When I was at the ACRE weekend in Vancouver November 2013, I talked to several investors who are working in the United States, including the guy who literally wrote the book.
One of my goals for the weekend was to speak with Richard Dolan and pick his brain. I did not get any one-on-one time with him, but even better I got to speak with his advisor!
David Franklin is a securities lawyer and a very wise man.
He said in deciding whether to invest in the United States or in Canada, you need to make things equal. Take your annual rents, and divided by the purchase price of the house, the full purchase price not the down payment. I described the recent deal where my annual rent divided by the purchase price equals 3%.
He proceeded to tell me about houses that can be purchased for $50,000 and rented for $800/mo ($9600/yr) to people on welfare, so your rent is guaranteed. That is very good ROI (19.2%).
At the time he conceded that it is necessary to be in a cash position because mortgages were difficult to come by. Not a position I was in at the time so I asked what he would do if he were my age. He said he would sell his Canadian real estate to free up some cash and get at least 1 house in the US because there will be a recovery and “you will do very well.”
Hindsight is 20/20, because he is right! My asset would have doubled, plus with our current low CAD dollar I would have made 19% cashflow ROI in US dollars.
Am I sorry or regretful I didn’t sell and jump ship?
Here is why.
My weakest performing asset in Kamloops, BC, Canada has the mortgage paid down ~$6000 in 2014. Add cashflow of $347/mo($4164/yr) and I got 25% ROI(~$10K/$40K). Add appreciation at 3%( 15% ROI on my down payment thanks to leverage) and I got 40% ROI in 2014!
Not as great as the 119% I would have received if I had followed Mr. Franklin’s advice, but the point is that I made a very strong return on my merge sum of money in a market I understand, without the added complexities of different tax rules, unknown marketplace, unknown tenant profile, etc…
In the time it would have taken me to learn about the US market, I am not sure I would have acted in time to make the hypothetical ROI illustrated above. I certainly would have not had the time to purchase 4 more properties in Kamloops!
The lesson for real estate investors to learn here is to become an expert in ONE market and ONE asset class and you WILL make money.
I have many colleagues who have tried their hands at the “newest” opportunity(training programs have popped up, newspaper articles, word of mouth, etc): US tax leins and tax deeds. I have heard some success stories, but mostly people losing a bit of money, or perhaps just wasting time that could have been spend better elsewhere.
It is always tempting to jump onto the next bandwagon, but if you stay the course once you have something working: “It does not matter how slowly you go as long as you do not stop.” ― Confucius.
Until next time,