When we began real estate investing, it was like drinking water from a firehose. Because we had only purchased our own homes and only a couple over many years, we were completely new to most of the concepts. It was like learning a new language, which included a lot of acronyms. I listened a lot and was always translating the letters of the acronyms to know what had just been stated. Thankfully things began to sink in and I was able to converse with others in the meetups. It also helps to take action. 

There is always something to learn and the more one learns, the more one realizes how much there is to learn. It can be overwhelming. If you are just starting, just sit with it, let it soak in and keep moving forward. Moving forward is key; avoid getting stuck on what you don’t know. I admire those who just jump and build a parachute on the way down. I am more like a skittish cat when it comes to doing new things. Most don’t see the pause, the trepidation or that my stomach tells me I am jumping. 

Before I begin with the ways you can make money in real estate, let me clarify—add a disclaimer. The following profit centres work in varying degrees depending on the market. Know your market. When purchasing, make sure you understand how your property will make money and have more than one exit strategy. The deal is made in the purchase. That doesn’t always mean the lowest price, sometimes it means you saw an outcome others didn’t. 

I will talk briefly about the 7 profit centres. I am mainly referring to single-family homes with one or two doors (suites) for those who are wanting to start small. These concepts also apply to multi-family and commercial properties. These seven are simplified to the basics. I will go into each in more detail in future posts. 

1. Cash flow: Cash flow is the money that is paid by the tenant, less the money for all the expenses. It is calculated monthly and annually. The expenses to consider for a property include financing costs (mortgage payment), utilities (although the tenant may pay these separately), property taxes, maintenance (a percentage of the rent, based on the age of the property), property management (usually a percentage of rent charged) and condo fees if it is a condo. The goal is positive cash flow, so you are not bleeding money each month.
2. Appreciation: Over time, property prices go up, which is natural appreciation. The value of the property goes up increasing the return on your investment. You can also force appreciation with improvements, adding instant value and appreciation to the property. 
3. Principle Pay Down: Each month there is a portion of the mortgage payment that goes toward the interest and a portion toward interest. The principle is the portion that makes your mortgage amount smaller. Each time you (from rent paid) pay the mortgage, you gain more equity in your property.
4. Equity: Equity is built through appreciation and principal pay down. Equity is the amount of money you would get back if you sold it today; the value of your property today less the amount you owe on the mortgage. At first, that is the amount of the down payment. If you purchase the property under its value, you will have instant equity. If you renovate/make improvements, you will get forced equity. If you hold it for 10 years, you will have natural equity from appreciation, along with principal pay down.
5. Leverage: This is where you use the bank’s money to make money. When you get a mortgage, you are using 20% of your money and 80% of the bank’s money, and getting 100% of the profits because the renter is paying the interest on the mortgage. If you are having someone else get the mortgage in a joint venture you are leveraging 100% of the money. You have 0% of your money in the deal, 20% from someone else, and 80% from the bank and you are making 50% of the deal. In that situation your cash on cash return is infinite. 
6. Depreciation and tax deductions: Depreciation is a complicated subject and best covered by an accountant of which I am not one. In Canada, we can claim depreciation of our properties as a tax deduction and when the property sells, that will be reclaimed increasing the tax implications at that time. Still, there are times it is beneficial to take the deductions now and pay later. In the US, at least in many states, the depreciation should be taken as it is assumed to have been deducted when you sell, and you will pay the taxes associated with the deduction whether you took it or not. Talk to your accountant about depreciation. As for deductions, also talk to your accountant for the best tax advice on how to maximize deductions of the expenses associated with a property.
7. Refinance: When you have a large amount of equity in a property, you can refinance it and pull the money out to purchase another property. This gives you the ability to continue to invest and grow your portfolio. This works well when you purchase a property at a discount, add value through renovating and/or increasing the rental space (creating a suite), and sometimes with the extra market increase over time. Refinancing can often have you pulling out your initial cash investment and maybe a bit more. Rinse and Repeat.

In a nutshell, these are 7 key ways you can make money investing in real estate. If you are new to real estate investing, rest assured it is as simple as it sounds. Also know, it is not always easy; there is a lot of knowledge that goes into structuring a deal. We work with people who desire to take advantage of real estate investing and don’t want to do the deep dive into the work involved in knowing the market, finding a great deal, analysis, and the gamut of tasks that take time and energy. We also work with people who want to be part of the journey and need help getting started. Reach out to us if you have any questions about this blog post or other things we do. 

