A Real Estate Investor’s Success Story
Little did he know, the modest condo Warren bought 8 years ago would pave the way for a lucrative ride along the surging Vancouver market. I became intrigued with Warren’s story when he started posting regularly on Financial Jungle, so I requested an interview.
1) Back in 1999, when all investors were flocking to the technology binge, you made a life changing decision to migrate to the secluded land of real estate investing. Take us back to that time… what was going through your mind? Why didn’t you plunk your money into technology stocks like everyone else?
In 1999 I had little to no experience in the stock market. I saw the rise of tech stocks, but did not have the first idea of how I could be a part of it. I had a desire to move to downtown Vancouver. While looking at various rentals, I realized that the price of a 5% down mortgage payment was the same as rent, so why not buy? I bought a pre-sale about 6 months prior to completion. Its amazing to think how much the market has changed in terms of pre-sale availability and overall price. It was more dumb luck than anything else.
2) I understand you lived in a condo until 2003, but later rented the unit out to other tenants. What prompted you to open the door to strangers and become a tenant yourself? Did you feel home sick afterwards?
My apartment is a studio, and I wanted to move in with my girlfriend, so there wasn’t room for both of us. My goal for the apartment was always to keep it as a rental when I left. I became a tenant myself because we didn’t have any long term goals at the time, and I don’t think I could have handled the risk of another mortgage (if I was even approved). I don’t live too far away now, but I do miss the neighbourhood. My plan is still to purchase again in that area, but prices will have to come way down for it to make any sense. We have an excellent rental suite right now, probably below market rent, so its even harder to leave for an expensive mortgage.
3) Most landlords I know howl about tenants from hell. What process do you have in place to alleviate tenant problems?
I got lucky with my first 2 tenants, that lasted about 3 years. I never did a credit check, but did employment and rental reference checks. I did have a bad tenant, and she had great references from both her employer and a property management company she had rented from for 4 years prior to moving into my suite. She ran into credit problems after moving in. I don’t think there is any foolproof way of judging a person, unfortunately. My advice would be to hang on to a good tenant if you get one, but also don’t be afraid to use the law to its fullest extent to get rid of a bad tenant, or scare them into paying up. Some “scare tactics” worked a little with my bad tenant. The longer you leave a problem, the more money you are missing and/or
hassle you are dealing with.
4) Do you have any plans to expand your real estate empire? If so, please give us a vision of your portfolio. Individual homes? Apartment buildings?
My next real estate purchase will be a primary residence, but I don’t plan to sell my rental property. The Vancouver market is probably the worst in the country (if not the world) for investment yield on rental properties, so my current investment focus is in other areas. I think in general people have too much money tied up in real estate. I’d like to be well diversified in other areas before another RE investment.
Being a landlord is more work that some people assume. I don’t think I’d ever consider a SFH as a rental investment, at least not in any large urban area. Better to have an apartment where a management company takes care of many of the routine details and maintenance. Its well worth the (tax deductible) monthly fee.
5) How does real estate fit into your retirement plan? Do you plan on living off the rental income?
Its tough to argue with cash income every month. My yield has recently gotten a lot better as I now use a specific management
company that handles my unit almost like a hotel, shorter term rentals for corporate clients. There was some initial cost to get it set up and well furnished, and I provide all utilities, but it is really starting to pay off. And the best part is zero hassle, they handle everything. Passive income is really what I’m after from any investment I look at. I think a mixed portfolio of rental properties and dividend payments would be my ideal retirement plan, probably no more than 2 properties though.
6) With 4 or 5-years worth of experience under your belt, what nuggets can you share with us in terms of real estate investing? What were your proud moments? What would you do differently if you have to start all over again?
Proudest moments were probably cashing my first check, and paying the mortgage off a few months ago.
My advice would be: beware! My story looks great because I got in during a bad time for real estate. Good thing I didn’t know anything at the time or I may have scared myself off. I don’t think I would touch RE right now, you just have to do the math, it doesn’t compare to other easier, more secure investments out there. Your local market may vary, of course.
If I could go back and talk to my 1999 self, I think I’d tell him to buy a slightly bigger place. It stretched my 1999 income a lot to get in where I did, but I think I’d push for as much as I could get. Its easy to see in theory how your early income will increase quickly as you get out of school and start your career, but tough to see when you’re at the bottom. My studio is 420 square feet, so pretty small, which can limit your rental opportunities somewhat.
7) Outside of real estate, are you currently experimenting on other types of investment?
I’m just starting to get into dividend investing (DRIPs and others), and I own a few stocks, but nothing major so far, I’m a novice. My girlfriend and I are looking at some business investments that would give us a lot more flexibility than our 9-5 jobs, but nothing solid just yet.
I had a solid goal of paying off my rental apartment so it would become true cashflow, but when it got close I started thinking “what next?”. That’s when I stumbled across Derek Foster’s “Stop Working” book, which solidified my plan to retire early by gradually building up a passive income stream from various sources. I have no desire to retire “rich”, only early…
The finance blogs like yours are a fantastic resource and its encouraging to work towards your goal and see others succeeding at the same time.
Thank you for your kind words, Warren. The cheque is in the mail. 
Please stick around as I’m sure other readers will have some questions or comments.
Its easy to see in theory how your early income will increase quickly as you get out of school and start your career, but tough to see when you’re at the bottom.
Couldn’t have put it better myself. I’m still kicking myself, 8 years later, for not being keener when my parents were mulling buying a condo downtown when I started university for me to live in, and rent out later on. I was making less than $10 bucks an hour then, so the $150,000 it would have cost for a nice Toronto condo at the time seemed like all the money in the world to me.
I agree Vancouver’s real estate is insane right now. Toronto isn’t quite as bubbly, but looking at all the buildings going up here, it’s hard to shake the feeling that some will get burned.
Which is why I’m stashing cash in dividend stocks right now — not that they’re cheap