $700 – $900/mo.

Let’s look at an example:

In fact, let’s go crazy and borrow $30K from your bank at 4% interest with a 25 year amortization to build a legal suite.

Your monthly payment to your bank would be $158/mo.

Assuming you could now generate only $700/mo in rent minus your loan payment of $158, you would have an extra $542/mo in additional income.

If you earn $60K per year at your job – that’s like giving yourself an 11% raise in a time when people are taking pay cuts and losing their jobs.

This way – you’re in control.

Plus, you now have tax write offs too.

If you can’t get proper zoning…

If you can’t get the proper zoning, then consider opening up a room in your home (maybe your basement or loft) and take on a room mate, border or exchange student.

There are plenty out there – just google it and you’ll find lots of people and agencies who will gladly pay you for a room in your home.

Some just want a room.

Others want room and board and will pay more for it.

Some just want the experience living in our beautiful country in a typical home.

Think about that today and take control of our own life.

You may be sitting on a gold mine.

There’s (Much) More Where This Came From!

• If you want 3 days of money making ‘meat and potatoes’ content (just like this) that you can use in today’s market (whether you have any money of not)  then get signed up for my Live 3 day Training in October.
• Can’t make the Live Training? No problem. Get the same money making content on DVD and watch it in your own home with my Home Training »

Don’t get me wrong -- I believe in the “buy and hold” strategy. It’s time tested and proven that it does work.

However, I don’t believe you should put ALL your efforts into just ONE LONG TERM strategy.

Why?

Because, then you have to WAIT for 25 YEARS before you get to enjoy life.

That’s not right.

My perspective is this.

Buy some long term hold properties as soon as you can. 4-5 is plenty.

That should at least more than replace your income in retirement.

Here’s how you know.

Add up the gross rent on all your rental properties.

Then take 70% of it. If that number is equal to or greater than your current income, then you don’t need any more long term rentals. You’ll be fine in 25 years.

Then while you are waiting for your tenants to pay off your property, build your cash flow with a mid term strategy so that you can change careers, take holidays, buy a new car, put your kids through school. …and yes, have a life!

The way to achieve this is through Lease Option Investing.

If you want to learn more about Lease Options watch this video:

This is just a 90 second snippet from my last Live Training.

If you want to learn this in a “hands-on” setting and interact with myself and other like minded investors and have some fun doing it; then I invite you to “test drive” my Live Training in October .

That should give you lots of time to plan. Just don’t plan too long as all our Live Trainings SELL OUT every time.

And, they sell out faster and faster every time I put one on as more people hear about it. So, don’t wait too long.

The people who could not get in last time have already registered for our October event so, seats are being taken already!

Check out my Live Training »

Most people don’t.

In fact, most people ask their REALTORS to bring them a good deal when they come across one. Talk about lazy.

This is one of the sure fire ways to lose money for several reasons.

Most REALTORS do not know what a good deal is.

They can…
- tell you if it’s priced well in comparison to other similar properties that have sold in the area
- show you the latest market statics like average number of days on market and inventory levels,
- tell you whether the market is moving quickly or slowly,
- prepare your offer to be very competitive in order to get the property,
- send you an automatic email when a new property hits the market before it shows up on REALTOR.ca(MLS),
- help you with your due diligence,
- obtain any information about the property that you need,
- educate on the process of buying real estate and the standard customs in the area,
- put you in contact with a lawyer, inspector, contractor and anyone else you need.

Essentially, they can make your job of buying investment real estate a whole lot easier and the good ones can even save you a lot of time and money.

What they can’t do is – they can’t tell you what a good deals look like.

And, other than “buy and hold,” most can’t show you a proven system on how to make money with real estate.

Therefore, how are they going to show you a good deal?

In my live training, I show 6 different ways to make money on any property.

I’m not trying to slag REALTORS either.

As investors, we need a good REALTOR on our team.

I’m simply saying that as an investor, if you are relying on a REALTOR to make you money, then you need to wake up.

You need to get educated.

In fact, many prudent REALTORS take our training so they too can learn how to make money in real estate – as an investor.

Here’s feedback from just a few of the many REALTORS who have attended our LIVE training.

“If you are serious about getting ahead, then invest in Paul’s education, his content was excellent” – Lyle Stoneman, REMAX

“As a new real estate agent starting out in a tough market, I found this course helped me better understand the features and benefits of a wide range of investment options that just are not addressed in our traditional training course. My clients have benefited greatly from my ability to quickly analyze and discuss different and sometimes unique investment/ownership strategies. I found Paul’s presentation style and knowledge made for a great learning environment. He answered questions with enthusiasm, knowledge and depth. Thanks again.” – Dean Desrosiers, REMAX

“Very well done, well worth it and yes I would recommend it to family members” – Garry Gratton, COLDWELL BANKERS

You cannot rely on a REALTOR.

If you do, then when you lose money (and you will) – don’t blame them.

It’s your own fault for not knowing yourself.

This is nothing more than handing your money over to a financial planner and hoping for the best.

Don’t do it. Don’t be lazy.

Get educated and take control of your own investments.

Gain this investment confidence forever by going to my next Live Training »

You will not be disappointed. Read all the testimonials.

Is this the right time to buy real estate?

If this is how you think… you are making a big mistake!

If you are trying to make money by timing the market, then you are speculating….not investing.

The real question is not WHEN to buy… it’s HOW and WHAT you buy that really matters.

Don’t get me wrong, timing can really boost your profits and be a great BONUS.

However, if you focus purely on timing then you are still speculating.

My recommendation is to invest in a way where you make money regardless of market timing. That way you are protected from downturns and downturns become irrelevant.

HOW and WHAT you buy is more important than WHEN you buy.

Let me give you an example:

I made $18K on a townhouse in a down market by reselling it before I closed on it. I had the buyer lined up before I removed conditions. Therefore, I had removed my risk.

If I found someone to buy it before I removed conditions, I made money. If I didn’t find someone, then I didn’t remove my conditions nor did I take on any risk.

Risk enters the picture when you buy a property and do not know what your actual profit will be BEFORE you remove conditions. Most people buy a property and HOPE they will make money on it. This is risky and highly speculative.

This video shows how to flip without risk by lining up a buyer BEFORE you remove conditions, therefore minimizing your risk.

There’s way more where this came from in my Home Training »