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Buying & Selling Tips

How to Buy a Home and Keep Your Lifestyle

By July 8, 2014

In this pricey Vancouver real estate market, do you have to give up the lifestyle and neighbourhood you love to buy a home you can afford?

Not at all.

There's a back door to the real estate market, and not many people use it. The plan is, you don't buy your home. You rent in the place where you want to live, with the lifestyle you love. You buy investment properties in areas you can afford, and rent them out to other people.

That way, you're building equity in a real estate market that you otherwise wouldn't be able to afford to break into. And eventually, it means that you've raised enough equity to buy your own home, or you've paid off a mortgage and can live rent free, as your rental income from your investment property covers your own payments.

"If you're doing it properly and you have an appropriate amount of capital, eventually you'll be living rent free," says Don R. Campbell.

He has built his own career on buying income properties, and his Real Estate Investment Network provides education and resources for other Canadians who want to do the same. talked to him about how this strategy works. How is buying investment property different from buying your own home?

Don Campbell:As far as investment, we have 12 questions we ask when we're trying to identify a neighbourhood that has a good future for investment. None of those questions is "Would you want to live here?"

You've really got to remove the emotion. You have to think like a business owner. Starbucks figure out who their customers are and ask if there will be enough customers in a given area for them to charge $5.00 for a coffee. And if the customers aren't there, they don't build there.

That's the same for us as property owners. We consider our tenants not as tenants but as customers. That way you think a little bit differently: "What do my customers want and are they willing to pay for it?"

You need positive cash flow, which is more income than all of your expenses including your mortgage. So where are all the paying customers now?

Don Campbell:If I wanted to live downtown or in the West End with a view and that lifestyle, where would I put my capital? I would put my capital in Surrey, especially some of the older regions because this is going to be a 10-year hold or longer. I would seriously look at the Maple Ridge region. I would definitely look at the job growth that's going on in Abbotsford.

And for sure because it does not matter geographically, it's where my money's going to work hardest I would look at Dawson Creek, Fort St. John and Edmonton. Isn't it conventional wisdom that you should buy rental properties close to where you live?

Don Campbell:One of the worst myths on the planet is that you should buy an investment property close to where you live!

It will drive you around the bend if you can see that property every day. They're not going to look after it as well as you, no matter how well they look after it. So you're driving by and thinking, "Why haven't they cut the grass?"

That is a strategy that people who lose a lot of money in real estate investment follow.

You should be buying where your money is going to provide you the biggest yield. You don't really care where the head office is of a stock you buy. Nor should you care where, geographically, the property is.

You need to look at the economics behind the property where's the job growth, where's the population growth, where are the average incomes increasing, for instance. And then when you identify where people are moving, you really boil it down to where transit is. And where do the millennials want to live, and what kind of property do they want to live in and what kind of renos are they expecting?

Put your money there and let the market carry you.

We all have these preconceived ideas that get in the way of the average investor. I hear people in Vancouver say, "I would never invest in Edmonton because their winters are so long."

Well that makes no sense. The jobs are growing faster than anywhere else in the country and people are moving there faster than anywhere in the country. These people aren't going to live in tents. They're going to rent from you. And Alberta has no rent controls, so when the market heats up the rents go up, when the market goes down, they don't. What housing types should investors be looking at?

Don Campbell:Two to three bedrooms is what I would buy.

Townhouses are fantastic. The millennial generation will be coming into the market in 2016, and townhouses have that sense of community that millennials really appreciate that village feeling, especially if they're close to shopping and transit.

Detached houses are worth it as an investment only if you can find them with cash flow. Secondary suites are really important.

Both of these have a little bit of dirt, and increasingly people are having pets. If you're a landlord there's nothing better than saying, "Yes, you can have pets." You can charge a lot more rent by accepting pets.

Condos are going to be a bit of an issue in 10 to 15 years. We're going to be mixing baby boomers with the millennials who are just coming in and buying two-bedroom units and having kids running up and down the hallway. And the boomers are going to want to make sure that the building is maintained, so condo fees are going to have a pressure of going up, which will be a financial problem for a lot of millennials who have bought a condo as their first home. Over the next 15 years, you are going to see a dramatic increase in conflict on condo boards. What are the big "don'ts" for people interested in real estate investing?

Don Campbell:

  • Don't choose a region where something might happen. For instance, I would avoid Northwest BC towns until the whole pipeline debate is finalized that's going to be a long process, and speculators have already driven those markets up.
  • Don't invest when interest rates are over 16 per cent of course that's not going to happen any time soon, but I use that number because I got started in 1985, just as they headed down from that level.
  • Don't invest in an area that's becoming unaffordable. Your objective is to get in before that happens.
  • Don't buy just because it's close or it's cheap or the builder's giving you a deal. Do your research. What are the 12 questions you've talked about?

Don Campbell:These are the key starter questions that uncover the economic fundamentals of a place.

  1. Is the area's average income increasing faster than the provincial average?
  2. Is the area's population growing faster than the provincial average?
  3. Is the area creating jobs faster than the provincial average?
  4. Does the area have more than one major employer?
  5. Is the area in the RBC Affordability Index Hot Zone (25% to 39%)?
  6. Will the area benefit from an economic or real estate ripple effect?
  7. Has the political leadership created an economic growth atmosphere?
  8. Is the Economic Development Office progressive and helpful?
  9. Is the area's infrastructure being built to handle the expected growth?
  10. Are there any major transportation improvements in the works?
  11. Is the area attractive to the baby boomers' lifestyle?
  12. Is the area poised to attract and support millennial and Generation Y demands?

It takes a bit of education. You have to do a little bit of homework and pay attention to how the world works and how finance works and how real estate works, but I am consistently getting yields of 18 and 21% on property, and that's after paying a property management company. All it is, is just being strategic and getting in front of where people are moving.

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