Live Abundantly,

Dawn

Welcome to Abundant Homes!

We are Dawn and Lorne.

Lorne and I started real estate investing a few years ago. It was not something we knew about or considered as an option. We had spent most of our adult life doing what others were doing—working, trying to save money, trying to give the best to our kids. We were succeeding in some ways, and often spinning our wheels. We felt trapped in the rat race not knowing another way.

I spent over twenty years home with our four children, homeschooling them through high school before they spread their wings in post-secondary, marriage, and parenthood. As I was transitioning to a less active role, of driving them places, and volunteering for their school-related activities, other priorities surfaced. We began looking after senior family members and their affairs; many tasks—taking them to appointments, cleaning houses—were more convenient for me, with my flexible schedule. Life morphs that way from one thing to another, sometimes with less conscious choice than we care to admit.

Then, as happens with many, we were faced with job insecurity that was stable for over 15 years….until it wasn’t. With the downturn in the oil and gas industry in 2014, there were mass layoffs in many industry-related companies. Lorne was working for a global company that, at the time, was 2600 employees strong in Edmonton. That number reduced to 600 in less than a year. He was able to hang on in a couple of ways. He was on the ‘right’ ongoing projects, and took all his accrued banked time vacation time off, to stay on the books. This led to a desire to retire, especially when vacations planned were awash, due to lack of time.

We were also concerned about retirement potential. Freedom 85 didn’t seem like it was for us. That’s when it happened.

We have some friends who were posting on social media, things about a business they were doing. They had talked about a project they were working on. It appeared they were in a house, tearing down walls. We didn’t know what they were doing. We didn’t ask. Looking back I ponder at the blinders we had.

Then, in conversation about his job with them, Lorne said, “We need to do something different.” They replied with, “Come see what we are doing.”

And we did. We went to that project, which was nearing completion. It was a flip they were doing with partners. We were curious, we were interested and we became excited by the possibilities. We set up a joint venture with them, and a couple months later we got a property through a wholesale deal, and the rest, as they say, is history.

“History” with real estate is different for each person. We learned a lot from that first project that became a suited property. We learned what worked and what didn’t work. We had a beautiful product in the end. We have the fondest memories and those stories to tell that which didn’t have us laughing at the time.

We noticed how similar and how different it was from the half-hour or hour-long flipping shows we had watched for years. It was the same because there were those things that we needed to deal with, the contractor problem, the time problem, the ‘didn’t see that coming’ problems. It was different because we were feeling the time pressure, the headaches, the pain and pain of expense of mistakes, and carelessness. Everything is more enhanced with personal emotions involved.

We moved on from that experience with our friendship intact and in some ways stronger. We also were able to apply some of our learnings in future endeavours.

Immersion in learning has been constant over the last few years. I have taken the reigns in most of the endeavours as Lorne continues to work for the same company. This has provided us the ability to get some mortgages. We have done several transactions, buying and selling, agreements for sale, wholesales, and buy and holds.

We have mentors and advisors and we have worked on learning more and applying more things over the years.

During covid, I have spent more time writing a book, writing blog posts, and working on the foundation of our business.

We chose some trade names for the real estate part of our investments. We chose Abundant Homes, and with that our community Abundanthood was born. Next came the logo. I wanted it to represent both our names which I had been trying out for our trade names. Lorne’s name is Lawrence and it means from the laurel tree. My name is obvious. So we wanted something that was laurels rising, with a neighbourhood and a sunrise. With input from a few people on our team and much back and forth, our logo came to life.

Over the years we have connected with many people in the industry. We have advisors in all areas of real estate investing. We have built our business and lives on those who have gone before us, who have shared hours of knowledge and insight into doing life well. Those who we can call and they will answer, those who are walking the walk and taking action. And for all the abundance shared for us, we choose to give back in the same way. We help those who are starting out, or those who haven’t experienced what we’ve had, and encourage those who are walking beside us.

We believe in community so we have Abundanthood. It’s our community; it is where Abundant Homes meets neighbourhood. @Abundanthood is where we connect on social media. We have Abundanthood Book Club on Facebook and Abundanthood Mastermind.

Abundance is what we desire for those who experience Abundant Homes and Abundanthood. It is the heart of our business and is foundational to who we are at Abundant Homes.