Every investor’s greatest fear is buying a lemon of a property. A money pit, if you will.
I made that mistakes way back when I started. We were offered what every investor wants, an off market deal! We made an offer well below what the seller’s Realtor thought they could get and, boom! We got ourselves a money pit. The house had a log foundation and the driveway was sloped to direct water into the basement window and onto the dirt floor of the cellar.
The water that came out of the taps was brown from time to time… I learned a lot from that house.
Mistake #1 – We didn’t get an inspection. The brown tap water is a symptom of galvanized steel plumbing. An old type of plumbing known to leak, hence the insurance companies I use today won’t insure it. If you find it, you better have a plan to replace. No insurance = No mortgage.
If you were going to renovate a house with galvanized steel, would you get permits and update the plumbing to today’s standards when renovating the bathrooms and kitchen or would you leave the old plumbing and just replace the bathroom and kitchen?
A mastermind member of mine, let’s call him Brian, called me and asked my opinion. He had an accepted offer conditional on home inspection, on a nicely renovated property BUT the home inspector found some improper electrical and the bathroom and kitchen fixtures were connected to galvanized steel plumbing. The same stuff I mentioned earlier that insurance companies will not insure. There were no permits taken out, obviously.
What would you do? You bought a house you thought would not need renovation, with a new kitchen and bathrooms, now you find out the electrical is problematic and the plumbing all has to be redone. Doesn’t that feel like bait and switch?
I told Brian what I thought his options were:
- Counter with the seller agrees at their own expense to get electrical and plumber permits to fix all the problems.
- Get a reduction in price to reflect the cost of remediation. Not my ideal choice, because now you have to manage contractors and have a vacant property during the renovations. This was Brian’s Realtor’s preferred option.
- Walk away.
A couple lessons here. Trust no ones’ renovations and workmanship, always get an inspection unless you plan on gutting the place anyways. Even brand new, I had my new construction houses in Brantford inspected. They had passed their electrical inspection, but my inspector found a mistake in the arc fault circuit interrupter that should not have passed inspection. The seller fixed it at their expense. My inspector also pointed out how the step was missing off the rear patio door, something required to obtain an occupancy permit allowing people to actually move in.
Houses are a big investment, an ounce of prevention is worth a pound of cure. Get an inspection.
On the other side, when you renovate, don’t cut corners. You don’t want that as your reputation, as the investor community is a tiny one. As Warren Buffet said, It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.
Our next Infinity Wealth Investment Network, or iWIN for short, meeting is here in Toronto on March 28th. If you’d like to come, you have to act fast as these events sell out.
You can grab your ticket here: https://iwinmonthly.com/optin
On to this week’s show!!
While my wife Cherry and I were on a cruise ship in the Caribbean, working the whole time, we fit in a podcast with our new friends Kristy and Brady Mcdonald. With partners who contribute both the cash for down payment and renovation, plus getting the mortgage, they have been able to acquire over 80 properties in just a few years. Some were flips so they only still own 60+ properties, depending on when you talk to them.
Pay special attention on how they are able to manage both the acquisition, renovations, and all those tenants. Also note that the Mcdonalds now spend a lot of time on their 50 foot boat in Florida and the Bahamas, cruising and exploring uninhabited islands. Their boat is called Living the Dream.
Kristy also survived a tragic boating accident as a teenager and lost her arm in the process. She’s no victim though, as she practices a positive mindset.
I give you, Kristy and Brady Mcdonald.
If you enjoyed the show and would like to learn more about investing in real estate then you do not want to miss my Top 10 Tips On Real Estate. It’s FREE to Download!!
I’ve interviewed many of the leading authorities in real estate, including Best Selling Authors like Julie Broad, Don R Campbell, Russell Westcott, and Tom Karadza. My super star investors include folks who acquire two properties per month or have transacted on over 100 properties. I have learned a thing or two in my own investing and distilled it down to 10, you-can-not-ignore, tips if you want to be a successful investor.
To download the report go to www.truthaboutrealestateinvesting.ca/book
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Till next time, just do it because I believe in you.
Hamilton, St. Catharines, Toronto, Land Development, soon to be builder and Real Estate Investor