Douglas Gray, B.A., LL.B. (Vancouver, Canada), formerly a practicing real estate and business lawyer, has extensive personal and professional experience in all aspects of real estate, and has been a landlord for over 30 years. He is the author of 26 best-selling real estate, business and personal nance books, including Making Money in Real Estate (978-0-470-83620-0) and The Canadian Snowbird Guide (978-0-470-15375-8). As well, Douglas is a consultant, columnist and speaker. His website www.homebuyer.ca offers comprehensive information on real estate, finance and related topics. Peter Mitham (Vancouver, Canada) is a prolific freelance journalist whose work has appeared in more than 70 publications worldwide, including Canadian Business, Canadian Real Estate Magazine, Country Life, The Globe and Mail and The Next American City. Since 2002 Peter has contributed a weekly column of real estate news to Business in Vancouver, and he is a regular writer for Western Investor, a monthly paper serving real estate investors across western Canada. He is also co-author with Douglas Gray of Real Estate Investing For Canadians For Dummies (978-0-470-83418-3).

• Preface xixChapter 1: Investing in Rental Real Estate 1Investing in Property 1Tallying the Advantages 2Buying Properties to Rent 5Sizing Up a Home, Sizing Up an Investment 5Sizing Up Your Goals 5Learning the Basics 7Courses and Seminars 7Helpful Organizations 8Getting a Grasp on Management 9Assessing Your Aptitude 9Matching Skills with Properties 10Capitalizing on Gains 10Planning for Success 10Trading on Success 11Enjoying Your Success 11PART I: GETTING STARTEDChapter 2: Understanding the Rental Property Market 15Understanding Market Cycles 15Getting to the Roots 15Recognizing Spheres of Influence 16Recognizing the Influences 18Understanding the Real Estate Market Cycle 19Seller’s Market 20Buyer’s Market 20Balanced Market 20Understanding the Mortgage Market Cycle 21Lender’s Market 21Borrower’s Market 21Balanced Market 22Understanding the Rental Market Cycle 22Landlord’s Market 22Tenant’s Market 22Balanced Market 23Recognizing Rental Market Influences 23Chapter 3: Establishing an Investment Strategy 26Assessing Yourself 26Identifying Strengths and Weaknesses 26Identifying Skills 27Determining Your Goals 29Building Wealth 29Supporting the Family 29Funding Retirement 29Determining Your Likes and Dislikes 30Location 30Asset Type 30Buying with Others or “Buy” Yourself? 33Determining Your Financial Status 33Calculating Net Worth 33Drafting a Budget 34Gauging Resources 34Carrying Debt 34Determining Your Future Needs 35Setting the Clock 35Setting Priorities 35Setting Limits 35Knowing the Limits of Financing 36Developing an Investment Strategy 37Time Frame 37Financing 37Scheduling 37Know the Market 38Be Competent 38Be Professional 38Chapter 4: Avoiding the Pitfalls of Property Investing 39Avoiding Partnership Troubles 39Selecting Business Partners 40Co-tenancy 40General Partnership 41Limited Partnership 41Corporation 42Joint Venture 42Syndicates 43Planning for Survival 44Goals and Objectives 44Expertise 44Liquidity 44Liability 45Compatibility 45Getting It in Writing 46Avoiding Fraud 47Fraud for Shelter 47Fraud for Profit 48Staying Clean 49Selecting Advisors 49The Broker 50The Lawyer 50The Appraiser 51The Accountant 51The Financial Planner 51Other Professionals 52Chapter 5: Choosing a Property Type 53Scouting Rental Properties 53Residential 53Recreational 53Commercial 54Industrial 54Raw Land 54Knowing the Formats 55Residential Properties 55Recreational Properties 59Commercial Properties 61Industrial Properties 63Raw Land 64Chapter 6: Choosing a Residential Property 66Principal Residence with Rental Suite 66What to Watch For 67What to Ask For 67Insurance Considerations 67Second Home for Seasonal, Periodic, or Full-time Rental 68Keeping a Balance 68Keeping Up Appearances 68Residential Property Ready for Rental 69Renovating and Renting 69Buying with Intent 69Renovating with Intent 70Building a Rental Unit 70Commerical Tenants 71Keeping the Distance 71Seeking Tenants 71Seeking Advice 71Chapter 7: Sourcing Information on Rental Properties 72Sources of General Information 72Bank Reports 72Newspapers and Magazines 73Courses and Seminars 74Books 74Online Sources 74Conferences and Trade Shows 74Drilling Down to Specifics 75Statistics Canada 75Canada Mortgage and Housing Corp. (CMHC) 75Brokerage and Board Reports 76Real Estate Agents 76Municipal Planning Department 77Municipal Tax Department 