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Show Summary:

In this podcast, Scott Dillingham discusses the benefits of real estate investing and provides insights on how to make money in the real estate market while avoiding common pitfalls. He addresses concerns raised by investors, such as dealing with bad tenants, the cost of mortgage payments without tenants, and the risk of buying a property with hidden issues. Scott suggests solutions for these concerns and emphasizes the importance of hiring a professional property management company to handle tenant screening and property maintenance.

He explains that a property manager can thoroughly evaluate potential tenants, conduct inspections, verify employment and financial information, and even have access to a database of bad tenants. By working with a property management company, landlords can reduce the risk of dealing with problematic tenants. Scott also recommends taking a first and last month's rent deposit to further mitigate the risk.

To address the concern of mortgage payments without tenants, Scott advises setting the closing date of a property purchase at least 60 to 90 days out. During this time, the property management company can quickly find tenants who can provide first and last month's rent. This way, there is no period of vacancy where landlords have to pay the mortgage without rental income. Additionally, property managers can show the property to potential tenants while existing tenants are still living there, reducing downtime and ensuring a seamless transition between tenants.

Scott also highlights the importance of avoiding bad properties by conducting thorough inspections. He suggests not relying solely on home inspectors but also doing a walkthrough with a contractor who can identify potential issues and provide cost estimates for necessary repairs. By involving a contractor, investors can make informed decisions about whether a property is worth investing in.

In terms of making money through real estate investing, Scott discusses three major ways. The first is appreciation, where the value of the property naturally increases over time. He advises investing in areas with a growing population to increase the chances of appreciation. The second way is cash flow, which refers to the profit generated from rental income after deducting all expenses. Scott recommends aiming for cash-flowing properties, even if appreciation is not as high, as they provide a steady income stream. Finally, he mentions the potential for forced appreciation, which involves increasing the value of a property through renovations or other improvements.

Overall, Scott emphasizes the importance of understanding the risks and benefits of real estate investing, utilizing professional property management services, and conducting thorough inspections to make informed investment decisions. He encourages investors to consider both appreciation and cash flow when choosing properties and highlights the potential for long-term success in the real estate market.

Scott Dillingham: Welcome to today's show. I'm really excited to get into this one because I'm gonna be talking about a topic that's really dear to me, and that is the benefits of real estate investing. So how to make money in it and how to avoid the major pitfalls. So before we dive into making money in real estate, I want to address a lot of the concerns.

That I've heard from fellow Canadians and in clients as to what their concerns are with investing in real estate. All the concerns are valid and they seem like they're big concerns, but once you really dive in and you get to see that the concerns have an easy solution, it takes away the worry and the issues that would come along and the fear with investing in real estate.

One of the things. That I have heard my clients tell me is they don't want to invest in real estate because they hear nightmares of bad tenants, right? They don't wanna get late night calls to change the toilets. They don't want to deal with a tenant not paying the rent. They don't want to deal with a tenant damaging the property.

So this one has a super, super easy solution. Now, it's not 100% effective, however, The solution in most cases, eliminates all of these problems. Now the solution is a professional property management company, so they know exactly what to look for in a tenant. So I'll give you a perfect example. My property manager.

When he's interviewing a tenant and he found one that he thinks that he likes, he'll say, you know what? He'll randomly call 'em and say, you know what? I got a coffee. I have a quick question for you. I'm gonna meet you at your place and we'll just quickly chat and then we'll get everything finalized.

So that's a strategy he's using to get into their home to see how they live. Do they clean? Do they have pets? And they've set on the application that they don't have pets, right? So you can check these things out by utilizing that trick. Now they do everything as well. Beyond doing an inspection, seeing how they live they'll confirm their employment, they review their bank accounts to make sure that the employment letter that they received is real, and that money's going into the account.

Also to eliminate a bad tenant. Is you want to take a first and last month's rent deposit. A lot of professional and bad tenants will try to eliminate any deposit needed to rent your place. So by getting the first and last month's rent, you do wean out some of those bad people. But really it all stems from the property management company.

They know all of the tricks to filter out and make sure you're getting the best tenant. Plus they also have a database of bad tenants that they've heard from other property managers. Like these property managers, they share this with each other. So if someone comes through and they're on that list, they just stop it right there.

