Updated: Dec 10, 2019
In light of the New Year right around the corner and impending #NewYearsResolutions, I thought I would tackle the most common reasons I hear from people to NOT invest in real estate. Maybe you’ve uttered one, two, or all of the below reasons and told yourself investing in real estate just isn’t for you. Trust me, before I took the plunge and bought my first house, I told myself I couldn’t do it either. It was too complicated to understand, I planned on moving in a couple of years, I was NOT handy, I had barely any money, and who knew what the market was going to do in the future.
Sound like anyone you know?
This past week we had Dave’s cousin over for dinner who is currently looking to purchase her first home in Halifax. We’ve been actively helping her search for houses, given her our honest opinions on contenders, and given her insight about the different areas of the city. During our dinner while going through all of this, we also got onto the topic of “Naysayers”. We all know them – those people who say, “Real estate is too risky”, “I wouldn’t do this if I were you”, or “Save your money for something that makes more sense”. Those people exist in all of our lives, in many different contexts. I know I have people like this (my Dad, for example) who thinks investing in real estate is exactly that - too risky, more headache than it’s worth, and has the potential to fail miserably. What I’ve realized over the years is he’s always going to feel this way, so I need to find a way to temper those negative ‘Naysayer’ comments, focus on the positives that I know exist in real estate, and continue to forge on.
So, what are the most common fears people express to me when I talk about investing in real estate? These fears have been uttered to me hundreds of times by many different people, so I’ve been able to come up with great rebuttals over the years that I whole-heartedly believe in.
1.“It’s too complicated”.
I get it – when you first dive in it does seem like there is an overwhelming amount to know. What neighbourhood to buy in, how much you’ll need for a down payment, what kind of interest rate you’ll get, what to look for in the house inspection, etc. etc. But break this whole process of “buying a
house” down into smaller, more manageable pieces and it suddenly becomes much less ‘complicated’. Also, the first 3 steps in buying a house are free!
Step 1. Talk to a mortgage specialist.
Call your bank and make an appointment to speak with someone about getting approved for a mortgage. Getting approved to buy is the first step in being able to buy (literally… you can’t skip this step). Your specialist will tell you how much you’re approved for, as well as lock down a fixed interest rate for you for 30 days.
Step 2. Meet with a realtor and tell them what you are looking for. Neighbourhood, price, number of bedrooms and bathrooms, etc. He or she will set you up on an automated search that will email you new listings that fit your criteria. Specifically looking to buy a multi-unit income property and are worried about knowing whether it’s a solid investment? No problem, check out a previous post I did about ‘running the numbers’ in under 5 minutes to figure out if it’s a money-maker or a bank-breaker.
Step 3. Make an offer.
Your realtor will be able to guide you through this process and make sure you have the right closing dates, correct deposit amount, property inclusions/exclusions, etc. Making an offer can seem like a scary thing to do if you’ve never done it before because it's a legal contract. However, there are built in conditions (e.g., financing, inspection) in this contract to allow you to back out if something doesn’t feel right. So, don’t let this step of writing an offer stress you out! I’ve made hundreds of offers over the past five years – most of which have NOT worked out.
Step 4. Give your deposit.
In Nova Scotia this is usually at least $2,000 but definitely depends on the purchase price and how 'strong' of an offer you want to make. If you are in a competing offer situation it is wise to increase your deposit amount in order to show how serious you are about the house. The deposit amount makes up a portion of your downpayment - it is not extra money that you owe. Also as long as you terminate the transaction before your condition date you will get all of this money back if you choose not to move forward with the house for some reason.
Step 4. Get a house inspection.
Most realtors will have the contact information for one or more inspectors, so they can set this up for you. I would suggest trying to be present for the inspection if you can, only because this will give you a better understanding of where the issues might lie (and there will be issues). If you can’t be present during the inspection, no problem. The inspector will create a really nice, detailed report for you. I suggest reading through this report then calling the inspector afterward to ask them any questions you might have. Or, go through the report with a friend or family member who perhaps has more expertise in this field.
Step 5. Meet the Buyer's condition dates.
Usually this will be financing (ie; getting a letter from your bank stating your final mortgage approval) as well as securing insurance (shop around!) and getting your home inspection. Often times you can renegotiate the purchase price or work to be done to the house based on the results of the inspection so it is always worthwhile to get a home inspection.
Step 6. Rejoice! You’ve just purchased your first home :) Not that complicated, right?
2. “I don’t want to be tied down”.
I used this excuse quite a few times before I realized it’s not a good reason not to buy. I was living in Victoria BC at the time and I knew that I wasn’t going to stay in Victoria forever, so I wanted to wait to buy a house once I was living in the city I knew that I wanted to stay in forever. But guess what? I still have no idea
what city I want to stay in forever. And maybe I’ll never know – perhaps I’ll move cities multiple times over my life time. So really, if I had waited for this elusive ‘forever city’, I never would have bought.