77Economic Development Organizations 77Police 78Fire Department 78Home Builders’ Associations 78Building Inspector 79Neighbours 79PART II: BUYING A PROPERTYChapter 8: Do the Numbers Work? 83 Drafting a Business Plan 83Initial Financial Requirements 83Ongoing Financial Requirements 84Planning for Revenue Growth 84Targeting Value 84Building a Buffer for the Unexpected 85Doing a “SWOT” Analysis 85Strengths 86Weaknesses 86Opportunities 86Threats 86Crunching Numbers 87Comparing Incomes 87Comparing Returns 88Getting Advice 89Chapter 9: Financing Real Estate Investments 90Determinging Your Budget Requirements 90Gauging Expenses 90Gauging Income 91Knowing What Lenders Want 92Credit Rating 92Property Value 92Security 94Identifying Financing Options 95Sizing Up Mortgages 96Conventional Mortgage 97High-ratio Mortgage 97Condominium Mortgage 97Leasehold Mortgage 98Blanket Mortgage 98Collateral Mortgage 99Construction Mortgage 99Vendor Mortgage 99Assumed Mortgage 100Government-assisted Mortgage 100Second Mortgages and Others 100Second Mortgages 100Deferred-interest Mortgages 101Variable-rate Mortgages 101Obtaining a Pre-approved Mortgage 102Using Leverage 102Negotiating Financing 102Amortization 103Term of the Mortgage 103Interest Rate 104Interest Averaging 105Open or Closed Mortgage 105Payment Schedules 105Prepayment Privilege 106Assumability 106Portability 107Renegotiating a Mortgage 107Chapter 10: Understanding the Purchase Process 108Selecting the Right Realtor 108What You Bring to the Table 109What the Agent Brings to the Table 110Determining a Property’s Value 111Just the Facts, Please 111Considering Other Factors 112Preparing the Offer 114Negotiating Strategies 114Presenting the Offer 115Name of Purchaser 115Deposit 115Price 115Closing Date 116Financing Terms 116Conditions 116Giving a Deposit 120Making a Deal 120The Bid 121The Counteroffer 121The Decision 121Using a Lawyer 121General Insurance 122Title Insurance 122Closing the Deal 122Finalizing the Price 123Rewarding Advisors 124Chapter 11: Understanding the Legal Aspects of Buying Property 125Understanding the Purchase and Sale Agreement 125Elements of the Contract 125Backing Out of Contracts 126Preparing the Offer 128Amount of Deposit 129Conditions and Warranties 129Additional Clauses 131Services Provided by the Purchaser’s Lawyer 133Before the Agreement Is Signed 134After the Agreement Is Signed 134Just Before Closing the Transaction 136On Closing Day 137After Closing the Transaction 138Services Provided by the Vendor’s Lawyer 138Before the Agreement Is Signed 139After the Agreement Is Signed 139Just Before Closing the Transaction 140On Closing Day 140After Closing the Transaction 140Insurance 141Buying Rental Property in the United States 141Resident vs. Non-resident Alien 142Buying Rental Property in Countries Outside Canada and the U.S. 142Chapter 12: Understanding the Legal Aspects of Renting Property 144Local Government Regulations 144Zoning 144Other Considerations 145Provincial Government Legislation 146Residential Tenancy Legislation 146Commercial Tenancy Legislation 146Human Rights Legislation 147Privacy Legislation 147Employment Standards Legislation 148Tenancy Application 148Lease Agreement 148Residential Tenancy Agreement 149Commercial Tenancy Agreement 149Checklist of Property Condition 150Eyes Wide Open: Legal Risks to Watch For 150Chapter 13: Understanding the Tax Aspects of Rental Properties 152Taxing the Transaction 152Taxes on Purchase 152Taxes on Sale 153Operating with Taxes 153Sales Taxes 153Property Taxes 153Taxing Property Income 155Income Tax 156Capital Gains Tax 156Keeping Records 156Knowing What to Keep 157Developing an Effective System 158Developing a Retention Strategy 158Managing and Reducing Taxes 159Sales Tax 159Property Tax 159Income Tax 160Capital Gains Tax 161Special Cases 161Employees 161Taxation of U.S. Rental Properties 162Taxation of Rental Properties Outside Canada and the U.S. 164Getting Advice 164PART III: OPERATING PROPERTIESChapter 14: Marketing Rental Properties 167Drafting a Marketing Plan 167Reviewing Personal Objectives 167Reviewing Investment Objectives 169Drafting a Marketing Plan 170Getting the Word Out 172Basic Elements 172Print Media 173Online Options 174Word of Mouth/Signage 175Assisted Marketing 176Getting Creative 176Discount on Rent 177Tenant Improvements 177Chapter 15: Working with Tenants 178Defining the Tenant You Want 178Knowing Yourself 179Knowing the Tenant 179Attracting Tenants 181Screening Tenants 