Rapid Cash Flow Program

A Six-Month Quick-Turn
Real Estate Coaching Program
Guaranteed To Rapidly
Increase Your Cash Flow

Okay, investors. We’re bringing our Rapid Cash program to Ontario! Agreements For Sale? Rent to Own? Assignments? We’ll show you how! This is your invitation to work with me, Barry McGuire, as I coach a select group of real estate investors on the strategies behind the Canadian creative quick-turn real estate market.

Feb 20 – 22, 2015
Pearson Convention Centre

Brampton, Ontario, Canada

 

For more information and/or to register visit REIN Canada.

The Basics: Home Inspections Part 2 Painted Ladies

Podcast Episode 29:  Home Inspections Part 2 Painted Ladies

Show homes are sometimes described as painted ladies. Despite their designer flair and top-end appliances these “painted ladies” can conceal a multitude of problems.

Download the audio file HERE.

Download the handout for parts one and two HERE.

(Mac control + click + “save as” / PC right click + “save as”)

Home Inspections

“I don’t need no stinkin’ inspection!” Effectively, that’s what a lot of buyers say when they fail to get a home inspection. It is wrong, wrong, completely wrong. Home inspections have gone from an oddity, hardly ever done, to an essential tool in every investor’s toolbox. This is the second part of a two-part series on home inspections. Part one gave us graphic examples of how a home inspection can help. Part two deals with how to pick a home inspector, home inspection contract schedules and dealing with those inspector-revealed surprises.

Painted Ladies

Painted ladies are sometimes known as show homes. Builders construct show homes in new subdivisions to let customers have a look at what their new home might look like. Those show homes often get top-of-the-line appliances, decorating and a lot of hard traffic in the 2-3 years that they are open. The show home is sold once the subdivision is completed or the builder doesn’t need the show home anymore. If you are looking at a show home you’re probably asking yourself, “what could go wrong? Surely the builder wants to look good. He must’ve done a great job”.

Recently one of our members decided to be cautious and get a home inspection. Here’s what she found:

  1. There was a beautiful stainless steel fridge with the requisite high-end icemaker. There was no plumbing to the icemaker so, of course, it didn’t work.
  1. The high-end dishwasher had no plumbing either. BUT, the electrical was connected. Someone had turned on the dishwasher and it shorted out. How did the inspector know this? He looked at the electrical panel and saw one of the breakers was off. He then established that breaker was for the dishwasher, checked the dishwasher and found the problem.
  1. A furnace exhaust seal was not seated properly causing condensation inside the furnace compartment. The furnace had rust everywhere!
  2. The furnace had a gas leak.
  1. Basement development did not adequately avoid the fresh air intake. That piping was crushed and flattened in numerous places thus greatly reducing fresh air volume which impacts furnace combustion and air quality.
  1. There were two show homes side-by-side with front drive garages. The builder had constructed a sales area attached to the two garages. When the show homes were being sold, the builder removed the temporary sales area. This left a big hole in the ground which needed to be filled. Many municipalities require new homes to have grading certificates prepared by an Alberta Land Surveyor. Grading certificates show that final landscaping meets municipal grading requirements which ensure adequate drainage. Even if this builder had obtained a grading certificate when the show homes were built, removal of the temporary sales area and the big hole in the ground would void that grading certificate. You need to ask for a new grading certificate.
  1. Lastly, my client attended the inspection with her inspector. All decent inspectors encourage you to attend. While the inspector was doing his thing my client went around the house looking at and trying other things. She discovered that the controllers were not working on the expensive built-in sound system.

LESSONS LEARNED

  • Show homes can be a beautiful trap
  • Don’t accept “as is, where is”, get it inspected
  • Don’t rely on any New Home Warranty program to save you after closing. Identify issues before buying.

Contact Barry McGuire now. Alberta real estate needs an Alberta lawyer.

The Basics: Home Inspections Part 1 Knob and Tube

Podcast Episode 28:  Home Inspections Part 1 Knob and Tube

Old, unsafe, hidden behind walls knob and tube wiring was discovered by a home inspection. The buyer avoided a $30,000 repair bill.

Download the audio file HERE.

Download the handout for parts one and two HERE.

(Mac control + click + “save as” / PC right click + “save as”)

Home Inspections

“I don’t need no stinkin’ inspection!” Effectively, that’s what a lot of buyers say when they fail to get a home inspection. It is wrong, wrong, completely wrong. Home inspections have gone from an oddity, hardly ever done, to an essential tool in every investor’s toolbox. This is the first part of a two-part series on home inspections. Part one gives us graphic examples of how a home inspection can help. Part two will deal with how to pick a home inspector, home inspection contract schedules and dealing with those inspector-revealed surprises.