And what’s more, I realized that you don’t need to live in the same city in order to buy a house in that city. Currently I live in Halifax, but I own property in Halifax (NS), Victoria (BC), and Saint John (NB). If you buy a house in the city that you currently reside but then you decide to move cities, just rent your spot! There will always be people who need to rent, and thus there will always be a market for you. Another option is to Airbnb your spot, however you’ll likely need to hire someone onsite to manage the daily operations of an Airbnb rental.
Whatever you choose, don’t let the possibility of you moving cities to stop you from buying. There is no better time than right now to buy! (yes that is probably the cheesiest more car-salesman-y thing I have ever written).
3. “I’m not handy”.
Me either! After I bought my house, I realized I really shouldn’t have spaced out during all of my dad’s “This is how you…” speeches when I was younger. But I did, and here we are. And that’s okay, because that’s why YouTube exists! Now I can find hundreds of Dad look-a-likes on YouTube to teach me how to properly caulk a tub, install a drop ceiling, or lay laminate flooring. Also, I recently discovered that Home Depot puts on these monthly “Handy Woman Workshops” where they set up stations and teach you how to do a host of home-improvement projects. My favourite from the last session was how to install a toilet (not that hard!) and how to wire a new light fixture (much less scary than I thought!).
If the thought of doing any home improvement work makes you cringe, no problem. Hire someone! Just like there are always people who need to rent apartments, there are always handy people that need work. I highly endorse you spending your valuable time elsewhere and letting the experts handle the home improvements.
4. “I’ll never have enough money for a down payment”.
You can, and you will. You just have to buckle down and build in some easy savings methods to help you save for this down-payment. You can also work to curb your spending a little. Last week’s blog touched on
I guarantee if you can incorporate a few of these tips into your daily life
moving forward, you won’t be uttering this excuse for much longer.
If you’re finding it difficult to save with the impending holiday season and all that massive consumerism floating about, check out my good friend Steph’s recent blogpost about ways to reduce and simplify this holiday season.
Most importantly, you need to make saving for a down payment a priority. If you’re serious about it and prioritize it, it will happen.
Finally, if you're familiar at all with the BRRRR Method (check out my recent blogpost if you aren't!), you can actually pull out a good portion (or all of) your downpayment money through a process called mortgage "re-financing". For any of my US reader's out there - check out Consumer's Advocate where they've done all the hard work for you and pulled together your 3 best Refinance options!
5. “The housing market might plummet”.
Of course it might plummet, but you know what? It also might take off! Historically, real estate markets have always gone up. Even if they dip for a few years, they always come back up over time. One of the things that makes investing in real estate so cool is that you can make money short-term, or long term. If you’re lucky and you get in when a market is low just to see it sky-rocket shortly after, good for you! This is called instant appreciation, or banking on appreciation, and it is extremely hard to plan for. But also, what if you get in when the market is low, but then it drops even lower? Don’t fret, and don’t sell. Hold your property through this valley and over time, it will peak again. Ask anyone in any city who bought 20+ years ago – I guarantee all of their house assessments have gone up.
6. “I can make more money in the stock market”.
Can you, though?
Have you been watching the stock market lately? Unless you are extremely good at monitoring the market and picking the correct stocks (which takes a lot of time and energy to know how to do this), you’re likely making, on average, about 5% return each year. What this means is if you invest $20,000 into mutual funds, ETFs, etc., you’re getting $1,000/year (or 5%) return on this investment (ROI). However, if you buy a rental property that profits you a couple hundred dollars each month beyond all associated expenses (e.g., mortgage, taxes, insurance, utilities), that’s $200 X 12 months = $2,400/year. Not only is that over double what your stocks just made you, but your tenants have also just spent a year paying down your principal. PLUS, you might have even gotten lucky and had your property value increase over that year.
Bing Bang Boom! Still think the stock market is the way to go?
7. “It’s too much work”.
Let’s define how much work is too much work. I’ve made more money in real estate in one year than I’ve made in three years at my full-time salaried position. And have I spent anywhere near even one year of full-time work on it? Heck no. I would call it a very very part-time position. A “do it off the side of my desk” kind of thing. Maybe I spend 30 minutes per day keeping in tune with the market? Maybe I’ll view a house once every couple of weeks? Maybe I’ve spent a few minutes making phone calls or sending emails to brokers and realtors? Maybe I’ve spent a few weekends and evenings doing some handy work? But honestly, it’s up to you how you define ‘too much work’. And don’t get me wrong, there have a been a few times where it’s been ‘hard work’ and where it’s been a headache, but nothing great comes easy. And it’s never too much work to not justify the profits.
I'm curious - will your #NewYearsResolutions include home-ownership in 2019?
Alright, this is one of my final posts of 2019! In the New Year I am gearing up to partner with some incredible women who have a wealth of real estate experience from all different backgrounds to do some guest blogging! If you’re interested in guest blogging, please fire me an email at email@example.com
See you all in 2020. Until then my friends, enjoy Stella’s “I’m getting the best belly pat of my life” look. Let’s all hope we feel this way at least once over the holidays :)