181The Invitation 182The Viewing 182The Application 183The Review 183The Follow-up 184Keeping Tenants 184Be Friendly 184Be Responsive 185Be Attentive 185Be Respectful 185Be Thrifty 186Dealing with Difficult Tenants 186Resolving Minor Troubles 187Resolving Major Troubles 188Getting Rid of Tenants 190Chapter 16: Managing Rental Properties 191Self-management 191Gauging Interest 191Gauging Abilities 192Gauging the Demands 193Resident Management 194Selecting a Manager 194Defining Duties 195Setting Pay 195Professional Management 195Chapter 17: Maintaining Rental Properties 197Drafting a Maintenance Plan 197Looking In 198Looking Out 201Recognizing Room for Improvement 203Cosmetic Improvements 203Capital Improvements 204Securing Tenant Support 204Damage Deposits 205Tenant Incentives 205Maintenance Between Tenancies 205Besting Pests 206Rodents 206Birds 207Insects 208Supporting Rent Increases 210Chapter 18: Improving the Bottom Line 211Increasing Rents 211Raising Room Rents 212Tenant Fees 212Amenity Fees 213Other Options 215Decreasing Expenses 215Improving Performance 216Getting Deals 216Maximizing Write-offs 217Maximizing Tax-efficiencies 218GST/HST 218Income Tax 218Capital Gains Tax 218Property Tax 218Seeking Professional Advice 219Accountants 219Appraisers 219Designers 219Chapter 19: Commercial Properties: A Primer 220Understanding Commercial Properties 220What Makes Commercial Properties Different 221Risks of Commercial Tenancies 224Choosing the Right Ownership Structure 225Investing in Commercial Properties 227Developing an Investment Plan 228Finding Commercial Properties 230Arranging Financing 230Buying Commercial Properties 230Doing the Due Diligence 231Renting Commercial Properties 232Marketing Commercial Space 233Selecting Commercial Tenants 234Dealing with Tenants 236Managing Commercial Properties 238Avoiding Pitfalls 238Knowing the Legislation 238Getting Help 239Chapter 20: Managing Risks 240Assessing Risks 240Risks to People 240Risks to Property 242Reducng Risks 244Preventing Injuries 244Preventing Crime 244Preventing Fire 245Recovering from Events 247Seeking Insurance 247Types of Insurance 248Tenant Insurance 250Shopping for Insurance 250Reducing Insurance Costs 251Chapter 21: Preparing to Sell 253Knowing When to Sell 253Determining Your Reasons 253Determining Your Timing 255Determining Your Strategy 256Understanding the Sale Process 257Timing and Pricing 258Preparing Documentation 258Priming Advisors 259Priming the Property 259Setting Limits 259Calculating Costs 259Preparing to Sell 260Identifying Markets 260Preparing the Property 260Advising Tenants 262Closing the Sale 262Setting Conditions 262Counting the Benefits 263Advising Tenants 264Moving On 264Reinvesting Proceeds 264Paying Taxes 264APPENDIXChecklistsReal Estate Assessment 266Investment Property Analysis 275Business Deductions 278Real Estate Purchase Expenses 280Landlord-Tenants Suite Inspection 282Mortgage Selection Criteria 286Investor and Landlord 290Property Maintenance 300ChartsRecovering on Renovation Costs 303Criteria for Determining Real Estate Cycle 304SamplesApplication for Rent 305Residential Tenancy Lease Agreement 307WorksheetsIncome Approach 314Projected Cash Flow 316Personal Net Worth Statement 318Helpful Websites 323About the Authors 326Further Education and Information 327Glossary 328Index 339

Douglas Gray, B.A., LL.B. (Vancouver, Canada), formerly a practicing real estate and business lawyer, has extensive personal and professional experience in all aspects of real estate, and has been a landlord for over 30 years. He is the author of 26 best-selling real estate, business and personal nance books, including Making Money in Real Estate (978-0-470-83620-0) and The Canadian Snowbird Guide (978-0-470-15375-8). As well, Douglas is a consultant, columnist and speaker. His website www.homebuyer.ca offers comprehensive information on real estate, finance and related topics. Peter Mitham (Vancouver, Canada) is a prolific freelance journalist whose work has appeared in more than 70 publications worldwide, including Canadian Business, Canadian Real Estate Magazine, Country Life, The Globe and Mail and The Next American City. Since 2002 Peter has contributed a weekly column of real estate news to Business in Vancouver, and he is a regular writer for Western Investor, a monthly paper serving real estate investors across western Canada. He is also co-author with Douglas Gray of Real Estate Investing For Canadians For Dummies (978-0-470-83418-3).

