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Property Investing 101

Blog by Art Lee | September 7th, 2010

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Property Investing 101

Scott McGillivray, right, shows homeowners how to get the most income out of their properties on Income Property.

Courtesy of HGTV

Scott McGillivray, right, shows homeowners how to get the most income out of their properties on Income Property.

Jesse Kinos-Goodin, Financial Post · Sunday, Sept. 5, 2010

When Scott McGillivray was going into his final year at the University of Guelph he did what many students only dream of. He took his student loan and spent every last penny before the first day of classes.

For the 32-year-old Mr. McGillivray, host of HGTV show Income Property, that decision started him on the career path to where he is now.

“My friend, Mike Sarracini, and I were looking for a business idea with a strong supply-demand ratio, so after talking to brokers and real estate agents, we pooled our loans and bought a house,” he says over the phone from Italy, where he is spending the next month after wrapping up taping for the third season of the show.

The two students lived in the basement of that property and rented the rest of the house out to friends, using everyone’s first- and last-month payments to cover their closing costs. The next year, they moved out of the basement apartment. And once they began to experience a small positive monthly cash flow, they were hooked.

“We used the equity in the first home and just repeated the process,” Mr. McGillivray says.

Today, he owns 29 properties, 15 on his own and 14 with Mr. Sarracini. And while he may have graduated with a degree in marketing management, he became a renovation and landlord expert in the process.

“I didn’t have any formal training before I started doing renovations on my own properties, but in my family we are all very handy,” he says. “Eventually, I started working with another contractor, and that’s how I learned to fix my own homes.”

The two also started a property management company, mostly to look after their own properties, but also for investors they know.

“We have a construction team, a lawn maintenance team, things like that,” says Mr. McGillivray, adding that he and Mr. Sarracini share the responsibilities of getting leases signed and collecting cheques.

Not that Mr. McGillivray has much time for that now due to the success of Income Property. He has another U.S. show in the works, with fellow TV contractor Mike Holmes, called All-American Handyman.

Not bad considering Mr. McGillivray never started out with the goal of being a TV personality.

“I never, ever thought this would be a show,” he says. “I just watched HGTV when I was investing full-time and thought, if 33% of the population rents, why isn’t there a show for landlords?”

A random conversation at a Toronto Home Show with TV interior designer personality Debbie Travis ultimately led to an invitation for Mr. McGillivray to work as an on-air carpenter for her show, Facelift.

“That was my intro to TV,” Mr. McGillivray says. “After two seasons of that, the network said they wanted to build a show around what I do, which is basically helping other people do investment properties.”

Mr. McGillivray describes the show as a “crash course” and “mentorship” for people who already want to, or perhaps need to, build a rental in their home but “just aren’t sure how to maximize the potential,” he says.

He still rents a lot of his properties to students, and says the key to success is determined by how many bedrooms there are.

“Student rentals are all about how many bedrooms you have, so if the place has a living room and a family room, the best thing you can do is put a door on them,” he says, also suggesting splitting master bedrooms into two.

“I’ll even go so far as to determine the value of a property by dividing it up per bedroom, with a limit of $65,000 per bedroom,” he says. “If you can build an addition or add a bedroom for $65,000 or less, over time it will pay for itself. That’s what has made me the most money so far.”

He also recommends renting to mixed student groups. “With all guys or all girls, it’s a lot of extremes,” he says. “I never rent without talking to the parents first, even going as far as having them co-sign. The kids won’t run rampant, and if there are problems you go straight to the parents”

Asked if his current home has a basement suite in it, he laughs, saying he lived in one of his income properties up until two years ago. “It was finally time to move on,” he says. “I lived within my means for a long time.”

Season three of Income Property begins Monday, Sept. 6 at 9 p.m. ET/PT.

Financial Post

Read more: http://www.financialpost.com/personal-finance/Property+Investing/3446471/story.html#ixzz0ys5zdzOv