My Real Estate Investing Losses, Wins, and Lessons Learned!

With the crazy conditions in real estate markets across the country, I felt as an investor with many properties across Canada, it would be worth sharing my ups and downs. Here are a couple of lessons from both the wins and losses, and hope you find this useful in your investing journey.

Losses

Even though I have had experienced a number of losses or mistakes throughout my real estate investing career, I look at them as lessons and/or steppingstones to my growth.

Lesson: Pay Attention to Diverging Interests & Egos

In 2006 I researched the economic growth and price point advantages of investing in Atlantic Canada and purchased a large 2 bedroom, 1 bath investment condo property in Dartmouth, Nova Scotia. Dartmouth is to Halifax as North Vancouver is to Vancouver. The mid 1980’s property was structurally sound and located in a reasonable neighbourhood, close to access to Downtown Halifax. The property was nicely renovated both within the unit and common areas and it provided regular positive cash flow after all operating and financing expenses. I was part of the condo board over the entire time I owned it.

The challenges began several years into the ownership between the condo board members and the incumbent property management company that managed the condo and rentals. This challenge began as a result of the condo reserve fund study highlighting some required forthcoming improvement and maintenance work. The report was conducted by the property management’s “go to” engineering firm. When the condo board questioned items of note, owner funding, timelines, and related costs within the reserve fund study it became apparent that the management firm had a different opinion of who was in charge and how decisions were to be made. The management/board relationship became quite combative and although there was no specific proof of misappropriation or collusion, it became increasingly evident that we needed to watch all costing of any job as there were engineering costs related to any work being done and that the condo reserve fund was to be adhered to under the condominium act of Nova Scotia.

On several occasions some members of the condo board tried to get a consensus to change property management but it was to no avail. I could share many more details with you, but I wanted to stick to the “big picture”. Long story short, after years of dealing with this property management I found that this situation was no longer tolerable and decided to sell. This was the only property that I sold at less than my purchase price albeit only about $8K, but I felt my emotional health was worth way more than $8K in the grand scheme of life. Because the property was always full, I received rental income and the mortgage principal was reduced which added to the total equity. I was able to take out these funds upon the sale and then able to redeploy it into another investment property without the drama.

Lesson: Not Reading the Signs can be Very Costly

I purchased a great little single family home in west Maple Ridge back in the early ‘90s. The house was a small 3 bedroom rancher on a large lot. I rented it out over the years and it always cash flowed well because of the original mortgage was relatively low although when I started out the interest rates were at 12%. Over the years the mortgage rates dropped but I kept the payments the same. I made sure that I properly screened my tenants and made sure that the tenants knew how it always needed to be kept up and look great so that the neighbours would be happy with my tenants.  My second to last tenant was a young family. I used to inspect the property every 6 months even with these tenants and everything was great for 6 ½ years. In the 6^th year I thought it would be okay not to go out and inspect the property as often as I had in the past. Some personal issues happened within their marriage and rent started showing up late but was always paid until the 5^th month. When the cheque came back to me as non-sufficient funds and they would not return my calls, I went out to the house to see what was going on. I was shocked to see everything was overgrown, the lawn was not cut, the newspapers were piled up on the front step, and the place looked neglected. I checked in with the neighbours about what I noticed and they had explained to me that there had been recent issues and the police were called to the house more than once. It became quickly evident that things had gone awry with the tenants and their marriage. Upon repeated unsuccessful attempts to clear things up and get paid, I served them the proper notice to vacate and when they did vacate the property (midnight move out) and I gained access to the house, my heart sank at the significant amount of interior damage inside the house. Luckily I had insurance and it covered about 50% of the $55K in damage repairs to the house. I basically had to gut the kitchen, bathroom, replace all flooring and fix windows and walls.

The big lesson here was by not continuing to drive by and inspect the house; I missed the signs that could have prevented this whole situation.

Once it had been repaired I leased it to a new tenant who was respectful to my requests and it was fine moving forward.

I eventually sold it at a significant gain in 2011 in anticipation of purchasing the Maui oceanfront condo which is highlighted in one of my wins.

Another couple of lessons learned that came out of this one property. After the fact, I realized that I didn’t need to sell it to buy the Maui property, but I could have pulled equity out of it to fund some of the down payment on the Maui condo.

Also, in my gut, I knew it could have eventually been subdivided, but at the time the municipality had not permitted it, but it is currently in for review with the municipality for subdividing. Had I hung on to it and been a net investor I could have made way more money as the property is worth almost 800K without being subdivided, and obviously worth a great deal more upon gaining the permits for subdivided.

Wins

Out of many wins that I have been blessed with over the years, here are a couple victories and the related blessings I have noticed.

Know When to Get In and When to Get Out!

In 1994, I purchased my first out of province investment property in Calgary. All my friends thought I was nuts and going to lose my financial shirt because they were only reading the headlines about how Alberta’s economy was flat, and properties were selling at fire sale prices. I purchased a 4-year-old condo in a sought after and highly desirable complex in Calgary for only $85K with zero of my own cash: $2500 deposit on my visa, 20,000 on a line of credit, and the remainder on a 1^st mortgage.  The property was positive cash flow from day 1. I never intended to sell but because the Calgary real estate market had an amazing appreciation curve up to 2006 and I recognized that there were going to be some large expenses coming I decided to sell and redeploy the funds. It was listed, sold and closed in 3 weeks for $245K. My return on investment was substantial when you recall that my entire down payment was financed except for the $2,500 paid on my credit card.  The greatest benefit was that I was able to gain even greater confidence in my investing endeavours.

Setting Intentions that Empower You

I have traveled and vacationed every year in Maui since 1993 and fell in love with everything about the island. I set an intention in 2009 that somehow someway I would own in Maui. In 2012 it happened!  In 2012 the Canadian dollar was at par with the US dollar and Hawaii was still recovering from the fall out of the financial crisis. It was the perfect opportunity, and I finally found an oceanfront end unit 2-bedroom – 2-bathroom condo in a concrete building in West Maui that came with a 220-degree panoramic view and an underground parking stall.  This type of condo is truly a rare opportunity and to find it selling for ½ of what it was selling for at the height of the market was truly amazing. In fact, we had purchased it at the lowest price per square foot in that complex, considering its location to the other condos in the complex. Besides buying at a huge discount, it is located in the hotel zone which is safe from short term rental restrictions or legislation for reducing the number of short-term rentals which is currently being tabled. The lesson here is that that there will be a built-in desirability for this property as the short-term rental market shrinks. This property could easily return to the value of $1.2 Million because of the shrinking opportunity for oceanfront properties and short term vacation rentals.

10 Lessons Learned Through My Investing Career

Sometimes the lessons are learned are through the wins and sometimes they are through mistakes and or losses.

Even though I have shared just a few losses and wins and the associated lessons, I have learned many more lessons through my and others’ real estate investing that have been shared with me.

1. Invest with the Exit(s) in Mind
2. Be a net investor wherever possible.
3. Smaller resource towns are good when things are good but terrible when things are bad.
4. The Devil is in the Details – Do your research.
5. Proper executed agreements prevent disagreements.
6. Investing priorities: Follow the money, 1^st timing, timing, timing, then location, location, location.
7. Ask a better question, get a better answer, and achieve a better result.
8. Life happens … accept it. Consider that it may be happening for you not to you!
9. Nothing in life has meaning but the meaning you give it.
10. Life is 10% of what happens to you and 90% on how you respond and Happiness is a choice!