Diane Duckett's real estate investment plan came to her while cycling to work.
Two-wheeling past signs of rental properties in 2002, Duckett recalled what it was like when she and her former husband, an employee of the British government, moved from country to country, living in homes furnished by others.
That got her thinking about Calgary's furnished suite business. Shortly thereafter, Duckett bought her first two condominiums in Mount Royal and Home From Home (Calgary) Inc. was born.
Today, the single parent of two teenagers rents six furnished suites to companies and individual businesspeople. Equipped with everything from blow dryers to blenders, flower arrangements and a few CDs, they're designed so "people can bring a suitcase, literally, and feel quite at home," says Duckett.
|David Lazarowych, Business Edge|
|Home From Home (Calgary) Inc.'s Diane Duckett takes a break while Andrew and Kristy move furniture into one of the six furnished rental suites she rents to companies or businesspeople.|
She markets the suites online, augmented by a growing word-of-mouth clientele.
Operating under a business philosophy that aims for 100-per-cent occupancy, Duckett charges $1,095 per month for a one-bedroom unit with a storage locker and parking stall. An extra $100 includes phone, cable and Internet.
The price is lower than some of the competition, but it helps Duckett maintain a vacancy rate of about one per cent. "It's making me money because I'm never empty," says Duckett, who recently left an office job to manage her suites full time and contemplate other investments.
Finding a niche in Calgary's booming real estate market makes sense to a growing number of real estate investors, says Colleen McGinnis of RCM Homes Ltd., a company she runs with her daughter and son-in-law.
Like many investors, most of their 13 properties, a mix of single-family homes and condos, were purchased as long-term investments with a positive cashflow. Four of their homes, however, are managed under rent-to-own agreements - a niche market that's big in the U.S., with Canadian investors just starting to follow suit, says McGinnis.
These tenants tend to be former homeowners who've gone bankrupt, or come precariously close.
To manage the obvious risks associated with individuals who lack a stellar financial track record, RCM undertakes what McGinnis calls "an extensive credit check" before taking on a rent-to-own client. She then writes a formal agreement that aims to turn her renters into buyers in 12 to 18 months. These tenants pay market rent, but "part of that rent would come back to them in the form of credit" if the deal proceeds, explains McGinnis.
Contracts cover all of the buying and holding costs, but security deposits are returned if tenants opt to buy.
"When we first started doing this, people were so suspicious," says McGinnis. To counter the unknowns, RCM takes special care to build what McGinnis calls a "win-win" relationship. Rent-to-own clients, for example, are provided with credit counselling. Indeed, they have to meet with a credit counsellor, paid by RCM, at least once. Some meet up to four times a year.
To optimize the rent-to-own potential of their business, homes slated for that side of RCM's portfolio are chosen because of their location in popular neighbourhoods with close proximity to schools. In essence, they are homes their clients would like to buy if they were in a better financial position.
Detailed but flexible contracts are also key, says McGinnis. When a change in jobs meant one family couldn't buy the property when originally planned, RCM set up a new deal. It lets the family stay in the house and continue to amass rent-to-own credit if they buy.
Madeleine and Don Ficaccio found their first investment niche in homes they bought, renovated and flipped. Two years ago, they translated that experience into another opportunity and launched VEA Group Inc., a Calgary-based company that handles all of its deals through joint ventures.
Today, the Ficaccios find and broker the deals on undervalued properties that need a constructive makeover. Don handles the renovations and Madeleine manages the properties, with joint-venture partners taking 50 per cent of the cashflow on revenue properties bought for long-term hold-and-lease investments.
They also work with partners to buy undervalued properties (often foreclosures) to resell with 'simultaneous' close dates. In these cases, a property Madeleine finds on the "wholesale market" moves from VEA to another client's hands on the same day. (She bought a recent foreclosure in High River for $116,000. The home was appraised at $134,000 and Ficaccio wholesaled it to a client for $122,000.)
Working with a network of foreclosure lawyers and backed by years of real estate investment courses and real-world experience, Ficaccio says VEA gives its partners a leg up in a business where fear heads the list of reasons people decide against investing.
Ficaccio says she gladly mentors joint-venture clients who want more experience before they undertake deals on their own. Just don't ask her to share her contacts. "I don't find people, they find me. They're definitely motivated sellers," says Ficaccio.
All three investors say due diligence is key to their success.
"Don’t be fooled. This is a lot of hard work and you have to love it," says Duckett, whose furnished-suite business means she and her teenagers spend a fair bit of time carrying “large furniture in and out of vans.”
"You need to know how you’re getting in and how you’re getting out (of every deal)," adds Ficaccio, who recommends novice investors take courses and develop a supportive network.
McGinnis agrees. She and her son-in-law took a number of courses in Edmonton and Calgary before they brokered their first rent-to-own deal. She’s convinced they’ve hit an investment niche with great potential for growth, but she’s realistic about the financial risks.
Good information hedges the bet, but there’s no fast way to learn the ropes, warns McGinnis.
(Joy Gregory can be reached at email@example.com)