• Preface xixChapter 1: Investing in Rental Real Estate 1Investing in Property 1Tallying the Advantages 2Buying Properties to Rent 5Sizing Up a Home, Sizing Up an Investment 5Sizing Up Your Goals 5Learning the Basics 7Courses and Seminars 7Helpful Organizations 8Getting a Grasp on Management 9Assessing Your Aptitude 9Matching Skills with Properties 10Capitalizing on Gains 10Planning for Success 10Trading on Success 11Enjoying Your Success 11PART I: GETTING STARTEDChapter 2: Understanding the Rental Property Market 15Understanding Market Cycles 15Getting to the Roots 15Recognizing Spheres of Influence 16Recognizing the Influences 18Understanding the Real Estate Market Cycle 19Seller’s Market 20Buyer’s Market 20Balanced Market 20Understanding the Mortgage Market Cycle 21Lender’s Market 21Borrower’s Market 21Balanced Market 22Understanding the Rental Market Cycle 22Landlord’s Market 22Tenant’s Market 22Balanced Market 23Recognizing Rental Market Influences 23Chapter 3: Establishing an Investment Strategy 26Assessing Yourself 26Identifying Strengths and Weaknesses 26Identifying Skills 27Determining Your Goals 29Building Wealth 29Supporting the Family 29Funding Retirement 29Determining Your Likes and Dislikes 30Location 30Asset Type 30Buying with Others or “Buy” Yourself? 33Determining Your Financial Status 33Calculating Net Worth 33Drafting a Budget 34Gauging Resources 34Carrying Debt 34Determining Your Future Needs 35Setting the Clock 35Setting Priorities 35Setting Limits 35Knowing the Limits of Financing 36Developing an Investment Strategy 37Time Frame 37Financing 37Scheduling 37Know the Market 38Be Competent 38Be Professional 38Chapter 4: Avoiding the Pitfalls of Property Investing 39Avoiding Partnership Troubles 39Selecting Business Partners 40Co-tenancy 40General Partnership 41Limited Partnership 41Corporation 42Joint Venture 42Syndicates 43Planning for Survival 44Goals and Objectives 44Expertise 44Liquidity 44Liability 45Compatibility 45Getting It in Writing 46Avoiding Fraud 47Fraud for Shelter 47Fraud for Profit 48Staying Clean 49Selecting Advisors 49The Broker 50The Lawyer 50The Appraiser 51The Accountant 51The Financial Planner 51Other Professionals 52Chapter 5: Choosing a Property Type 53Scouting Rental Properties 53Residential 53Recreational 53Commercial 54Industrial 54Raw Land 54Knowing the Formats 55Residential Properties 55Recreational Properties 59Commercial Properties 61Industrial Properties 63Raw Land 64Chapter 6: Choosing a Residential Property 66Principal Residence with Rental Suite 66What to Watch For 67What to Ask For 67Insurance Considerations 67Second Home for Seasonal, Periodic, or Full-time Rental 68Keeping a Balance 68Keeping Up Appearances 68Residential Property Ready for Rental 69Renovating and Renting 69Buying with Intent 69Renovating with Intent 70Building a Rental Unit 70Commerical Tenants 71Keeping the Distance 71Seeking Tenants 71Seeking Advice 71Chapter 7: Sourcing Information on Rental Properties 72Sources of General Information 72Bank Reports 72Newspapers and Magazines 73Courses and Seminars 74Books 74Online Sources 74Conferences and Trade Shows 74Drilling Down to Specifics 75Statistics Canada 75Canada Mortgage and Housing Corp. (CMHC) 75Brokerage and Board Reports 76Real Estate Agents 76Municipal Planning Department 77Municipal Tax Department 77Economic Development Organizations 77Police 78Fire Department 78Home Builders’ Associations 78Building Inspector 79Neighbours 79PART II: BUYING A PROPERTYChapter 8: Do the Numbers Work? 83 Drafting a Business Plan 83Initial Financial Requirements 83Ongoing Financial Requirements 84Planning for Revenue Growth 84Targeting Value 84Building a Buffer for the Unexpected 85Doing a “SWOT” Analysis 85Strengths 86Weaknesses 86Opportunities 86Threats 86Crunching Numbers 87Comparing Incomes 87Comparing Returns 88Getting Advice 89Chapter 9: Financing Real Estate Investments 90Determinging Your Budget Requirements 90Gauging Expenses 90Gauging Income 91Knowing What Lenders Want 92Credit Rating 92Property Value 92Security 94Identifying Financing Options 95Sizing Up Mortgages 96Conventional Mortgage 97High-ratio Mortgage 97Condominium Mortgage 97Leasehold Mortgage 98Blanket Mortgage 98Collateral Mortgage 99Construction Mortgage 99Vendor Mortgage 99Assumed Mortgage 100Government-assisted Mortgage 100Second Mortgages and Others 100Second Mortgages 100Deferred-interest Mortgages 101Variable-rate Mortgages 101Obtaining a Pre-approved Mortgage 102Using Leverage 102Negotiating Financing 102Amortization 103Term of the Mortgage 103Interest Rate 104Interest Averaging 105Open or Closed Mortgage 105Payment Schedules 105Prepayment Privilege 106Assumability 