Small Town Big Profits

September 24, 2018

Small Town Big Profits

The way I became a real estate investor is a story I talk about in another blog so I’ll keep it very brief here, basically I moved to the Alberni Valley from England in 2007; I bought my first rental in Canada at the end of 2008 and by 2011 had 5 rentals all with joint venture partners.

 

 


Now what made me pick the little town of Port Alberni (population 17;743 2011 census)? Well there was no formula or magic analytical data I looked at, it was just where I lived. People told me it was just a Mill town but as a foreigner moving here I had a different perspective, what I saw was possibility, untapped possibility. It wasn’t a bustling town because of one thing or another, no job boom or anything like that, I just saw it as a town that will always be around and a normal small town. With that came lower purchase costs but the downside was lower rents and lower growth compared to towns nearby. I wasn’t planning for that though, I was planning for the next 20 years, someone paying most of my mortgage off and then having the income to retire.


Now anyone getting into real estate will tell you there are things you can be taught, but there are also things that you are going to learn by doing, about the rental game and about yourself. Not having anything to compare to, I didn’t know any other investors, I just went and did, and boy did I learn, fast! All lessons are great some make you money and some cost you money, I heard someone say a while back the ones that cost you money that’s just a stupid tax you pay. Needless to say I have paid my fair share of that tax over the years, the beauty about that tax is, it makes you not want to repeat that again so you look for solutions, better ways so you don’t have to pay it for the same thing twice.


I started working with joint ventures trying various methods and strategies, a couple of rent to own’s, where one worked out and the other the tenant buyer walked away from (but had no deposits to lose). Various types of houses from townhouses with strata’s in place to ranchers and single family homes. What I do now though is find older single family homes circa 1950-1970; fully gut the property and renew everything from head to toe, install a suite, then refinance to get capital back and manage the property for my Joint Venture partners so it’s totally hands off for them. We are a buy and hold strategy with some renovate profits in there from doing the work and increasing the value of the home through forced appreciation. The reason we like to fully renovate is we have no headaches for the next 20 years, everything that’s big tinkered is under warranty so other than managing tenants, it’s headache free. The house not the tenants!


The tenant profile of the town is a working class town and people live pay cheque to pay cheque so sometimes the problems associated with that have to be factored in and accounted for. What we do is ‘grade’ our tenants AND houses, A,B OR C, then we match the tenant to the correct house I.e. An ‘A’ person in an A house B in a B and C in a C. This allows for us to know the issues each will bring and deal with accordingly as well as renovate then house to the correct grade of tenant we will get in that particular house and area. Where we have issues with this is when we look after other peoples houses, or we teach this concept to people and they ‘think’ their house is and A when really it’s a C or B at most and they want an A tenant! There are tenants below a C but we do not want to deal with those tenants or those types of houses. So when we have a B house we make sure we are the best B house available, it’s not an A but it’s the best B making sure they get more value in what they are paying for and hence increase the demand for our properties. Even when vacancies were 6% in town we were pretty close to zero, and we are now known for quality rentals so very rarely have to advertise as word of mouth ensures people are always contacting us asking.

 

There are pros and cons to investing in a small town, some of the cons are the demand pool is smaller so you can have less variety to choose from, plus when people are pay cheque to pay cheque, sometimes life happens and you have to part ways, they they are at a birthday party the next week you are at or something like that. To that end you have to be squeaky clean and fair because small towns talk a lot so you want to be sure it’s positive, the pros, reference checking gets a lot easier because usually your connected somehow through social media. You can ask lots of people who know them, know their parents, where they work etc so reference checks are easier, I find anyway.

 

With lower purchase prices and higher rent to purchase ratio it is easier to get cash flowing property with large cash flows. My first townhouse had a $53 a month I managed for free and did the repairs myself, now with a lot of knowledge and experience backed by a tried and tested method we now do on every house cash flow between $600-800 and some are even much higher than that.


Now with more knowledge and a specialized local knowledge now I see even more potential in the Alberni Valley, a brand new high school, new hospital, new arena, airport expansion and upgrades that can now land a Boeing 737, things are happening, they just happen slowly. With lots of First Nations governments based out of Port Alberni, a changing economy and city vision. The demographics are getting younger as I see more young people moving and staying here, even when they have camp jobs they move here for the lifestyle, the outdoor life, ski mountain an hour and fifteen mins in Comox, Tofino an hour and half beautiful drive away and arguably the best kept secret of the Alberni Valley, Sproat Lake. A clean (it’s the tap water) warm lake with a circumference of 147 miles from above its shaped liked a Chinese dragon and no-one knows about it. With potential tourism growth once discovered, like Canada’s tallest waterfall is here, some world class hikes originate from here, a changing economy, multiple governments based here and their spending. Will it boom like it did in the 50,s? Who knows I don’t plan for that, I plan on it plodding along as is and suit my strategy to match the worst case scenario and if something else happens like it goes up. Nearly 30% a year for two years straight, then I’m ok with that too.


I guess the take away for you is, yes there are the prime opportunity based investment towns that are great to invest and I highly recommend doing that, but if you really want to be in your back yard as I did, then you have to find a way to make it work, it might not be how you were ‘taught’ or the trendy way, but usually there is always a way, the question you have to ask yourself are you willing to do the work to find out, because it is work and it does take time. You will probably pay some stupid tax along the way but if you do things right, ethically and morally correct with a focus on always improving your systems and your product. If not then that’s ok too, pick a top ten town, or JV with someone who has already paid the stupid tax and done the work creating strategy and systems. Like I said there is always a way!

Just as I finish writing this I picked up a copy of Canadian Real Estate Wealth Magazine and one of the articles mentions Port Alberni (Where I invest) as a great place to invest with good rents and lower purchase prices making cash flow easier than other places in BC. I guess the secret is out! If you are interested in investing in the Alberni Valley we can help you out for sure and if you buy a place and just want it looked after we have connections that can help you there too!

 

Www.rentalhouseprofits.com If you are new to investing or never done it before we also have an online course to help you get from rookie to rock solid real estate investor in 7 weeks! All are available on our website or contact us if you would like to discuss more, we love helping people achieve their dreams.