Investing Fundamental #1 – Your Personal Finances

As many of you know, my wife and I bought our first income property in 2010.  It was an run-down, 70’s semi-detached in south Oshawa.  The neighbour actually laughed at me for buying it.

We’ve definitely had more than our share of ups and downs since buying that house, but it has been totally worth it.

As it stands now, we have 4 income properties (two Student Rentals, one Townhouse and one Semi-Detached), after selling one and buying 2 in 2015.  We’ve done 4 full renovations, including 2 renos to the same house (but that’s another story!).  We’ve also structured our portfolio, so that our net profit each month pays the mortgages on our principle residence and our cottage.

This is really something that anyone can do.  It just takes time and persistence.  Part of my goal with East Vista Management and these posts is to help people to do what we have done.

In this series of posts, I’ll discuss what I believe are the three fundamentals on which to build your real estate venture:

  1. The Financial Foundation
    1. Your Personal Finances
    2. How much money do you need to buy a property?
    3. Financing options
  2. The Property
  3. Property Management

From my experience, building a successful real estate business (and yes, I call it a business because it is!), is about following a progressive sequence, which I have outlined in these articles. Yes, it can and will be overwhelming at times, but start with the foundation and build from there.  By following a step-by-step strategy, you’ll also build your financial strength as you go, which should reduce the risk often associated with real estate investing.

1.1  Your personal finances

In my opinion, your personal finances form the foundation on which to build your rental property business. As a very first step, you need to ensure that your financial ‘house is in order’. As I wrote about on my blog, this was almost a 3 year process for me and my wife. Here are a few things that you should focus on:

  • Understand and control your spending habits. Identify your fixed vs. variable costs and eliminate unnecessary expenditures.  Read my blog post on how to get control of your finance here.
  • Reduce or eliminate Consumer debt.
  • Get ahead of your debt, meaning you can still use credit for convenience (or travel miles!), but pay off the statement balance each month to avoid Interest.
  • Understand and/or improve your Credit Score. Get started with this great publication: http://publications.gc.ca
  • Increase your income.
  • Understand your Equity position.
  • Track your finances electronically.  This is a must.  Not only will this help you to understand your personal income and expenses, but it will also help you to manage your finances as your grow your investment property business.  I recommend using Quicken, which allows you to track and manage both personal and business revenue and expenses.

Basically, learn how to run your household like a business, then branch into real estate investing. This will ensure that you have a solid foundation on which to build and manage your business.

Next topic: How much money do you need to buy a property?