Interview with Kathryn D November/December 2012 1. How did you get involved in property? My daughter had a landlord who wouldn’t fix the ceiling in her bathroom. It was soggy, and falling into her tub. She couldn’t use it. She stopped paying rent (wrong I know) and then she started getting threats against her safety. We went to the police, and they suggested she get out of there now. Good thing she did. The next morning, a large rock was thrown into her living room. We then helped her go through the tenancy courts. We bought a mobile home for her to live in, which she originally wanted as a Rent to Own. We figured we could be better than this landlord. 2. What is your property investment philosophy/strategy (CF, CG, renos, houses, flats, buy and hold, develop, flip, wrap, etc)? We buy lots of different types of properties. Our aim is not to sell any of them, even though some are Rent to Own. We buy cheap, make safe, and then rent. 3. What is your IP / property story so far? 2004-We started with a 3 bedroom mobile home on a rented lot, for our daughter. 2005-Then we jumped in with both feet and bought an 11 unit apt building. It was grossly under market, and only 5 apts were rented out. 2006-Then it was a cheap single family house. 2006-We added another cheap single family house, as our daughter decided living in “trailer park” was not where she wanted to live. Originally this was going to be another Rent to Own for her. Her mobile was a rental again. 2007- Then we bought this big monster of a house. We needed to do a development agreement to change the zoning and usage. We took every room and transformed them into furnished all inclusive bachelor suites, complete with private kitchens and bathrooms. It cost us all the equity and credit card credit we could access. If we hadn’t been naïve, we probably wouldn’t have done it. It is a great little money maker. 2007-While this was transforming, we came across a little one bedroom mobile home that was too cheap to pass up. 2008-By this time the kids were almost finished high school. We were living in a 4 bedroom house, and thought about downsizing. We decided to rent our house and buy something else. 2008-My daughter found that making minimum wage and trying to pay for heat in a 3 bedroom house is doable if she took in boarders. She had gotten to that point where after 4 years, she wanted to live by herself again. This is where I called the man who sold us the monstrous big house and asked if he had any others. Well, he did. It was a 5 unit apt building. It consisted of 3-one bedrooms, 1-two bedrooms, and bachelor suite. My daughter took the largest, the youngest son (still in grade12 and with a part time job) took the bachelor, and the other 2 sons, and Rob and I took the one bedroom apts. Minor son lived across the hall from us, but we still provided for him. We share the expenses, depending on the ownership percentage. When it is paid for, it will be transferred to their names as well. Since this purchase, oldest and youngest have moved away, and rent out their units, which pay for their share. 2009-We purchased this single family house on 4 acres specifically as a Rent to Own for an applicant. After 2 years their relationship broke down, and they walked away. It is again being rented as a Rent to Own. 2009- This was an unusual property. It was 3 acres with a 4 bedroom house and also included 4 mobile homes with tenants. As far as the mortgage went, the mobiles were given no value. How wrong they are. This purchase allowed me to quit work. It was also the deal that almost didn’t go thru. 2010-This was a 2 bedroom mobile home on its own parcel of land. Ugly as anything, huge potential. Cheap cheap cheap!!! This property is being sold for $1.00 (one dollar) if the tenant rents it for 10 years, and pays all maintenance and repairs. He has since made this into a home, and everyone is happy. 2011- Another 3 bedroom mobile, on a rented lot. It was another bargain, in great condition, we just couldn’t say no to. 2012-this year we just didn’t have the time to invest in acquiring another property. Rob jokes and says that means that I will want to buy 2 next year…. 4. Is there a story of a really good IP that you would be prepared to share with us? The property with the house and 4 mobiles on it is pretty good. We paid $150k, with $15k down. The rent from the house pays the mortgage (P & I).When we bought the property the mobiles were bringing in $1685 month. After doing minimal repairs and maintenance, we are collecting $2750 month rent. When we were going thru negotiations, the vendor originally agreed to take the down payment in installment payments for 12 months, and then he reneged. When he realized we were going to increasing the rent, and started to see how under market his rents were, he didn’t want to sell. We had to threaten legal action, in which his lawyer suggested we be given 1 ½ days to close. We finalized everything with 90 minutes to spare!!! 5. Is there a story of a really bad (or not so good) IP that you would be prepared to share with us? I don’t have any regrets about any of them. The one bedroom mobile is probably the hardest to find a tenant for, but tenants are content when they are there. We rent this furnished.The last tenant had mental illness, we came to find out. Her three cats turned in 15. She nailed boards over the windows, had signs in her windows ,and destroyed all the furniture. Almost everything had to be replaced. We buy nice second hand for this property. 