I came across an article in the Winnipeg Free Press called "when renting is better than buying" and seeing how Winnipeg is one of the most affordable markets in Canada...I had to read it. The article starts out with an example of a friend renting a 750K home for $3500 per month and goes on to say how much better it is in that case to rent. Agreed. In my opinion the investor who bought that house made a poor investment decision and now someone can benefit (i.e. tenant).

I'll approach this article from two mindsets; one as an investor and the other as a potential home owner/renter. As a side-note, my partner and I own a multimillion dollar real estate portfolio and I regularly travel/have extended stays throughout various markets giving me (I feel) a balanced viewpoint of this topic.

First off as an investor I know there are three main profit centers (not including tax deductions) in real estate that I need to consider when calculating how hard my money is working for me (ROI - return on investment).

Cash flow - the amount of income that a property generates after all expenses are paid.

Mortgage pay down - each month tenants help pay down the mortgage.

Appreciation - An additional benefit of owning real estate is that it can appreciate in value.

Getting Rich by occupying other people's property

This ancient remedy was helpful in resolving disputes in the latter part of the Middle Ages. If one farmer continued to cultivate a piece of land at the back of his farm and the farmer’s neighbor did not object, then after 7 years, he owned the land. At the time of course, it was not worth much.

What is the purpose of squatter rights?

The purpose of squatter rights was to regularize the boundaries of the properties. The added value of the cultivation of the property over a period of years was considered to be an investment and an improvement of the land. Be careful of your neighbors taking over your land, it could cost you a lot of money and possibly losing your ownership. Most of us think that squatter rights were abolished many years ago. This is true to some degree.

In Canada, we have two systems to register the ownership of land. Under the land title system, squatter rights were abolished. However, under the registry system, these rights have been preserved and accorded a rather exalted status.

What happens to your land?

1. Loss of your land.

2. Liability issue.

Imagine two millionaires in a room and assume that their net worth was exactly $1 million including all investments, estates and assets. Neither person had anything hidden and both were happily married. The only difference between the two was their age. One millionaire was 65 years old while the other was 30. Looking outside of their balance sheets, is one worth more than the other?  Because of the idea of human capital, the 30 year old may be worth more than the retirement age person because the young millionaire has many more years left in their life to increase the value of their first million. Human capital is our personal ability to increase our wealth, and although wealth isn't just measured in dollar signs, we'll focus on financial wealth today. Are you wondering how to increase your human capital? Here are a few ways.

Education:

There are a lot of smart people writing about how the value of a college education may be less than it was, even one generation ago, but that may not be true. Education not only formally prepares us to work in advanced jobs, it also exercises our minds and allows us to hold on to our ability to continue learning. The brain, like the heart, needs exercise and that comes from education.

Be Well Rounded:

Are you an architect who only knows architecture, a lawyer who doesn't know much more than the law or a carpenter who can only build? That's dangerous in an economy that wiped out an unprecedented amount of workers in the real estate and financial services industry in less than two years. Learn a new position in your current job or study an entirely new field.

Volunteer:

Real estate investors must have basic valuation skills to make buy, sell, or hold decisions. Real estate investment companies have developed sophisticated valuation models to aid them in making investment decisions. However, by using spreadsheet tools an individual can produce an adequate valuation on most income-producing real estate. This would include residential real estate purchased as residential rental property.  Valuing real estate using discounted cash flow or capitalization methods is similar to valuing stocks or bonds. The only difference is that cash flows are derived from leasing space as opposed to selling products and services. Read on to find to out how any investor can create a valuation satisfactory enough to weed through prospective investment opportunities.
Individual Valuations:
Some individuals feel that producing a valuation is unnecessary if a certified appraisal has been completed. However, an investor's valuation may differ from an appraisal for several reasons. The investor may have different opinions about the property's ability to attract tenants or the lease rates that tenants are willing to pay. As a prospective purchaser or seller, the investor may feel that the property has more or less risk than the appraiser. Appraisers are compelled to conduct separate assessments of value. They include the cost to replace the property, a comparison of recent and comparable transactions and an income approach. Some of these methods commonly lag the market, underestimating value during uptrends, and overvaluing assets in a downtrend. Finding opportunities in the real estate market involves finding properties that have been incorrectly valued by the market. This often means managing a property to a level that surpasses market expectations. A valuation should provide one's estimate of the true income-producing potential of a property.

Real Estate Valuation:
The income approach to evaluating real estate is similar to the process for valuing stocks, bonds, or any other income-generating investment. Most analysts use the discounted cash flow (DCF) method to determine an asset's net present value (NPV). NPV is the property value in today's dollars that will achieve the investor's risk adjusted return.The NPV is determined by discounting the periodic cash flow available to owners by the investor's required rate of return (RROR). Since the RROR is an investor's required rate of return for the risks involved, the value derived is a risk-adjusted value for that individual investor. By comparing this value to market prices, an investor is able to make a buy, hold, or sell decision.  Stock values are derived by discounting dividends, bond values by discounting interest coupon payments and properties are valued by discounting net cash flow or the cash available to owners after all expenses have been deducted from leasing income. Valuing a property involves estimating all the rental revenues and then deducting all expenses required to execute and maintain those leases.

