“Smart people learn from their mistakes. But the real sharp ones learn from the mistakes of others” – Brandon Mull
In life, there are several lessons to learn. Some are taught in school or seminars, others through lessons only life can teach you… Zorya and I have been property owners since 2010 and real estate investors since 2013. Since becoming investors, we have learned so much about how to buy property and have been fortunate enough to be able to help other new investors and first-time property buyers leverage our experience and avoid some of the mistakes we’ve made along the way.
When I think back to our first condo purchase, I cringe at the number of mistakes we made. To help those thinking about purchasing their first property, I have compiled the 7 mistakes we made (and a few bonus items that we did right) to help guide you in your purchase. Enjoy!
Mistake#1: We didn’t use a realtor and instead bought the property from a friend of a family member…
When it was time for us to purchase our first property, we didn’t ask for help. We didn’t strategically scroll the Multiple Listing Service (MLS) or find a client-focused realtor who could use all the tools at their disposal to find us exactly what we needed. Instead, my sister and her boyfriend said they had friends that were selling their condo and it sounded like it would work for us in terms of proximity to work. Awesome, that’s convenient!! Convenient, yes. The right move? No.
Ultimately, what this meant was that we got a property that was available, not the one that fit all of our needs as first-time home buyers entering the housing market. If we were to do it again, we would set a budget, make a list of our wants and our needs, and hire a realtor who to help us find exactly what we are looking for and ensure that we don’t pay too much. Which leads me to mistake number 2…
Mistake#2: We didn’t pull comparables or get an appraisal; just agreed on a price with the sellers.
This mistake could have been costly or problematic when trying to get financing! We truly didn’t know whether the property was worth what we had agreed to pay, and at the time, this was the biggest purchase of our life. The right move? Nope.
This is where having a great realtor can provide excellent market insight. Realtors can pull recent comparable sales of properties in the area, of similar sizes and with similar finishings. In doing so, they can easily tell you whether a property is a smoking good deal or is significantly overpriced.
Mistake #3: We didn’t thoroughly review condo documents or have a benchmark for what good looks like…
Purchasing a condo requires additional due diligence that we didn’t understand the importance of. This includes getting a copy of all the applicable condo documents (such as minutes from condo board meetings, a copy of the latest reserve fund study, budget and financial statements, estoppel certificate etc.). These documents contain key information about the health of the building and building finances that a condo buyer must read to make an informed purchase decision. Oops…
Mistake #4: We didn’t use a mortgage broker…
We knew “of” mortgage brokers but thought that we could get the best rates and terms by us putting in the work ourselves. I mean, wouldn’t the bank want to pass those savings on to the customer and not have to pay a broker? Nope…
We shopped around for our own mortgage, wasting our evenings and weekends to get a good rate. This meant that multiple banks were unnecessarily pulling our credit and potentially impacting our overall credit score. What we didn’t know was that a good mortgage broker (who gets paid by the lender and doesn’t cost us anything) would have been able to beat the rate we got with a 20-minute phone call AND get a mortgage that we could access our equity to buy future rental properties. The moral? Get a good mortgage broker!
Mistake #5: We picked a random lawyer…
By unfortunate coincidence, we ended up using a lawyer who worked at the same firm as the seller’s lawyer. A great lawyer is a key member of your real-estate team; one who can act fully in your interest if things don’t go smoothly. We were fortunate that the transaction didn’t go sideways, and this didn’t become an issue. Whew!
Mistake #6: We didn’t pull title…
Pulling the title of the property you are going to purchase is cheap due diligence that can tell you a lot about a property. Mortgages, liens, caveats, right-of-way/easements, and other interests registered on the title can help identify any red-flags that need to be addressed OR make you walk-away. It wasn’t until our lawyer pulled title that we found out that there were 2 large liens on the property that needed to be cleared up by the sellers.
Pro-tip: In Alberta, you can pull the title for a property at the “Spin2” website for $10. Do it! For less than the cost of lunch at Tim Hortons, you can learn a ton of information about the property you are about to purchase.
Mistake #7: We bought a property that wouldn’t be a good income property…
Years after purchasing the condo, we learned how to invest in properties that generate cash flow. So, when it was time to move out, we ran the numbers to see whether it made sense to keep it as a rental. As it turns out, at the market rent with a 20% down payment, after accounting for all the rental expenses (mortgage, taxes, insurance, repairs and maintenance, condo fees, and property management), the condo was negative cash-flow by a few hundred dollars! We would have had to pay money every month for someone else to live in it… Decision? Sell it.
Did you do ANYTHING right? Yup, a couple things…
Win #1: The property was in the Capilano neighborhood in Edmonton, an excellent location! Both the city and local business were investing a lot into the area and all amenities were within walking distance. Also, after fully renovating the place while we lived there, it sold quickly for a good price. Had we bought a property that was a “good price” but was in an undesirable location, it could have sat for a long time or lost us money at the sale.
Win #2: We did negotiate in some repairs the sellers needed to make before the purchase. This saved us some time and effort upon taking possession.
Win #3: We aggressively paid down the mortgage, allowing us equity that we could access to purchase rental properties, and write off the interest using the Smith Maneuver! Did you know that you can use secured lines of credit (such as a home-equity line of credit or HELOC) to purchase rental properties? You can! Did you know that you can write off the interest paid on the money borrowed to purchase property to make income? You can! Did you know that you can purchase properties that cash flow well enough to cover all expenses and cover the interest on the HELOC? You can, and we did!
So ultimately, we were able to kickstart building our real estate portfolio by paying down that mortgage. Unfortunately, we needed to break our 5-year fixed mortgage after 3 years to do so (and pay a penalty), but it was worth it.
Win #4: We learned everything above (and more) and can share that with you!
So now that you’re wiser, go out and do good. At least you will have 7 fewer mistakes to make, and a few tips for what you can do right. 😊 😉
Now go get after it!
Patrick

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