106Portability 107Renegotiating a Mortgage 107Chapter 10: Understanding the Purchase Process 108Selecting the Right Realtor 108What You Bring to the Table 109What the Agent Brings to the Table 110Determining a Property’s Value 111Just the Facts, Please 111Considering Other Factors 112Preparing the Offer 114Negotiating Strategies 114Presenting the Offer 115Name of Purchaser 115Deposit 115Price 115Closing Date 116Financing Terms 116Conditions 116Giving a Deposit 120Making a Deal 120The Bid 121The Counteroffer 121The Decision 121Using a Lawyer 121General Insurance 122Title Insurance 122Closing the Deal 122Finalizing the Price 123Rewarding Advisors 124Chapter 11: Understanding the Legal Aspects of Buying Property 125Understanding the Purchase and Sale Agreement 125Elements of the Contract 125Backing Out of Contracts 126Preparing the Offer 128Amount of Deposit 129Conditions and Warranties 129Additional Clauses 131Services Provided by the Purchaser’s Lawyer 133Before the Agreement Is Signed 134After the Agreement Is Signed 134Just Before Closing the Transaction 136On Closing Day 137After Closing the Transaction 138Services Provided by the Vendor’s Lawyer 138Before the Agreement Is Signed 139After the Agreement Is Signed 139Just Before Closing the Transaction 140On Closing Day 140After Closing the Transaction 140Insurance 141Buying Rental Property in the United States 141Resident vs. Non-resident Alien 142Buying Rental Property in Countries Outside Canada and the U.S. 142Chapter 12: Understanding the Legal Aspects of Renting Property 144Local Government Regulations 144Zoning 144Other Considerations 145Provincial Government Legislation 146Residential Tenancy Legislation 146Commercial Tenancy Legislation 146Human Rights Legislation 147Privacy Legislation 147Employment Standards Legislation 148Tenancy Application 148Lease Agreement 148Residential Tenancy Agreement 149Commercial Tenancy Agreement 149Checklist of Property Condition 150Eyes Wide Open: Legal Risks to Watch For 150Chapter 13: Understanding the Tax Aspects of Rental Properties 152Taxing the Transaction 152Taxes on Purchase 152Taxes on Sale 153Operating with Taxes 153Sales Taxes 153Property Taxes 153Taxing Property Income 155Income Tax 156Capital Gains Tax 156Keeping Records 156Knowing What to Keep 157Developing an Effective System 158Developing a Retention Strategy 158Managing and Reducing Taxes 159Sales Tax 159Property Tax 159Income Tax 160Capital Gains Tax 161Special Cases 161Employees 161Taxation of U.S. Rental Properties 162Taxation of Rental Properties Outside Canada and the U.S. 164Getting Advice 164PART III: OPERATING PROPERTIESChapter 14: Marketing Rental Properties 167Drafting a Marketing Plan 167Reviewing Personal Objectives 167Reviewing Investment Objectives 169Drafting a Marketing Plan 170Getting the Word Out 172Basic Elements 172Print Media 173Online Options 174Word of Mouth/Signage 175Assisted Marketing 176Getting Creative 176Discount on Rent 177Tenant Improvements 177Chapter 15: Working with Tenants 178Defining the Tenant You Want 178Knowing Yourself 179Knowing the Tenant 179Attracting Tenants 181Screening Tenants 181The Invitation 182The Viewing 182The Application 183The Review 183The Follow-up 184Keeping Tenants 184Be Friendly 184Be Responsive 185Be Attentive 185Be Respectful 185Be Thrifty 186Dealing with Difficult Tenants 186Resolving Minor Troubles 187Resolving Major Troubles 188Getting Rid of Tenants 190Chapter 16: Managing Rental Properties 191Self-management 191Gauging Interest 191Gauging Abilities 192Gauging the Demands 193Resident Management 194Selecting a Manager 194Defining Duties 195Setting Pay 195Professional Management 195Chapter 17: Maintaining Rental Properties 197Drafting a Maintenance Plan 197Looking In 198Looking Out 201Recognizing Room for Improvement 203Cosmetic Improvements 203Capital Improvements 204Securing Tenant Support 204Damage Deposits 205Tenant Incentives 205Maintenance Between Tenancies 205Besting Pests 206Rodents 206Birds 207Insects 208Supporting Rent Increases 210Chapter 18: Improving the Bottom Line 211Increasing Rents 211Raising Room Rents 212Tenant Fees 212Amenity Fees 213Other Options 215Decreasing Expenses 215Improving Performance 216Getting Deals 216Maximizing Write-offs 217Maximizing Tax-efficiencies 218GST/HST 218Income Tax 218Capital Gains Tax 218Property Tax 218Seeking Professional Advice 219Accountants 219Appraisers 219Designers 219Chapter 19: Commercial Properties: A Primer 220Understanding Commercial Properties 220What Makes Commercial Properties Different 221Risks of Commercial Tenancies 224Choosing the Right Ownership Structure 225Investing in Commercial Properties 227Developing an Investment Plan 