But as an individual investor, you would not have access to that. So I think a property management company is absolutely necessary, whether you owned one property. Or 100. It's something that needs to be done. There is a small cost to it. Usually it's a percentage of the total rents collected, but it is well worth the time, money, and hassle.

I don't get any issues. In fact, in the very next episode that we have, we feature a professional, local real estate investor. And we dive into the property manager and I actually talked about how I had a flood and the property manager told me about my flood and it was just a quick, simple email and everything was taken care of.

I didn't have to do anything. So imagine your house flooding and it was completely carefree and you didn't have to do anything. So that's what I got to experience. So it's amazing. So property management companies are definitely the way to go. Now another concern that my clients have faced is they don't want to pay a mortgage payment on a property without a tenant, especially when they buy it, cuz their fear is they're buying it and it could be vacant for a couple of months before they have time to fill the property with a new tenant.

And they don't want that expense. And they also don't want that expense when the tenant moves out and they've gotta find somebody else. So one of the things that I've already touched on was getting the first and last month's rent deposit. So what I do is when I'm buying a house, I first get the closing date of the property and I set the closing date.

To be at least 60 to 90 days out. Now, not a lot of sellers like to work with a 90 day closing, but a lot of 'em are okay with a 60 day closing. So you choose 60 days to close, and then what you do is you hire your property management company to find you a tenant quickly who has first and last month's rent, and then you line up those days together.

So then you're not having a single day of where you're paying your mortgage. Now, the key benefit of a property manager, again, is that they take care of renting your property when it becomes vacant. So if a tenant that you've put in there moved in and you're fearful that when they move out, you're still gonna be stuck paying the mortgage.

That's wrong because you can, with a property manager, they have to give at least a 30 day notice that they're vacating. So the property manager can work in tandem with that and show potential tenants the property while your existing tenants are still living there. So by doing this, there is ultimately no downtime for you as an investor.

Now, it is possible that there will be some months. Where you don't have anybody in your property. But what I personally do is I pool all my money in one bank account and I set a large minimum balance that I want there, and I keep that as my float. Whatever that figure is for you, everybody's different and it does depend on how many properties you own, right?

The more you own, the bigger the float should be, but you just keep it there. So then if it is vacant, you're really not paying out of pocket. You're paying from your built up. Float. And then as more rent comes in, it replenishes. And then once you're above that cap, then you can start paying yourself the profits.

So that's what I do for that. But again, with a property manager, they have a list of potential tenants looking to rent. So as soon as they get a vacancy, they are very quick at filling it. Now, the caveat to this is your property does have to be in a nice location and being decent to. Good condition if it's a dump, everything I'm saying here is it's not gonna work because people don't wanna live in a dump.

So you need to have a good location and a decent property. Now, the last. Major risks. Now there's more risks of course, but these are the major concerns from 10 years of lending and being an investor and working with investors in what everybody's telling me. These are the three that I hear all the time.

So then the last one is bad property. So the buyer or the investor. So you don't wanna buy a property that's bad that has hidden issues with it that you missed cuz you're not an expert in this. And oftentimes, even if you get a home inspection, Some of the majors can be missed. Home inspectors are great, but they have clauses in their contracts that say they're not responsible if they've missed something because it's, it happens.

No one's perfect. What I do is I do the home inspection, but on top of that, I do a walkthrough with my contractor. So once I found a host that I really want to buy, I'll have my contractor come with me and I've made an arrangement with him that goes something like this. Since you're gonna get all of my business, my, my work that needs to be done for all of my properties.

But you've gotta come and do these inspections with me and let me know of any inherent risks or damage to the property, or things that need to be addressed immediately, as well as a price tag so I can run the numbers and see if this still makes sense for me to move forward with this property. So by having that partnership that has saved me tons of time and money because some properties needed too much that I missed I've done this a lot, but I missed these repairs where my contractor caught them.

And even the contractor was like, yeah, like you pay me a lot. I want you to pay me a lot, but it's not a good property. So then we'll skip that one and we'll find another one. So I would say do your inspection or walkthrough with a contractor, and then that will eliminate any of your fears of getting a bad property.