The following are the types of expenses that have to be considered when preparing an income valuation: •    Leasing costs
•    Management cost
•    Capital costs
Leasing costs refer to the expenses necessary to attract tenants and to execute leases. Management costs refer to property level expenses, such as utilities, cleaning, taxes, etc. as well as any costs to manage the property. Income less operating expenses equals net operating income (NOI). NOI is the cash flow derived from normal operations of the property. Cash flow is then derived by subtracting capital costs from NOI. Capital costs are any periodic capital outlays to maintain the property. These include any capital for leasing commissions, tenant improvements, or capital reserves for future property upgrades.
Buy, Sell or Hold:  When purchasing a property, if an investor's assessed value is greater than the seller's offer or appraised value, then the property can be purchased with a high probability of receiving the RROR. Conversely, when selling a property, if the assessed value is less than a buyer's offer, the property should be sold. In addition, if the assessed value is in line with the market and the RROR offers an adequate return for the risk involved, the owner may decide to hold the investment until there is a disequilibrium between the valuation and market value. Value can be defined as the greatest amount that someone would be willing to pay for a property. When purchasing an asset, financing should not affect the ultimate value of the property because each buyer has different financing options available. However this is not the case for investors who already own properties that have been financed. Financing must be considered when deciding on an appropriate time to sell because financing structures, such as prepayment penalties, can rob the investor of his or her sale's proceeds. This is important in cases where investors have received favorable financing terms that are no longer available in the market. The existing investment with debt may provide better risk-adjusted returns than can be achieved when reinvesting the prospective sales proceeds. Adjust risk RROR to include the additional financial risk of mortgage debt.

To Conclude:
Whether buying or selling, it is possible to produce a valuation model accurate enough to assist in the decision-making process. The math involved in creating the model is relatively straightforward and within the grasp of most investors. After gaining some rudimentary knowledge about local market standards, lease structures and how income and expenses work in different property types, one should be able to forecast future cash flows.

There other day I was at a real estate networking event and a discussion came up regarding building relationships.  One person in the discussion said something interesting, he said "People only think short term, they never try to establish a relationship with someone.  They give out there business card and tell you to call them. Am I going to call them? No."  I thought to myself, that's interesting, but after thinking about it, he's right.  It's not a bad thing to network with someone, but at least take the time to get to know that person and their business.  Ask them about what their currently doing to figure if there is an area that you can help them with.  Figure out a way to help each other.  Create a win-win situation. 

I go to networking events all the time, yet there are few people I truly connect with.  When I think about it, the people I have truly connected with took a bit of time to get to know me.  They asked me, what do I need help with?  They wanted to sit down with me and have a coffee.

People it's great to network, but if your not trying to build a relationship it's pointless.  You're wasting your time.  People that took the time to get to know me, were the first that came to my mind when I wanted to refer someone that needed help with something.   So try to build a meaningful relationship with someone, because this allows you to win in the long term. 

To your investing success.

Cash flow is the lifeblood of any enterprise from a street stall, corner shop or charity, right through to a trans-national conglomerate. When cash flow plummets (or isn't there right from the word go), then the enterprise faces, at best, challenging times.

The same applies to property investment. We may delude ourselves into thinking that as long as capital growth is attractive, we are willing to take a hiding on cash flow. Many people don't even mind having negative cash flow (being negatively geared) if the capital growth is high enough. However, usually these people seek to offset their operating loss (the cash flow loss) against other earned income, thereby reducing their overall tax-liability. In effect, the government subsidizes their loss from the property. The point to note, however, is that overall, these people still have a healthy cash flow situation. If the only income you have is from property, and it is negative, then you need to take action.

Even if you are not negatively geared, improving your cash flow can have the wonderfully beneficial effect of improving your current account and increasing your reserves, enabling you to reduce debt, buy more property, or simply spend more money.

Let's then explore some of the measures you may take to improve your cash flow.

The most obvious way of increasing your cash flow with property investment is to increase the rent. This need not necessarily make you a rapacious racketeer! Frequently, properties are acquired with low rents in place (in other words, these rentals are already well below market rentals for similar properties in a similar area). Increasing the rent under these circumstances to market levels does not make you a bad person.

Similarly, the rents may have been at market levels when you acquired the property, but over time, you have simply neglected to monitor market rental trends, and now, eight years later, you are 50% below market rentals. Bringing the rent up to market levels would be a very smart move.