Knob And Tube?

This Tale comes from an e-mail that was so descriptive I am reprinting it here. To help understand the e-mail, please note that ‘knob and tube’ is an out-dated and now forbidden way to wire a house. Wikipedia says, “It consisted of single-insulated copper conductors run within wall or ceiling cavities, passing through joist and stud drill-holes via protective porcelain insulating tubes, and supported along their length on nailed-down porcelain knob insulators”. Google ‘knob and tube’ for more info and especially pictures of fires caused by knob and tube wiring.

Now here’s the e-mail:

“We went to Saint John New Brunswick to look at properties mainly because of the price point in the area. Put an offer in on a 3 plex that was eventually negotiated down to 185K. Rents were a little more than $3000 a month total including heat. Cap Rate on the property was over 19%, tenants had been there on average for 2-3 years, so it looked great.

Went through our due diligence on the property. Expenses, rent rolls, etc. all came through as expected. We also had a property inspection done which was even more of a requirement than usual because of the age of the building in Saint John as opposed to Alberta. The inspection was thorough and discovered some minor problems we expected and one major one we didn’t. All of the visible electrical including the service coming into the building, the breaker panels, and wiring that was visible had been replaced however, none of the wiring in the walls had been replaced and was the original knob and tube wiring that the pig tailed to the new visible wiring. They tried to pass the building off as new wiring building when it wasn’t.

Getting insurance for the property and passing fire codes now became an issue if we didn’t want to replace the wiring. If we did replace the wiring we would have had to kick out the tenants to complete the task which was estimated at a $30,000 repair bill. We went back to the owner to discuss what we could do about this, negotiate a lower price or cash back for repairs or something. He told us he wouldn’t negotiate further and would hope any new offers wouldn’t be as diligent with their property inspection as ours was.”

LESSONS LEARNED? Moral of the story. A $500 property inspection saved us a $30,000+ surprise somewhere down the road.

Contact Barry McGuire now. Alberta real estate needs an Alberta lawyer.

The Basics: Is It Black, White, or Grey? (Part Two Handout)

Text Notes for Podcast Episode 27: Is It Black, White, or Grey? (Part Two)

A discussion of how to describe real estate situations as black (bad, stay away), white (legitimate, perfectly okay) or grey (uncertainty, could be offside, heading for black). Five real-life scenarios that illustrate the concepts of black, white or grey. Learn to tell the difference and stay away from mortgage fraud.

Download the handout for parts one and two (Mac control + click + “save as” / PC right click + “save as”) HERE.

 

Is It Black, White or Grey?

 

It would be lovely if every situation had an obvious answer. But, that’s not reality. Situations often come up where there seem to be a number of answers. We often talk about the ‘Grey Area’. We say, “Stay out of the Grey Area”.

  • Our reference points are ‘Black’ which means bad, bad, bad, absolutely forbidden, just don’t do it.
  • The next reference point is ‘White’ which means legitimate, no questions at all, perfectly okay.
  • Lastly, we have, ‘Grey’. Grey means we aren’t sure, could be offside and, usually, is heading in the direction of Black.

 

Third Scenario:

You already own your personal residence and are looking to buy your first investment property. Your friend/realtor/lawyer/mortgage broker says, “Get one of those 5% mortgages. Using the 5% down payment strategy means you can use your limited funds to buy at least three properties. It’s okay as long as you move into the property for one day/1-week/1-month.”

 

Is It Black, White or Grey?

 

Inexperienced investors often think this scenario is White for at least a couple of reasons. Firstly, there is inexperience. Because they are inexperienced, they frequently don’t know because it has not been properly explained that these ultra-high ratio, small-downpayment mortgages are strictly for owner-occupiers. Secondly, there is bad advice. Sometimes inexperienced investors have an idea, or sort of understand, that these types of mortgages are for owner-occupiers. They aren’t really sure but they sense they could be in the Grey area.

 

What to do? Let’s raise the issue with members of our team. Let’s ask the question, “Can I get a 5% down loan to buy an investment property?”   When the answer is yes, when their trusted friend / lawyer / realtor / mortgage broker tells them it’s okay as long as they occupy the property for some period of time, they heave a sigh of relief. In their minds they have moved from that uncertain Grey area back to White.

 

The real answer is that this situation is not White or even Grey, it is definitely Black. If you are getting a high ratio owner-occupier mortgage, you must really and truly mean to move in to the property and be an owner-occupier. Moving in for a day/week/month or even six months or a year does not make you an owner-occupier. It’s always about intention and if, in the end, your underlying intention is cheap investor financing, you are in the Black area. Just to be clear, knowingly buying investment properties with owner-occupier financing is MORTGAGE FRAUD!