Because you will know from your contractor who's an expert in the field, whether it's a good property or not. So that kind of takes care of the biggest risks. So we've addressed the concerns that investors have when they're potentially buying a home, and this doesn't matter if you're a first time investor or this is your 10th property.

Those are still concerns that investors have. So we touched on the solutions. Again, nothing's perfect. There can always be issues, but by utilizing the advice that I'm giving you, Your issues will be greatly reduced. And now we're gonna talk about the how to make money. So there's three major ways to make money when you're investing in real estate.

So the first one, it's hidden. You don't see it until later. And that's called appreciation. So ultimately what appreciation is, it's your asset value of something that increases over time. So for an example, if you bought. An investment 10, 20 years ago and you put an X and you look at it today, it's gonna be worth a lot more because of appreciation.

Yes, the prices are more than two or three years ago, but from the fundamentals that I see when I look at things, I can continue to see that the market will still go up. There's still room for it to go up. So I think it's a great time to buy, but with appreciation, right? So you buy the property. And all you have to do is wait.

That's it. You don't have to do anything else. And over time it will naturally go up. And there are times during recessions and other things where real estate will go down. But if you look at the overall chart of money and with inflation and everything, it doesn't matter what investment class you're looking at.

Over time, everything has been appreciating in value. I think the same holds true with real estate, right? If the market crashes today, I'm not gonna sell my real estate. I'm just gonna hold onto it. Cause if you sell, you're accepting the loss where if you be patient and wait through it, it then will go back up to pre-recession levels.

And then after that you gain the appreciation again. And this happens in. Pretty much every market, unless it's a market where population is dwindling down, maybe like a coal mining town where coal is no longer profitable and it's not good for the environment, it's smokey and people don't want to mine.

Coal towns that were built around coal mining facilities. They're vacant. So in towns like that, it's not good. So you do want to make sure you're buying in a location where the population is increasing and that will pretty much almost guarantee you appreciation. So that's what you need to look for is the population influx.

If it's the same, it's probably okay cuz people like if it stays the same and doesn't increase, it's still probably okay. If you see the population decreasing, that's a warning sign. And obviously in the market, if you see the appreciation going or the population going up, that is a huge factor in sign that there's gonna be appreciation in that area.

So the next way to make money from real estate is cash flow. So cash flow is when you take your all of your expenses for the property. So your mortgage, your property taxes, I even factor in things like home insurance, vacancy, repairs and maintenance. And I keep that as part of my buffer. And then from that, when a repair comes up, I'm not shocked and, oh no, this happened cause I've budgeted for that.

So your cash flow is the money that you get. So your profit after all of those expenses are paid. So in markets where there's heavy appreciation, It is harder to get cash flowing properties. So cash flow to some investors is not super important because they want the appreciation of the property, right?

Cause if a property's going up 25% per year and you bought it for 500,000, that means the property went up 125 grand in a year, which is a huge return, especially when you consider you only needed 20% down to buy this property. So you've only put in a little bit of money and you're getting huge returns, right?

So some people don't like investing for cashflow. I disagree. I believe that you should get something that cash flows, because if the market crashes and goes down and there's no appreciation, then you still have some income from the property. So my thought is buy cash flowing properties, but if you bought a property that did not cash flow, I still think if the fundamentals are there, it's okay.

Like it, I do see it all the time from my clients and I see them doing really well. Not a bad thing, but I just wanna bring that up to your attention. In Windsor, in southwestern Ontario, it is possible to still buy cash flowing properties, but somewhere like Toronto, if you're going after a single family house, it's more than likely not gonna cashflow.

You're probably gonna be paying a little bit per month actually on the property. But still people are okay with that because they're happy with the appreciation they're receiving in Toronto. So every market's different. You have to find out your goals. But for somebody just getting started, I would say absolutely buy for cashflow.

Even if that means you have to buy in a location an hour or two away from you, that's fine. Cuz if you take my beginning point at the beginning of the show where I said, you need a property manager, I. To handle all your affairs on your rental properties. If the property's far away from you, it doesn't matter if you have a property manager, they have a team of repair people, everything.

So you can invest anywhere hands free. But again, I do recommend cashflow as the number one factor to, to look at. But again, if there is no flow, you're still okay. So the third way that you can make money in real estate that's often overlooked is your mortgage paydown. So let's say you have a mortgage of.