228Finding Commercial Properties 230Arranging Financing 230Buying Commercial Properties 230Doing the Due Diligence 231Renting Commercial Properties 232Marketing Commercial Space 233Selecting Commercial Tenants 234Dealing with Tenants 236Managing Commercial Properties 238Avoiding Pitfalls 238Knowing the Legislation 238Getting Help 239Chapter 20: Managing Risks 240Assessing Risks 240Risks to People 240Risks to Property 242Reducng Risks 244Preventing Injuries 244Preventing Crime 244Preventing Fire 245Recovering from Events 247Seeking Insurance 247Types of Insurance 248Tenant Insurance 250Shopping for Insurance 250Reducing Insurance Costs 251Chapter 21: Preparing to Sell 253Knowing When to Sell 253Determining Your Reasons 253Determining Your Timing 255Determining Your Strategy 256Understanding the Sale Process 257Timing and Pricing 258Preparing Documentation 258Priming Advisors 259Priming the Property 259Setting Limits 259Calculating Costs 259Preparing to Sell 260Identifying Markets 260Preparing the Property 260Advising Tenants 262Closing the Sale 262Setting Conditions 262Counting the Benefits 263Advising Tenants 264Moving On 264Reinvesting Proceeds 264Paying Taxes 264APPENDIXChecklistsReal Estate Assessment 266Investment Property Analysis 275Business Deductions 278Real Estate Purchase Expenses 280Landlord-Tenants Suite Inspection 282Mortgage Selection Criteria 286Investor and Landlord 290Property Maintenance 300ChartsRecovering on Renovation Costs 303Criteria for Determining Real Estate Cycle 304SamplesApplication for Rent 305Residential Tenancy Lease Agreement 307WorksheetsIncome Approach 314Projected Cash Flow 316Personal Net Worth Statement 318Helpful Websites 323About the Authors 326Further Education and Information 327Glossary 328Index 339

Douglas Gray, B.A., LL.B. (Vancouver, Canada), formerly a practicing real estate and business lawyer, has extensive personal and professional experience in all aspects of real estate, and has been a landlord for over 30 years. He is the author of 26 best-selling real estate, business and personal nance books, including Making Money in Real Estate (978-0-470-83620-0) and The Canadian Snowbird Guide (978-0-470-15375-8). As well, Douglas is a consultant, columnist and speaker. His website www.homebuyer.ca offers comprehensive information on real estate, finance and related topics. Peter Mitham (Vancouver, Canada) is a prolific freelance journalist whose work has appeared in more than 70 publications worldwide, including Canadian Business, Canadian Real Estate Magazine, Country Life, The Globe and Mail and The Next American City. Since 2002 Peter has contributed a weekly column of real estate news to Business in Vancouver, and he is a regular writer for Western Investor, a monthly paper serving real estate investors across western Canada. He is also co-author with Douglas Gray of Real Estate Investing For Canadians For Dummies (978-0-470-83418-3).

• Preface xixChapter 1: Investing in Rental Real Estate 1Investing in Property 1Tallying the Advantages 2Buying Properties to Rent 5Sizing Up a Home, Sizing Up an Investment 5Sizing Up Your Goals 5Learning the Basics 7Courses and Seminars 7Helpful Organizations 8Getting a Grasp on Management 9Assessing Your Aptitude 9Matching Skills with Properties 10Capitalizing on Gains 10Planning for Success 10Trading on Success 11Enjoying Your Success 11PART I: GETTING STARTEDChapter 2: Understanding the Rental Property Market 15Understanding Market Cycles 15Getting to the Roots 15Recognizing Spheres of Influence 16Recognizing the Influences 18Understanding the Real Estate Market Cycle 19Seller’s Market 20Buyer’s Market 20Balanced Market 20Understanding the Mortgage Market Cycle 21Lender’s Market 21Borrower’s Market 21Balanced Market 22Understanding the Rental Market Cycle 22Landlord’s Market 22Tenant’s Market 22Balanced Market 23Recognizing Rental Market Influences 23Chapter 3: Establishing an Investment Strategy 26Assessing Yourself 26Identifying Strengths and Weaknesses 26Identifying Skills 27Determining Your Goals 29Building Wealth 29Supporting the Family 29Funding Retirement 29Determining Your Likes and Dislikes 30Location 30Asset Type 30Buying with Others or “Buy” Yourself? 