 

 

Fourth And Fifth Scenarios:

A member called me and said that he had an unconditional real estate purchase contract to buy his new home. He and his family were really looking forward to moving in and enjoying the new schools and neighbourhood. Their financing was 5% down and the usual high-ratio, CMHC owner-occupier mortgage. One week before closing, their realtor called and said, “I know you love your new home but your dream home just came on the market”. He and his wife couldn’t resist; they went to have a look and fell in love. They had to have this home.

 

Since their first deal was unconditional, they were now buying two homes. They figured they could rent out the first one and turn it into an investment property. Our member thought that, because he 100% intended to move into the first home, he was okay keeping that 5% down owner-occupier mortgage and getting another 5% down owner-occupier mortgage for the new dream home.

 

Is their situation, Black, White or Grey?

 

In a similar scenario our member had only been in his brand-new home with his brand-new 5% down, owner-occupier mortgage for one month. Then, he got the email from his boss. “You’re being transferred to head office” (300 miles away). He could sell the home and not lose any money because of his company’s generous monetary transfer policies. Or, he thought, “what if I keep this place and rent it out? I can buy a new home and get another 5% down, owner-occupier mortgage.”

 

Is his situation, Black, White or Grey?

 

The answer to both scenarios is Grey. In both cases, our members purchased homes with 5% down, owner-occupier mortgages, one intending to and the other actually moving into the new home. Now that circumstances have changed, neither member knows if they are off side with their lender and CMHC. So, it’s Grey.

Saying nothing exposes both members to potential problems if a CMHC auditor bangs on the door of what was supposed to be an owner-occupier property and meets a renter. Audits are rare but they do occur. The answer for both our members is to sit down with their broker/lender and explain the new circumstances. The broker/lender should review the circumstances and follow internal policy which might mean consulting with CMHC. In the end, the answer might be that each member has to pay down their 5% mortgage to meet current CMHC requirements for investor property. Or, policy might say that our member who was transferred one month after moving in, doesn’t have to do anything. Or there might be other answers. That’s the thing about policy, we never know quite what it is and it’s always changing.

Both of these scenarios were Grey whether our members knew it or not. There was an issue, a new element where it could be a problem but no one knew the answer. By meeting with their broker/lender, disclosing the new circumstances, getting advice and acting on the advice, our members move this Grey scenario to a White scenario. Remember, whatever advice you get from your broker lender, confirm with a letter or e-mail.

 

 

Contact Barry McGuire now. Alberta real estate needs an Alberta lawyer.

The Basics: Is It Black, White, or Grey? (Part Two)

Podcast Episode 27:  Is It Black, White, or Grey? (Part Two)

A discussion of how to describe real estate situations as black (bad, stay away), white (legitimate, perfectly okay) or grey (uncertainty, could be offside, heading for black). Five real-life scenarios that illustrate the concepts of black, white or grey. Learn to tell the difference and stay away from mortgage fraud.

Download the audio file (Mac control + click + “save as” / PC right click + “save as”) HERE.

The full-text version of this Tale from the Trenches can be found HERE.

 

Contact Barry McGuire now. Alberta real estate needs an Alberta lawyer.

The Basics: Is It Black, White, or Grey? (Part One)

Podcast Episode 26:  Is It Black, White, or Grey? (Part One)

A discussion of how to describe real estate situations as black (bad, stay away), white (legitimate, perfectly okay) or grey (uncertainty, could be offside, heading for black). Five real-life scenarios that illustrate the concepts of black, white or grey. Learn to tell the difference and stay away from mortgage fraud.

Download the audio file (Mac control + click + “save as” / PC right click + “save as”) HERE.

The full-text version of this Tale from the Trenches can be found HERE.

 

Contact Barry McGuire now. Alberta real estate needs an Alberta lawyer.

The Basics: Is It Black, White, or Grey? (Part One Handout)

Text Notes for Podcast Episode 26: Is It Black, White, or Grey? (Part One)

A discussion of how to describe real estate situations as black (bad, stay away), white (legitimate, perfectly okay) or grey (uncertainty, could be offside, heading for black). Five real-life scenarios that illustrate the concepts of black, white or grey. Learn to tell the difference and stay away from mortgage fraud.

Download the handout for parts one and two (Mac control + click + “save as” / PC right click + “save as”) HERE.

 

Is It Black, White or Grey?

 

It would be lovely if every situation had an obvious answer. But, that’s not reality. Situations often come up where there seem to be a number of answers. We often talk about the ‘Grey Area’. We say, “Stay out of the Grey Area”.

