To speculate in real estate is tempting fate: Author

Monday, March 30th, 2009

Ditch get-rich-quick schemes for solid investments

Pamela Fieber

Don Campbell, the author of Real Estate Investing in Canada, says do your homework and don’t let fear hold you back.

The recession isn’t necessarily bad news if you’re looking to invest in real estate. In fact, you could say it’s a great opportunity.

“People think, ‘Oh no, I have to give up on my dream because the economy won’t let me do it,'” says real-estate guru Don Campbell, author of the best-selling book Real Estate Investing in Canada: Creating Wealth with the Acre System. “But just because the economy changes doesn’t mean your financial goals have to change.”

Campbell says the biggest mistake people make is speculating on real estate rather than investing in it.

There is a key difference, and the goal of Campbell‘s book, now reissued and updated for the current economy, is to explain that difference to potential investors.

“I was becoming discouraged by human nature, the get-rich-quick schemes and flipping of properties,” Campbell says during a Calgary stop to promote his new release, which will donate 100 per cent of its profits to Habitat for Humanity. “I set a goal in 2001 to change the tone of the conversation in Canada about real estate.”

And so he did. His book has sold more than 35,000 copies, and provided more than $400,000 for the non-profit housing organization.

Campbell, who has also written 97 Tips for Canadian Real Estate Investors and 51 Stories of Canadian Real Estate Investors, says real-estate investing is still a great way to reach a financial goal — whether that’s replacing a salary income or paying for the kids’ university — but the key is to do your homework before jumping in. In other words, don’t speculate.

But don’t let fear hold you back either. “You’re not going to put your kids through university by huddling in your basement worrying about (what happened in) 1982,” he says. “The reality is, the next 18 months are going to be a rollercoaster. During a rollercoaster ride you’re always freaked out. But keep in mind that rollercoaster rides always end.”

If you’re worried about your job, that’s no reason to stay out of the market. In fact, all the more reason to get into the bank and secure that loan while you have a job.

“Are you going to try to get a mortgage for a cash-flow property while you have a job, or after you lose your job?” he says. “And if your job sucks now, then use it to get a good credit rating.”

The goal, Campbell says, is that with the secured mortgage (and a steady job is helpful in getting that from the bank) you may end up in a position where “your job becomes an option, not a requirement.”

But that doesn’t happen until you have some cash-flow properties.

That means a property that pays you an income each month. A rental property, for example, as opposed to a speculative property that you intend to flip when the market goes up again.

Never go out on a financial limb in the hopes that property values will make a huge leap, he advises. Instead, look for properties that will still pay you an income even if their value goes down. The numbers have to make sense, and Campbell‘s book makes the math look simple.

So what stops people from real estate investing? Fear, mostly.

But Campbell has an answer for that. “Always look at your financial goals,” he says. “If you don’t want to make any more money than what you make now, you want to rely on your pension, then don’t invest in anything.”

If you follow his system, there is little room for error. For example, never buy a property that didn’t offer a positive cash flow. That goes against the grain of what thousands of investors did in the past few years, buying up multiple condos, for example, and flipping them before the building was even complete.

That can work in the right market, Campbell says, but it’s a lot riskier than buying a cash-flow property that will provide a slow and steady income.

If the value goes up, you are in great shape. If the value goes down, it doesn’t matter because you still have the monthly cash flow.

The bottom line is, the recession may actually help investors.

“There is this perception out there that the banks aren’t lending,” Campbell says. “That’s not true. They are for decent deals. They care about the worst-case scenario: if they have to take the property back, can it pay for itself?” Those are the same principles that should be guiding your decision to buy.

Real Estate Investing in Canada is available in bookstores for $36.95.

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