Always ask yourself: How can I make what I do better?
Many novice real estate investors want to take investment action without being honest about what’s at stake. They get caught up in the emotional side of the deal and fall into the tax traps noted in Tip #11. Others neglect some of the basic and essential aspects of investing — for instance making sure your financial house is in order and stays that way.
Others foolishly try to invest without spending the time and money to ensure they have experienced professionals on their team who can help them navigate the world of bookkeeping, accounting, taxes and legal structures.
Russell Westcott is different. He’s now all about doing things the right way and insists that approach saves him time and money and helps him avoid frustration. However, it wasn’t always this way and it has been a painful learning experience for Russell, as you’ll find out through his story.
It is important to read Russell’s story and realize that by the time he wrote his Seven- Year Life Plan at the age of 33, Russell was awash in trouble. A university graduate, he was emotionally and physically exhausted from working so hard. He was also financially exhausted from spending more money than he made. Instead of being happy about what his future held, Russell was stressed. He was also honest enough with himself to realize that he was headed for disaster. He will be the first to tell you it’s tough to have to change life direction mid-course. He’ll also tell you it’s worth it.
More than anything, Russell’s story is about recognizing that, no matter what you believe your circumstances are, you are never “stuck.” You can always change the path you’re on.
All you need is the desire to change, then find the support to make it happen. Small changes accumulate and lead to major directional changes. Russell lives by the creed, “If you aren’t happy with your results or your life, change your actions so you are.”
For Russell, the ability to take action is rooted in his determination to seek solutions to problems and not get hung up on the emotions that surround the problems themselves. He urges other investors to apply that same strategy to every business problem they encounter.
Figure out what you’re really afraid of. Analyze it. Solve it. Move on.
Russell Westcott had a problem. During a trip home from Vancouver to rural Saskatchewan in 2001, the 33-year-old put pencil to paper and tried to figure out what he was doing wrong. The financial picture he painted was downright ugly. On the one hand, he looked like a guy who had it all. Armed with a degree in commerce, Russell was working at the Western Canadian headquarters of a global dairy business. Educated, enthusiastic and highly coachable, his career trajectory was trending up. Behind the outward signs of success, however, Russell was treading deep water and he was a long way from the safety of the shore.
Black, white and red all over, his financial bottom line told the real story: Russell was spending more money than he was making. He had a super-hot convertible car he couldn’t afford. He was paying for vacations beyond his means. “I had too much, too soon and my lifestyle was economically unsustainable.”
Determined to make real-life changes, Russell wrote out a Seven-Year Life Plan that included financial goals and long-term vision. Fresh awareness of his economic circumstances also prompted a meeting with an investment fund salesman and that led him to read the best-selling book Rich Dad, Poor Dad by Robert Kiyosaki. Captivated by the potential to create long-term wealth with real estate investment, he started reading more and took some seminars. “I probably spent $30,000 on real estate education in the early days. Some of it was a complete waste of time as it didn’t teach anything that worked in Canada. However, I took what I could learn and put it into action. I was starting to understand that I didn’t actually have to create a system on my own. To be successful, what I needed to do was learn from others who were already doing what I wanted to do right here in Canada.”
In late 2002, Russell flew to Edmonton to take one of REIN’s weekend programs. He bought his first cash-flowing investment property early the next year. Determined to buy one property a month, he spent his days working on his job and another 20-plus hours a week learning about real estate investment and building his real estate investor network.
Looking back, he figures he was working 60 hours a week and getting smarter all the time.
In December 2004, Russell left his great job as a national marketing manager to immerse himself in real estate full time, investing and teaching others how to invest. He
had close to two years’ experience with his investment systems by then and his modus operandi was all about taking informed action. “I had this hockey coach who used to tell us, ‘You’ve got to shoot the puck.’ Real estate investment is the same thing. Once you’ve learned what to do, you’ve got to go out and do it. investing theory is a waste if you don’t put it into action.”