  • Our reference points are ‘Black’ which means bad, bad, bad, absolutely forbidden, just don’t do it.
  • The next reference point is ‘White’ which means legitimate, no questions at all, perfectly okay.
  • Lastly, we have, ‘Grey’. Grey means we aren’t sure, could be offside and, usually, is heading in the direction of Black.

 

In future presentations of ‘Tales From The Trenches – The Basics’ we will be looking at joint ventures, contracts and negotiating along with other interesting topics. For now let’s look at some of those scenarios that surround money and mortgages and decide whether the scenario is Black, White or Grey.

 

 

First Scenario:

Lucky Logan is one of my clients and was fortunate enough to win $75,000 on the lottery. He is a very private individual and was quite happy that there were also a $1,000,000 winner and a $500,000 winner in his local area. His win was relatively anonymous, which suited him just fine.

 

He put the money in his bank account and thought it would be sufficient to buy at least two more investment properties. He said to me, “Lenders often want to know where you got the cash portion of your purchase money. I’m not going to tell them because it’s none of their business.” Lucky’s plan is to not tell the lender where he got his down payment money – Is It Black, White or Grey?

 

If the lender doesn’t ask where Lucky got the money, then this is a White scenario. There is no obligation to flap your gums and tell everybody your private business. If the lender wants proof that Lucky has the money, they may ask to see a copy of his bank statement. At that point, depending on how long the money has been in the account, the lender may ask where the money came from.

To keep this scenario White, if the lender asks where the money came from, Lucky has to give a truthful answer. If Lucky says he won the money in a poker game he has moved himself, at the very minimum, into the Grey area. I say Grey rather than Black because, if the lender discovered it was lottery winnings rather than poker winnings, there is a good chance they would not care. The better practice is to make sure you always give truthful answers to your lender. That way you will always have a White scenario.

 

 

Second Scenario:

Here’s a scenario that comes up way more often than you would think. My client calls me and says, “My mom and dad are helping me with the down payment. The lender wanted, and I have provided, a gift letter from mom and dad saying that they are giving me the down payment. My dad wants some security and is going to call you and ask if you will prepare a promissory note. He wants it registered against the property Can you help him?”

 

I can tell my client doesn’t see any issues here, doesn’t even know there is a problem. He just wants to know about the promissory note. Let’s forget about the promissory note for a moment. Is the gift letter situation Black, White or Grey?

 

First off, what is a gift letter and why did the lender want one? Lenders always want you to put up some of your own money; the percentage varies depending on the kind of deal you are doing. They don’t want you to borrow all the money it takes to buy a property.

 

Sometimes, parents help out their children by giving them part of the required funds. If you say your parents are giving you some money, that’s when the lender wants a letter confirming the money is a gift. If the money is really a loan, this is an obviously Black scenario for my client.

 

 

 

Here’s the funny part, or maybe it’s not so funny. When I get the call that talks about the gift letter and how mom and dad are going to secure the money, there is always a shocked silence when I say that:

  • If the money is a gift, then, by definition, it doesn’t need to be paid back.
  • I won’t help dad with a promissory note or any other security.
  • You (meaning my client) have to talk to your mom and dad and confirm to me that the money is a gift and therefore does not need to be repaid. Remember I am, in almost all circumstances, the bank’s lawyer too. If I know that the bank is expecting ‘gift’ and my client is saying ‘loan’ then, unless I deal with the issue I am in the Black area too and participating with my client in yet another example of MORTGAGE FRAUD. Folks, I am not going to do that.

 

 

Contact Barry McGuire now. Alberta real estate needs an Alberta lawyer.

The Basics

As real estate investors our perfect world would be something like this:

  • Find a completely renovated property that exactly fits the system, make an offer,
  • do and be satisfied with your diligence (due diligence), remove conditions,
  • close on time,
  • place your perfect tenant
  • and enjoy your solid positive cash flow.

That would be a perfect world but real estate investing, and life, isn’t really like that. There are lots of bumps and twists, questions and situations that come up every day in your normal lives and with every real estate transaction.

What I have discovered over 40 years of being a lawyer and handling approximately 25,000 transactions is that every deal has its wrinkles and crinkles, its ups and downs; situations where you say, “should I or shouldn’t I?” There are many situations that keep coming up time and time again, situations that raise basic questions to which you need the answers. Having answers will help you move forward with your business of real estate. These answers will be valuable tools in your real estate toolbox, enabling you to quickly deal with those ever-present puzzles and questions that come up constantly in the world of real estate investing.

Over the next few weeks, I’ll be posting about The Basics with a series of podcasts and associated text. Make sure to follow this blog, add the RSS feed, and subscribe to the podcast so you don’t miss an episode!