500,000 and over the next couple years, that gets paid down to 450 grand that was paid down from your tenants paying the rent not even for you. So now you owe 50 K less property money on the property, which means your equity and your net worth. Just increased 50 K all from your tenants because they're paying the debt that you borrowed.

So it's a really cool thing. So the longer you own the property as well, the more you start to see these things. Sometimes in the first year or two, it can be a little tough, and the sense that if you're looking for profit, you might not see it and you might be wondering, oh, is this worth it? But then if you call your realtor up, he's gonna say, yes it is because your home's worth so much more today.

And then when you factor in what the tenant paid down on the mortgage, Then you can see dollar and cents, okay, this is how much money I made, and you can actually see it. But the beginning, it's tough. So the longer you own the property, the more all of these benefits come into play, which is really neat.

Another thing, so this is not part of it, but this is just something else to consider, is once you've owned the property for a few years, say you get a 25 year mortgage and you've owned it for 10 years. That means you have a 15 year mortgage left, and if you keep that 15 year mortgage payment, that's great.

You can, however, you can refinance your home and get another 30 year mortgage instead of that 15. So you don't have to necessarily take money out of the property unless you wanted to, but you can extend it. So by extending it again, You're increasing your cash flow, so maybe it didn't cash flow in the beginning, but because now you're taking the longer term, you can get cash flow.

So you have to strategize what's important to you. Are you buying this rental property to replace your income so you can retire early? If so, you want to focus on getting the mortgage paid down, but if you're a younger person and you're looking to grow your portfolio, Then you're gonna want to refinance your mortgage as frequently as you can so that you can pull equity and extend how long it takes you to pay to maximize your cash flow so you can have those funds and do it again and buy another property and another one, and keep doing it until you reach the satisfied amount of properties.

And that is one thing I'll say. There might not actually be a satisfied amount of properties. It's pretty addicting. I will tell you this, once you get into investing. And you imagine your job. Imagine going to your job, putting in the hard work, getting the paycheck, coming home, repeat and recycle.

You keep doing the same thing over and over again, and you might love your job. So nothing wrong with people having a job. Like I have a job, right? I run Lend City. It's a business, right? And it takes lots of my time, but there's nothing greater to me from an income standpoint. Then being able to be anywhere I want, whether I'm on vacation or I am at work.

And then I receive the rent check and the cash flow from my tenants automatically, right? Cuz my property manager sends it to me. I don't have to do anything. So it's the easiest money you'll ever have to work for cuz it happens on autopilot if you set up the correct systems. So I wanna bring all of that to your attention.

Now, next steps. Let's quickly talk, next steps. If you are someone that lacks the time to get out there and look at real estate and just does not have the time to do it, Or you don't wanna learn what's needed and you don't wanna follow this, you just want it done for you. We, you're gonna wanna listen to the next episode.

So the next episode we featured Tyler Sier and we talk about our done for you real estate platform where we can help those that have the money to qualify for a mortgage. Okay? So you do have to qualify, but you lack the time or you lack the knowledge, but you still want to invest. We have the solution for you.

But if you're someone who has the time and you wanna learn, develop, discover, and take matters into your own hands and become a full-time investor, then you're gonna wanna sign up for our club. So our club URL is invest dot lend city.ca. So that is I N V E S T lend. So l e n d, city. C I t y.ca. We're giving a two week a hundred percent risk free trial of our club, but within the club, we have a full fledged real estate investing course that you can watch.

So there's some video, there's some text in there so you can read and stuff covers everything from A to Z. Okay? So that will help you to get started on your own. And again the membership to the club is free for two weeks, and then after that it's 29 95 if you like it. As part of the club, you get to participate in events and any live trainings we do, we can do them over zoom depending on what Covid looks like.

But that is where I would go to get a full fledged course. There's other courses in there as well that you can watch and participate in within there, but we do have one about getting started and investing in real estate and it covers everything. So I think for anybody who's interested, that would be the very next step.

But if you're still unsure, I would definitely wait and listen to the next episode. I think it's gonna be incredibly valuable for you. I've gotta run now, but thanks so much for your time. It was great chatting with you today.