Let the Fundamentals Work for You
That same focus on informed action guided Russell’s approach to the financial management side of his business. Deliberately seeking opportunities to surround himself with successful investors, Russell looked for ways to emulate their systems. In the early days, that sometimes meant asking investors if they could refer him to a good bookkeeper, accountant, lawyer or property manager. And names weren’t necessarily enough. Before adding individuals to his investment team, Russell asked them about their own portfolios.
“I wanted to work with people who were doing what I was doing.”
Russell figures he was buying two properties a month, all townhousestyle condominiums, by early 2007. One hundred per cent of them were in economically strong Western Canadian regions and Russell was basing his decisions not on emotions, but on whether a region had future potential or not.
On the upside, Russell was now an experienced real estate investor, so he used the period of “market correction” that began in September 2008, to consolidate his portfolio, buying out some partners and adding others. But he never changed his basic rules of engagement. Even when an economic recession was confirmed, Russell stuck by his best business management practices: he likes to check his on-line bank statements every morning and reviews them more closely every Friday. “It’s a habit I got into and it really helps me stay on top of things,” says Russell.
He also hasn’t changed his staunchness about making buy/sell decisions based on market fundamentals. Russell likes his properties to have at least two bedrooms, comparable market rents and be located in good complexes with good tenant profiles and good condo boards. In 2009, as in 2007, he will write an offer without seeing a property, but only because he trusts the information he gets from a real estate agent who specializes in investment property — and knows what Russell wants. He also knows he has a trusted team of professionals to back him up.
That trust is no substitute for due diligence. Russell’s offers always stipulate a conditional time frame that gives him time to get from Vancouver to wherever the property is located. “This is a business decision and my system stipulates due diligence.”
He also continues to stand by his decision to have all of the properties in his portfolio professionally managed. Quality property management is an ongoing business concern, but it’s essential to Russell’s bigger plan, so he’s always on the lookout for ways to upgrade his property management. “I have a very full life and quickly learned that I don’t make any money managing properties on a day-to-day basis. I want to focus on the investment side, plain and simple,” says Russell.
That decision to focus on what he does best and let the professionals do what they do best is essential to sophisticated real estate investment, says Russell. He tells other investors to find the three things they do best and then leave the rest to others. Russell makes the deals, finds the money and manages the relationships he has with other professionals. (In other words, he manages the managers.) These professionals are charged with finding the properties, keeping the books, devising the tax strategies, preparing the legal documents, finding the tenants, managing the properties, and so on.
And what does Russell tell people who “think” they may want to invest in real estate?
“Take the Canadian ACRE program and pick up a good book like Real Estate Investing in Canada. For a $35 investment in the book you’ll discover whether real estate investment is in your future or not. If you’re in, then you’ll need to take that ACRE course and you’ll need to think ahead.”
He also reminds them to never forget to only take risks they can live with. As long as your focus is on informed action, that approach opens way more doors than it closes, says Russell. Never let anyone manipulate you into doing something you’re not comfortable with.
ACTION STEPS
• Be honest and ask yourself: “Are my real estate investment records clear and updated monthly, which helps me make informed decisions?” If not, identify the real problem: is it that you have too much chaos and cannot retrieve key documents when you need them? Are you missing key receipts, from donuts to gas, to tenant acknowledgements? Have you not received clear instructions from your real estate accountant regarding what you can and cannot claim as legitimate expenses? Talk to three real estate investors you admire and ask if you can meet with them to talk about ways to improve your accounting and record keeping systems.
• Ask sophisticated real estate investors if they can refer you to a good bookkeeper, accountant, lawyer or property management company.
Are members of your real estate investment team interested in attending real estate investment events that offer a real educational bang for their buck? Do not wait for them to come to you. Send them information you think they should have.
PART 5
THE FACTS ABOUT TAX:
HOW TO PUT YOUR KNOWLEDGE OF CANADIAN
TAXES TO WORK.