6. Do you invest in other asset classes (shares, commodities, businesses, managed funds, cash, forex, etc)? I have some mutual funds in my Registered Retired Savings Plan (similar to Super),but eventually I will use it to provide a mortgage to myself. 7. What criteria do you use when selecting a property to purchase and/or renovate? We only bought in 2 towns, but we will only consider purchasing any additional properties in one of the towns now.It needs to make money from day one. By looking at the location, it will either be a Rent to Own, or a rental. We like ones where the vendor is willing to sell via installments. If not, and it’s cheap enough, we buy it with a credit card. 8. What structure do you use for your investing? Everything is in our personal names 9. What is your strategy to fund your lifestyle in the future (eg Live off Rent, Live off Equity, Live off something else….)? We live solely on rent. When we travel in Australia, we travel in our van. I think we are called OPALS (older people alternate lifestyles) We also housesit, and sometimes Rob helps out at a roadhouse in the Outback. Not too many house sitting jobs there. We aren’t big spenders, but if there is anything we want, we buy it. 10. If a budding property investor asked "what are the top 5 things I should do", you would say? Live below your means. If that means take in boarders, do it. Unless they are high wage earners, they can either buy properties or travel. Buy properties close to where you live Self manage, if possible. Learn the rules of the tenancy act, in your area. 11. And if that same budding investor asked "what things should I avoid", you would say? Don’t take advice from someone who doesn’t have any properties. Don’t get discouraged if you have a setback. Don’t buy only properties only you would live in yourself. Don’t install expensive fixtures. You can buy inexpensive nice looking things. Don’t have a "no pet" policy. Pets do very little damage. 12. And in a slightly different vein - what would you advise the property investor who maybe has a portfolio of properties, but is at a loss as to how to proceed? I guess they need to figure out what they really want. Sometimes buying more is not the answer. How can your existing properties make more? Now that neither of us have employed income, it will be very difficult to obtain a mortgage (in Canada) Doesn’t really matter, because we like to buy using Vendor Finance, or if cheap enough…credit cards. 13. How important is planning to being a successful investor? I plan very little. I’m impatient. I rarely second guess any decision I make. My job is to find properties. Rob tells me if they are structurally sound. We make a good team. 14. Do you consider that there is any natural progression for an investor? (eg. From owning a few properties, to owning many, to being a developer, joint ventures, commercials) Not really. Natural progression wouldn’t have been for us to buy a mobile on a rented lot, to jump into buying a multifamily apartment building. I think an investor should have an open mind to opportunities. 15. Do you have any thoughts on the CF vs CG debate or on the issue of metro vs regional, units vs houses? Since I don’t like to sell, I am only interested in Cash Flow. We stick to one town now, which is the one we live in. If I am buying units, I would be buying the whole building. Buying individual units is not common in our area. 16. What do you prefer, fixed or floating interest rates and why? For Vendor Finance we actually offered almost double the fixed interest than if we went to a bank. We have control. Unless we default, the loan can never be called. Our bank mortgages have been sold several times, and they always have the option of renewing our mortgages. At banks we have been taking the lower fixed rates (all under 4%) If variable was cheaper, we would go that way. 17. How important in your life is having a partner and other family members who are “into property”? I wouldn’t have done it initially without Rob. I think it is always helpful to have someone beside you. For some, that may be signing the mortgage papers, and that is great too. 18. Finally, where do you see the market at the moment and do you think the current environment is making it harder for newer investors than when you started? Your thoughts on the next 1 year, 5 years, 10 years? I can only speak of Canada. In my small town, we have a glut of rentals. The good part is the new apartment buildings being built won’t permit dogs, and we always welcome them. The ability to purchase properties is minor compared to the Residential Tenancy Act. Tenants are another factor altogether. The system needs to be overhauled. Mom and pop investors like us have an uphill battle. A tenant can live free for 10-12 months, without any consequences in our province. Imagine if all tenants decided to do this. It is getting worse. If we tried to take back possession of our properties, the tenant can lay criminal charges. I think it is going to get a lot worse before it gets better. We will survive, but others may not.