33Determining Your Financial Status 33Calculating Net Worth 33Drafting a Budget 34Gauging Resources 34Carrying Debt 34Determining Your Future Needs 35Setting the Clock 35Setting Priorities 35Setting Limits 35Knowing the Limits of Financing 36Developing an Investment Strategy 37Time Frame 37Financing 37Scheduling 37Know the Market 38Be Competent 38Be Professional 38Chapter 4: Avoiding the Pitfalls of Property Investing 39Avoiding Partnership Troubles 39Selecting Business Partners 40Co-tenancy 40General Partnership 41Limited Partnership 41Corporation 42Joint Venture 42Syndicates 43Planning for Survival 44Goals and Objectives 44Expertise 44Liquidity 44Liability 45Compatibility 45Getting It in Writing 46Avoiding Fraud 47Fraud for Shelter 47Fraud for Profit 48Staying Clean 49Selecting Advisors 49The Broker 50The Lawyer 50The Appraiser 51The Accountant 51The Financial Planner 51Other Professionals 52Chapter 5: Choosing a Property Type 53Scouting Rental Properties 53Residential 53Recreational 53Commercial 54Industrial 54Raw Land 54Knowing the Formats 55Residential Properties 55Recreational Properties 59Commercial Properties 61Industrial Properties 63Raw Land 64Chapter 6: Choosing a Residential Property 66Principal Residence with Rental Suite 66What to Watch For 67What to Ask For 67Insurance Considerations 67Second Home for Seasonal, Periodic, or Full-time Rental 68Keeping a Balance 68Keeping Up Appearances 68Residential Property Ready for Rental 69Renovating and Renting 69Buying with Intent 69Renovating with Intent 70Building a Rental Unit 70Commerical Tenants 71Keeping the Distance 71Seeking Tenants 71Seeking Advice 71Chapter 7: Sourcing Information on Rental Properties 72Sources of General Information 72Bank Reports 72Newspapers and Magazines 73Courses and Seminars 74Books 74Online Sources 74Conferences and Trade Shows 74Drilling Down to Specifics 75Statistics Canada 75Canada Mortgage and Housing Corp. (CMHC) 75Brokerage and Board Reports 76Real Estate Agents 76Municipal Planning Department 77Municipal Tax Department 77Economic Development Organizations 77Police 78Fire Department 78Home Builders’ Associations 78Building Inspector 79Neighbours 79PART II: BUYING A PROPERTYChapter 8: Do the Numbers Work? 83 Drafting a Business Plan 83Initial Financial Requirements 83Ongoing Financial Requirements 84Planning for Revenue Growth 84Targeting Value 84Building a Buffer for the Unexpected 85Doing a “SWOT” Analysis 85Strengths 86Weaknesses 86Opportunities 86Threats 86Crunching Numbers 87Comparing Incomes 87Comparing Returns 88Getting Advice 89Chapter 9: Financing Real Estate Investments 90Determinging Your Budget Requirements 90Gauging Expenses 90Gauging Income 91Knowing What Lenders Want 92Credit Rating 92Property Value 92Security 94Identifying Financing Options 95Sizing Up Mortgages 96Conventional Mortgage 97High-ratio Mortgage 97Condominium Mortgage 97Leasehold Mortgage 98Blanket Mortgage 98Collateral Mortgage 99Construction Mortgage 99Vendor Mortgage 99Assumed Mortgage 100Government-assisted Mortgage 100Second Mortgages and Others 100Second Mortgages 100Deferred-interest Mortgages 101Variable-rate Mortgages 101Obtaining a Pre-approved Mortgage 102Using Leverage 102Negotiating Financing 102Amortization 103Term of the Mortgage 103Interest Rate 104Interest Averaging 105Open or Closed Mortgage 105Payment Schedules 105Prepayment Privilege 106Assumability 106Portability 107Renegotiating a Mortgage 107Chapter 10: Understanding the Purchase Process 108Selecting the Right Realtor 108What You Bring to the Table 109What the Agent Brings to the Table 110Determining a Property’s Value 111Just the Facts, Please 111Considering Other Factors 112Preparing the Offer 114Negotiating Strategies 114Presenting the Offer 115Name of Purchaser 115Deposit 115Price 115Closing Date 116Financing Terms 116Conditions 116Giving a Deposit 120Making a Deal 120The Bid 121The Counteroffer 121The Decision 121Using a Lawyer 121General Insurance 122Title Insurance 122Closing the Deal 122Finalizing the Price 123Rewarding Advisors 124Chapter 11: Understanding the Legal Aspects of Buying Property 125Understanding the Purchase and Sale Agreement 125Elements of the Contract 125Backing Out of Contracts 126Preparing the Offer 128Amount of Deposit 129Conditions and Warranties 129Additional Clauses 131Services Provided by the Purchaser’s Lawyer 133Before the Agreement Is Signed 134After the Agreement Is Signed 134Just Before Closing the Transaction 136On Closing Day 137After Closing the Transaction 138Services Provided by the Vendor’s Lawyer 138Before the Agreement Is Signed 139After the Agreement Is Signed 139Just Before Closing the Transaction 140On Closing Day 140After Closing the Transaction 140Insurance 141Buying Rental Property in the United States 141Resident vs. Non-resident Alien 142Buying Rental Property in Countries Outside Canada and the U.S. 142Chapter 12: Understanding the Legal Aspects of Renting Property 144Local Government Regulations 144Zoning 144Other Considerations 145Provincial Government Legislation 146Residential Tenancy Legislation 146Commercial Tenancy Legislation 146Human Rights Legislation 147Privacy Legislation 