The Value Of A Good Team
Updated: Jul 21, 2022
When you are in the real estate business, people often reach out when they find themselves in a sticky situation or when they are looking for advice. Several weeks ago, a friend of mine gave me a call and asked if I could talk to one of his friends that was having trouble with a deal that he had purchased.
I took his call the next morning and he filled me in on the unfortunate situation that he was in. He was a new investor, and like many people in the last few years had looked at the rising housing market and wanted to jump in on the action. He found a property in a decent area of St. Catharines, and like many properties around, this one was in a multiple bidder situation. He had 15 minutes to walk through it and decided that he could force appreciation by putting in a legal second basement suite. It seemed like the perfect property. His real estate agent, who had a few properties himself but was unfamiliar with this strategy, coached him to put in a firm offer well above asking. Good for him for taking action!
Then the news came that he had put in the winning offer. Awesome! All exciting stuff, but here is where the hard work begins. He spoke with his mortgage broker, and they decided that a private loan was the way to go, because it was short term for the duration of the renovations, and he thought that he’d be able to refinance with an A lender upon completion. The terms he was presented with were terrible, about $5000 a month in interest only payments, but because it was short term, he thought he could live with it. With financing in place, it was time to dive into the legalities of putting in a legal second suite.
Multiple calls with the City of St. Catharines didn’t lead him very far, so he got in touch with an engineer, and they spent some time going over the details of the property to see if they could make it work. Here they hit a snag. The height of the basement ceiling, especially under the duct work was way too short to put in a legal unit, which wasn’t what he had been told by his agent. Then his plumber called and told him his main water line needed replaced from the shut off into the house. Another $5000 he wasn’t expecting. He called me in a panic. Can I help him out of this mess? Could I make something work? He was afraid if he had to carry a $5000 a month payment, he would lose his house. His family was already completely disrupted by this.
Phew. The value of having a good team in place before you make a big decision like that is paramount. Being able to lean on people when you’re not sure how to proceed can make or break you. He fired his entire team and went back to the drawing board with a new lawyer, a new mortgage broker and ran a few things by me. I went through the details with him on it, reached out to a few of my contacts and looked at the numbers. It turns out that even though his initial strategy wasn’t going to work, it still would have made a decent flip project, or an even better BRRR. Rather than a legal second suite, the basement could easily be made into a rec room with an additional bedroom and bathroom. I walked him through the numbers and the strategy that I would use. By this time, he had lost his desire to continue with the project, even after speaking to the new mortgage broker and finding out that he could qualify with an A or B lender.
So I put together an information sheet and a spreadsheet and put it out to my network of investors and before the week was over, he had assigned the deal to someone else and walked away from a situation that had caused him and his family a lot of unnecessary stress.
Wow. It is very unfortunate that we have inexperienced real estate agents dealing with new investors and putting them in situations like this. If there is one lesson to be learned from all this, it’s that team is everything.
Here is a list of the professionals that you may need:
· · First and foremost, a coach or someone with experience that can help you to set your goals, and develop a plan to go after them
· A real estate agent that not only has investment properties, but is also familiar with the strategy you are interested in and can provide you with ARVs (After Repair Values)
· A mortgage broker that works primarily with investors and can put together a financial roadmap for you
· An accountant that has rental properties and is familiar with the best ways to structure your deals for tax savings.
· A real estate lawyer (not every lawyer is created equal)
· A good quality home inspector, preferably with a P.eng designation.
· A good quality contractor (or two!) that is very familiar with the building codes and unique requirements of each individual municipality
· An engineer that is also used to working with the municipality that you are in.
· A quality property management company that can provide you with an idea of market rents and what tenants are looking for. Something to note here is that it isn’t wrong to want to self manage. In fact, I encourage new investors to manage their own properties for a little while to understand what goes into keeping a property running smoothly. That being said, if you are planning on self managing, make sure that you read the Residential Tenancy Act from front to back and have an experienced landlord or property manager that you can lean on when questions arise.
We provide consultation services, partnerships, market research, deal sourcing, and much more for investors that are looking to get into the real estate market in Niagara. We work with both new and experienced investors who are unfamiliar with the area to provide them with a high-quality product that will provide great returns for years to come.
At the end of the day, this new investor learned a valuable lesson and wasn’t out of pocket too much money despite all the stress that came with the deal. Chalk it up to lessons learned and continue. However, I think that this investor might take a breather before he jumps back into the market!