I’m going to share with you the 3 biggest mistakes I made during my real estate journey in the past 16 years of buying and selling personally (before becoming a real estate consultant). After sharing these three mistakes with you, I hope you will never make them. Please learn from me.
- Not using a formal agreement when buying real estate with another person. Thank the lucky stars above I didn’t lose my shirt without a formal agreement, but my investment partner at the time we sold did say, “I don’t remember you putting that much down initially when we bought?” Yes, we are human and yes, we all can’t remember what happened two years ago let alone what we ate last week for dinner. Sounds cliche but we did draw up how the sale proceeds would be split up after we sell informally on the back of a scrap piece of paper our shared notary gave us.
This may seem obvious but…
a. Formalize the agreement. You work hard for your money and so do your investment partners – value this and value this opportunity. Despite your great relationship currently, individual personal situations can change and will change (people move, people get married, get into financial difficulty, relationship break-ups – I don’t mean to sound cynical, this is reality). Plan out different scenarios;
b. Each partner should obtain legal counsel advice separately. This way you both are treated fairly, objectively, and personal interests are protected;
c. Spell out all the details and facts that are important to your investment; and
d. Despite the great relationship, you maintain today. Treat this partnership as a business arrangement, because tomorrow can be very different.
2. Location, location, location – did not focus on overall value. What do I mean by this? Not wanting to pay more for a better location. Think about materiality and value, do not just focus solely on price alone (yes, sometimes you have to, we can’t all own and drive Lambos). Materiality means, don’t stress out about $20k for a $1 million dollar property. Focus on the bigger picture, the conclusion to buy or to not buy based on a figure with a 2% delta shouldn’t be the final decision maker. Value is determined when comparing property location and other key features that matter to you. A massive differentiator when it comes to future resale value is the location. Case in point, my first property purchase decision was between a downtown product which was $20k more versus a product at Collingwood Village in Joyce (Vancouver East). I opted with the lower priced product (it was only one zone Skytrain to downtown!), larger, not as sought after location compared to a smaller product in the downtown core market on Seymour street. My justification at that time was earning a mediocre salary of $34,500 while articling at a big four accounting firm and being fearful (what if I can’t afford this? can I make these payments?) – simply put, I lacked experience. In this case, the future resale value was significant – over a six-figure differential.
3. Not wanting to pay more for a better floor plan or product type. Buying one of the lowest priced units in the development in a quickly appreciating market makes you feel like a superstar – everyone makes money, everyone wins. It’s similar to the current stock market bull run we are on now – no matter what you pick and buy you win. It’s not always like that and won’t always be the case. Certain product types are much more difficult to sell in a more challenging market or a more normal market condition (similar to the one we just entered into in mid-2018). A perfect example is how studios are typically more difficult to sell than a one bedroom. My experience includes buying and owning a studio in an up and coming developing area that was eight to ten years behind. What did that mean? It meant, grinding it out and holding onto something much longer then I would have liked and that similar alternative investments were better and available – live and learn from me. I finally sold this investment in January 2018 – ten years later (did I mentioned we had 17 offers)!
Also, remember the further you get away from the downtown core area, the more space people will prefer. In the suburbs, this means, two and three bedroom products will generally be easier to sell than a one bedroom in normal market conditions. When shopping for a home, always consider different market conditions when you eventually exit your investment (yes, you will exit at one point in time, everyone does). Try not to invest or make a purchase solely on the initial capital outlay (how much $ you have to spend up front, although this matters a lot when you first start out). Having personally shared this experience with you, my goal/strategy at that time was asset / wealth accumulation and the need to expand my reach into lower-priced inventory without exposing myself to too much risk and at the same time being too over leveraged. Remember, everyone is different so you must sit down and ask yourself what exactly you, your family, or investment partners want to achieve.
Please consider the above three mistakes that I’ve made. Rest assured you will sleep much better at night. It just makes good business & financial sense. Good luck shopping and all the best in your future real estate investments! Send me a private message if you want to share your experiences with me.
ABOUT THE AUTHOR:
Brian is a Real Estate Consultant and a Chartered Accountant (CPA, CA). He has over a decade of experience delivering on various audits and risk advisory engagements with both public and private organizations. Brian also was a Product Manager at a local software company and ran his own consulting business prior to converting his side hustle and real estate passion of 16 years into work. He has personally lived and breathed how a person buys and sells a home more than the average person does in a lifetime. Brian is born, raised, and schooled in Vancouver. Brian is a resident, owner, and investor. Brian is happily married to his wife Katharine and has a daughter.
Disclaimer: This communication is not intended to be and should not be used as investment advice. If you want advice please seek a licensed professional for investment advice. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official position of Oakwyn Realty Downtown Ltd.
