The Secret to Discovering “Diamond in the Rough” Real Estate

For those of you that know me, you know that I always mix business with pleasure. I travel around the world several times a year seeking out high return markets and those real estate projects that just make you shake your head in disbelief. After completing painstaking research and due diligence to make sure the dream is a reality, there is no greater pleasure for me than educating our investor group on the hottest new market and announcing the perfect cash flow positive project to make the dream tangible.

When focusing on high return markets, of particular interest recently have been North and South America. Emerging markets such as Brazil offer an opportunity to make the most of your money, but only if you are open to language barriers, have a minimum of $100K in cash available (Brazilian banks don’t finance foreigners), and if you’re not opposed to riding 10 hours in a plane to access your investment.

I’m not saying that Brazilian real estate isn’t all it’s cracked up to be, on the contrary, it is an incredible opportunity for those of us able to take advantage of what it has to offer. I know this first hand.

But for most conservative investors, particularly first time investors, Canada is still the safest and most profitable place to invest in real estate, if you know where to look. I have a very simple investment style. Find the right market, and then find the right project.

My #1 focus is Positive Cash Flow property. While incredibly important, I do not put all my eggs in one basket when it comes to appreciation values alone. Thanks but no thanks. I like to play it safe just in case property values DO go down, despite what all the experts and historical figures show. It’s not that I’m afraid that the numbers obtained during my research and due diligence aren’t accurate; it’s just that I need something more.

When looking at Canada, there are plenty of figures to support a strong and safe investment. The Canadian Dollar rose against major currencies just yesterday. Canada has the strongest credit rating in the world, low debt, a stable currency, a good banking system and a flexible monetary position. It’s an excellent place to invest in real estate.

As fantastic as that (truly) is, I like to play it safe, so that if property values go down in spite of the strong economy Canada seems to have reached, I can keep my property and continue enjoying Positive Cash Flow no matter what. But as we all know, Positive Cash Flow properties aren’t just hanging like ripe fruit off trees. This brings me to my second criteria.

My #2 rule after cash flow is to look for a very specific location where the vacancy rate is low and will most likely stay low: a project that is close to a metro, airport, hospital, university, major commercial or tourist center, etc. While we might all dream of the villa in the countryside, this isn’t what brings in the hard cash. Projects that are situated close to these sites are ALWAYS in demand, and this can be discovered through careful research of historical vacancy rates.

This brings me to my #3 rule, which is the most challenging, especially for new investors: read between the lines and look that gift horse right in the mouth. As a matter of fact, open its mouth and look down its throat. Most investors rely only on statistics published by the government, or from what they find online without questioning any further. I’m telling you, that’s not enough.

So how do I accomplish this 3rd rule? I travel there. I set up appointments to meet with developers, attorneys, real estate professionals… and I ask questions from everyone I meet, including the local grocer and the guy I’m sitting next to in the cafe. I tell you this honestly, you would be amazed by how much misleading information is actually being put out as statistics.

Let’s take the city of Saint John, New Brunswick as an example. I’ll just come right out when I say that I consider Saint John as one of those hard to find “Diamonds in the Rough”.

With a modest population of 125,000, Saint John does not appeal to the 2010 CMHC statistics. As a matter of fact, they paint a rather gloomy picture of this city, with vacancy rates increasing and only moderate growth expectations.

Well… take it for what it’s worth, if you like, but this is my 5th trip to Saint John in less than a year, and I can tell you it is nowhere NEAR this picture.

There is currently over $2 billion invested in projects that are right now in the works: a new potash mine, the refurbishment of the Nuclear Power Station, a major expansion to the New Brunswick Community College, and major investments to the University of New Brunswick Campus, the Canada Games Stadium, the Commons Building, and the Medicine Building, just to name a few.

Not to mention the fact that the unemployment rate is decreasing and rent is increasing by 4% per annum. You read that right. There was a very interesting article recently published in the Telegraph Journal about Saint John entitled “A Happening Place”. diamond painting bilder