147Employment Standards Legislation 148Tenancy Application 148Lease Agreement 148Residential Tenancy Agreement 149Commercial Tenancy Agreement 149Checklist of Property Condition 150Eyes Wide Open: Legal Risks to Watch For 150Chapter 13: Understanding the Tax Aspects of Rental Properties 152Taxing the Transaction 152Taxes on Purchase 152Taxes on Sale 153Operating with Taxes 153Sales Taxes 153Property Taxes 153Taxing Property Income 155Income Tax 156Capital Gains Tax 156Keeping Records 156Knowing What to Keep 157Developing an Effective System 158Developing a Retention Strategy 158Managing and Reducing Taxes 159Sales Tax 159Property Tax 159Income Tax 160Capital Gains Tax 161Special Cases 161Employees 161Taxation of U.S. Rental Properties 162Taxation of Rental Properties Outside Canada and the U.S. 164Getting Advice 164PART III: OPERATING PROPERTIESChapter 14: Marketing Rental Properties 167Drafting a Marketing Plan 167Reviewing Personal Objectives 167Reviewing Investment Objectives 169Drafting a Marketing Plan 170Getting the Word Out 172Basic Elements 172Print Media 173Online Options 174Word of Mouth/Signage 175Assisted Marketing 176Getting Creative 176Discount on Rent 177Tenant Improvements 177Chapter 15: Working with Tenants 178Defining the Tenant You Want 178Knowing Yourself 179Knowing the Tenant 179Attracting Tenants 181Screening Tenants 181The Invitation 182The Viewing 182The Application 183The Review 183The Follow-up 184Keeping Tenants 184Be Friendly 184Be Responsive 185Be Attentive 185Be Respectful 185Be Thrifty 186Dealing with Difficult Tenants 186Resolving Minor Troubles 187Resolving Major Troubles 188Getting Rid of Tenants 190Chapter 16: Managing Rental Properties 191Self-management 191Gauging Interest 191Gauging Abilities 192Gauging the Demands 193Resident Management 194Selecting a Manager 194Defining Duties 195Setting Pay 195Professional Management 195Chapter 17: Maintaining Rental Properties 197Drafting a Maintenance Plan 197Looking In 198Looking Out 201Recognizing Room for Improvement 203Cosmetic Improvements 203Capital Improvements 204Securing Tenant Support 204Damage Deposits 205Tenant Incentives 205Maintenance Between Tenancies 205Besting Pests 206Rodents 206Birds 207Insects 208Supporting Rent Increases 210Chapter 18: Improving the Bottom Line 211Increasing Rents 211Raising Room Rents 212Tenant Fees 212Amenity Fees 213Other Options 215Decreasing Expenses 215Improving Performance 216Getting Deals 216Maximizing Write-offs 217Maximizing Tax-efficiencies 218GST/HST 218Income Tax 218Capital Gains Tax 218Property Tax 218Seeking Professional Advice 219Accountants 219Appraisers 219Designers 219Chapter 19: Commercial Properties: A Primer 220Understanding Commercial Properties 220What Makes Commercial Properties Different 221Risks of Commercial Tenancies 224Choosing the Right Ownership Structure 225Investing in Commercial Properties 227Developing an Investment Plan 228Finding Commercial Properties 230Arranging Financing 230Buying Commercial Properties 230Doing the Due Diligence 231Renting Commercial Properties 232Marketing Commercial Space 233Selecting Commercial Tenants 234Dealing with Tenants 236Managing Commercial Properties 238Avoiding Pitfalls 238Knowing the Legislation 238Getting Help 239Chapter 20: Managing Risks 240Assessing Risks 240Risks to People 240Risks to Property 242Reducng Risks 244Preventing Injuries 244Preventing Crime 244Preventing Fire 245Recovering from Events 247Seeking Insurance 247Types of Insurance 248Tenant Insurance 250Shopping for Insurance 250Reducing Insurance Costs 251Chapter 21: Preparing to Sell 253Knowing When to Sell 253Determining Your Reasons 253Determining Your Timing 255Determining Your Strategy 256Understanding the Sale Process 257Timing and Pricing 258Preparing Documentation 258Priming Advisors 259Priming the Property 259Setting Limits 259Calculating Costs 259Preparing to Sell 260Identifying Markets 260Preparing the Property 260Advising Tenants 262Closing the Sale 262Setting Conditions 262Counting the Benefits 263Advising Tenants 264Moving On 264Reinvesting Proceeds 264Paying Taxes 264APPENDIXChecklistsReal Estate Assessment 266Investment Property Analysis 275Business Deductions 278Real Estate Purchase Expenses 280Landlord-Tenants Suite Inspection 282Mortgage Selection Criteria 286Investor and Landlord 290Property Maintenance 300ChartsRecovering on Renovation Costs 303Criteria for Determining Real Estate Cycle 304SamplesApplication for Rent 305Residential Tenancy Lease Agreement 307WorksheetsIncome Approach 314Projected Cash Flow 316Personal Net Worth Statement 318Helpful Websites 323About the Authors 326Further Education and Information 327Glossary 328Index 339